Paul Brest: Impact Investing and Social Impact Bonds

TL;DR

Impact investing involves investing in enterprises that aim to achieve social outcomes alongside financial return, and social impact bonds are performance-based contracts between governments, service providers, and investors to fund social programs.

Transcript

[MUSIC] Impact investing is investing in enterprises that work in the market typically charge for their services, but where the investor is seeking social outcomes as well as a financial return. [MUSIC] The answer is yes, but the answer is also, it depends. And you can do good in private equity and venture capital in areas where you're bringing cap... Read More

Key Insights

• 👻 Impact investing combines financial returns with social outcomes, allowing investors to make a difference while earning profit.
• ❓ The success of impact investing depends on the intentional decision to focus on specific areas of social impact.
• 🌉 Social impact bonds bridge the gap between government contracts and investor financing to fund social programs with a focus on outcomes.
• ❓ Due diligence in impact investing includes evaluating both the financial and social aspects of an investment.
• ❓ Impact investing requires specialized knowledge in specific markets to identify unseen opportunities.
• 🐕‍🦺 Social impact bonds incentivize service providers to achieve desired outcomes, bringing greater efficiency and accountability to the social sector.
• ❓ Impact investing and social impact bonds are still in the experimental stage, but if successful, they have the potential to revolutionize financing for social enterprises and improve outcomes in the sector.

Questions & Answers

Q: What is impact investing and how does it differ from traditional investing?

Impact investing involves investing in enterprises that seek both financial return and social outcomes, while traditional investing solely focuses on financial gains. Impact investing requires intentional decision-making in areas of social impact.

Q: Can impact investing make a difference in large cap publicly traded markets?

No, impact investing in large cap publicly traded markets does not make a difference because the scale of investment is not significant enough. Impact investing is more effective in private equity and venture capital, where it can bring capital to enterprises that otherwise wouldn't have access to it.

Q: What makes impact investing challenging?

Impact investing requires due diligence for both social impact and financial return, making it more complex than traditional investing. Optimizing for multiple outcomes can make it harder to find suitable opportunities.

Q: How do social impact bonds work?

Social impact bonds are performance-based contracts where governments agree to pay service providers for achieving specific outcomes instead of simply providing services. Investors provide working capital to service providers during the evaluation period and get paid back based on the success of achieving agreed-upon metrics.

Summary & Key Takeaways

• Impact investing focuses on investing in enterprises that aim to achieve social outcomes alongside financial return.

• Social impact bonds are performance-based contracts between governments, service providers, and investors to fund social programs.

• Impact investing requires intentional decision-making about the area of impact, while due diligence is needed for both social and financial aspects.