In 1988, the tech movement was in its infancy as we discovered the joys of desktop computers and declared the typewriter dead. Ten years later, the internet and wireless technology began to integrate into our daily lives, and the earliest brick-size cell phones were declared obsolete, giving way to lighter, more portable phones. A brave new world was emerging. But if you asked anyone outside Silicon Valley to take a bet that one day every person would have a powerful, portable computer device in their hands with real-time connectivity, they would have told you this was the stuff of science fiction.
The world is once again on the cusp of a revolution, arguably bigger than the tech revolution. The Impact Revolution, catalyzed earlier by the Millennium Development Goals and now by Sustainable Development Goals, is redefining capitalism.
Its hypothesis is simple — capital has a higher purpose than simply wealth creation. By optimizing risk, return, and impact, we can serve the 3 billion poor and address climate change by reducing global warming to less than 1.5 degrees Celsius. By bringing 40 percent of the world’s population and our planet into focus, the impact movement is changing investor and entrepreneurial mindsets.
According to one analysis, of the $91 trillion global assets under management, or AUM, in 2016, $23 trillion are already being deployed using environmental, social, and governance, or ESG, socially responsible investing, or SRI, or core impact investing. On the continuum from wealth maximization to impact maximization, ESG investing refers to investments which “avoid harm,” SRI means “benefit all stakeholders,” and impact investing means “contribute to solutions.”
Impact investment AUM soared to $248 billion in 2016, of which $5 billion were in India. The annual impact investments in India, of just over $1 billion, touch 60-80 million people living in poverty, according to McKinsey. The sector can grow at 20-24 percent to attract $6-8 billion in annual investments, the consultancy said.
We now have a rare opportunity to address the challenge of poverty and income inequality through targeted and extensive impact investing in viable Indian enterprises. We already have a fledgling social and environmental impact sector with demonstrated scale. Fueled by priority sector lending in India, we are home to multibillion-dollar impact enterprises — Amul, Jain Irrigation, Ramki Enviro Engineers, ReNew Power, Greenko-Orange Renewables, and Mytrah to name a few.
In fact, lending to impact enterprises has been far more profitable for banks. Recent analysis shows that 82 percent of all private sector banks’ recent nonperforming advances were from nonpriority sector portfolios; only 18 percent were from priority sector portfolios. Another analysis shows that 40 listed banks have 4.5 percent nonperforming advances — loans often extended to our millionaires and billionaires. The total stressed loans are higher at 10 percent. In comparison, India’s microfinance sector, which lends to the poor, had a default rate of just 1 percent until demonetization.
Recognition of many microfinance companies as small development banks is therefore no coincidence.
With better financial market dynamics, more job creation potential, the ability to scale and address large sectors with huge growth potential — renewable energy, electric cars, affordable housing, education, health, and skills development — the impact sector is destined to be India’s next growth engine. In fact, when the Global Steering Group for Impact Investment brings our annual Impact Summit to New Delhi on Oct. 8-9, we will be launching two outcome funds to further catalyze India’s impact sector.
IT, artificial intelligence, and robotics will be a heady mix over the next several decades, driving the Fourth Industrial Revolution. But for truly equitable and socially just inclusive growth, the impact economy holds the key. This is not just a social or environmental, but also a moral imperative. For the first time, we have a mantra that allows us to grow wealth while delivering better outcomes for the planet and the people.
This opinion piece is part of a media partnership with the Global Steering Group for Impact Investing. The GSG Impact Summit will happen in New Delhi, India, on Oct. 8-9. Learn more here — and follow our reporter Adva Saldinger on Twitter for updates.