There is a movement that has been afoot for over a decade in the world of finance called Impact Investing. While there are many ways one could describe what this movement means to them personally, one of the leading networks in this field, the Global Impact Investing Network (GIIN) defines it like this, “Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors' strategic goals”. Therefore, one can refer to capital that flows to impact investments as impact capital. Similarly, capital that flows to investments with sole intent of maximizing financial return (within legal boundaries, of course and hopefully ethical!) can be referred to as commercial capital.
We, at the DCSEU, have impact at the heart of what we aspire to do and what we sincerely attempt to do every day. Enabling us to reach our impact goals are our providers of capital – whether funding (capital that doesn’t seek a return) or financing (capital that seeks a return) – and we are extremely grateful for their contributions. Once such prospective financing partner is Calvert Impact Capital, a leading impact investor based in our neighborhood but with an investment portfolio of almost $400 Million reaching over 100 countries. During our discussions and interactions with the wonderful Calvert staff over the past few months, both organizations have learned a lot about each other’s capabilities and motivations. All of this led to a generous invitation from our colleagues at Calvert to present to their Board of Directors on our perspective of the landscape of impact investment opportunities in sustainable energy in the US.
I was honored to represent the DCSEU, and VEIC more broadly, in sharing our thoughts and ideas on this topic. Of course, it is not every day that one is invited to present to such an illustrious audience of sophisticated financiers and social justice stalwarts. Hence, I had to put on my best thinking hat on how to best describe the landscape in a way that is consistent with the practices of the investment world. I ended up choosing the concept of “investment themes” as the organizing framework for my presentation. After much thought, I ended up with three broad investment themes for impact investors in sustainable energy – Greenhouse Gas (GHG) Emissions Reduction, Energy Justice and Resiliency.
The table below describes each of the above-mentioned themes in greater detail by describing impact drivers, examples of investment opportunities and the appropriate use of impact capital:
To understand the table in all its nuances, here are a few considerations to keep in mind:
- Impact drivers: While an investment may have a multitude of measurable and positive impacts, I’ve chosen to identify an outcome (with multiple indicators, possibly) that is being maximized under an investment theme i.e. the primary driver. All other drivers of impact, though equally important, are classified as secondary and are not being maximized under this theme.
- Geographic focus: Although these themes are applicable in the international context, the specific examples of investment opportunities and uses of impact capital have been highlighted with the US in mind specifically.
- Additionality: Adding to GIIN’s definition of impact investing, I consider the use of impact capital as appropriate only when it is occupying a space not currently occupied by, or rectifying negative outcomes from use of, commercial capital.
- Work-in-progress: The suggested investment themes, investment opportunities and uses of impact capital are indicative (not exhaustive) and dynamic (not static).
- Crowding-in vs. crowding-out: The role of impact capital is not to crowd-out existing financial actors if the market is efficiently allocating capital while also delivering positive environmental, social and governance (ESG) outcomes. However, in cases where financial actors are not allocating capital or where there are negative ESG outcomes associated with such allocation, there is a very important role for impact capital in the short-term. However, in the long-term impact investors should aim to use impact capital not just to rectify such market failures but also crowd-in commercial capital while delivering better outcomes.
We hope this blog has allowed the reader to get an insight in to how we view the emerging landscape of impact investment opportunities in sustainable energy. Please do give us feedback or share your comment on our blog either directly on our website or on LinkedIn. We would love to hear from investors, capital seekers, students and policymakers alike!
This post was written by Anmol Vanamali, Financing Strategies Director at Vermont Energy Investment Corporation (VEIC).