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Has Impact Investing replaced traditional funding?

The emerging trend of impact investing is being viewed as an alternative funding model as governments both globally and in Australia particularly reduce their overall spending.

The emerging trend of impact investing is being viewed as an alternative funding model as governments both globally and in Australia particularly reduce their overall spending.

In order to address the most pressing needs in our society access to private capital is pivotal, and bringing together investors and communities to tackle a myriad of environmental and social issues is pertinent. Much of the problems with traditional philanthropy and government funding is the over dependence which it perpetuates, coercing non-government organisations to, therefore, live on the ‘cliff-edge’ of their finances before it runs dry.

Traditional sources of funding are leaving NGOs at the mercy of capricious donors whose whims become the reason why most organisations are underfunded or left scrambling to find new sources of funding. The approach of impact investing is to shift the reliability of traditional funding and create a pool of resources that is more diversified.

This innovative, out-come based approach to increased capital is premised on its ability to create impact which is both tangible and measurable while also providing a financial return on investment. It is gaining momentum in emerging economies, but its relevance can be seen in developed markets like Australia.

Rich Gilmore Country Director of The Nature Conservancy Australia emphasised the importance of financial tools such as impact investing.

“Philanthropy and government funding are rather limited in its scale and traditional funding instruments such as grants have become unreliable. It is proving to be challenging for organisations who need to secure the necessary funding.”

Impact investing therefore can be a mechanism in overcoming the problems of traditional funding by producing not only measurable impact but also the potential for a return on investment.

“Particularly within conservation, unlike in some other sectors, like the social or health sector, there are things in conservation that are by and large already investable and tradable given that there’s already a market for timber, land, water and for carbon,” Gilmore said.

However, he did caution on the over promotion of impact investing and the notion of it being a panacea in solving social and environmental ills.

“It’s a useful tool and an important tool but it’s not going to solve every problem. This extends itself to large projects which are particularly difficult to define or those which are not necessarily an impact investment.”

But aside from the scepticism, can we do away with traditional philanthropy and grants?

Gilmore is unequivocal about the role of governments and well-intentioned donations: “The role of governments is crucial and the role of philanthropy is also crucial as well. We should be saving philanthropy for projects that aren’t able to generate a financial return,” he said.

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Desiree Lobo

Desiree's writing career began as an intern at the Times of India whilst she studied for a degree in mass media and a subsequent Master's in English Literature. She was a correspondent for India's first corporate sustainability magazine SustaiNuance and served as a communications consultant at KPMG. in the department of Climate Change and Sustainability.