Impact Investing 2.0: Building the Impact Economy

Abstract

This course focuses on “impact investing 2.0” and was taught at the University of St. Gallen in 2016.

Excluding illiquid assets and cash, the World Wealth Report 2016 calculated that globally, 31% of high net worth investment portfolios are based on the concept of social gain. Over the past several years, the level of discussion taking place by government, investors, philanthropists, and nonprofits around the topic of impact investment — the practice of investing with the intention to generate measurable social and environmental impact alongside a financial return — has kept hitting new high watermarks.

Is it also another silver bullet for addressing skyrocketing deficits, uncertain financial markets, and staggering need just around the corner? Not yet, and it will not be unless the industry manages to successfully address its limiting constraints. For instance, J.P. Morgan predicted in 2010 that the market has the potential over the next 10 years for invested capital of USD 400bn– USD 1tn and profit of USD 183bn–USD 667bn. However, contrast this with the fact that there were over USD 600tn in financial assets globally in 2010, and that there will be an estimated USD 900tn in financial assets in 2020. Many consider J.P. Morgan’s estimates about the potential market size ambitious. Even if they are correct, impact investing might grow to only 0.1 percent of all financial assets by the end of the decade. This means it seemingly has all the promise of a drop in the bucket.
Yet, if impact investment does its homework, and asserts itself as an investment style rather than an asset class, the ramifications of this industry for the overall competitiveness, prosperity and sustainability of the world’s market economies could very well exceed the significance implied by the estimates.

This course discusses an industry on the cusp. It looks at the fundamentals driving the magnitude of supply and demand. It looks at how all actors involved — from foundations to angel investors to financial services institutions to name a few — can contribute to and benefit from the growing impact investing industry.

The course’s key goals are: to understand the fundamental context for impact investing; to grasp impact investing requirements; to develop an ability to spot impact investing opportunities; and to work as a team to develop a final paper on a relevant aspect of impact investing.

Keywords: impact investing, finance, industry creation

JEL Classification: A23, G11, G23, G24, G28, H41