Repairing the world and improving your portfolio The rise of the impact nation

Cecile Blilious

Cecile Blilious

As we move further into the 21st century, the global community is taking hold of its collective future. We all face the challenge of maximizing our limited resources. People across the globe are in need of clean water, a lesson particularly salient in America due to California’s ongoing drought. Likewise, people around the world are in a collective fight against widespread diseases such as Ebola. These shared problems are creating a shared sense of community, motivating people to seek ways to help one another.

Simultaneously, or perhaps as a result of this shared sense of community, the world of investing has changed. While traditional investment funds operate with the primary goal of maximizing profits, or, in investment terms, achieving a good “return on investment,” modern-day investors are looking for more than simple financial gains. These funds, known as impact investment funds, are motivated by the concept of Tikkun Olam—they want to do more than make a profit: they want to make a profit and make the world a better place. Their contemporary values are resonating worldwide, particularly with millennials. Today’s generation seeks to live with a purpose, which affects everything from where they work to how they manage their finances. In impact investing funds, investors blend proven business practices with modern social values. Returns are assessed in both profitability and measurable global impact. A relatively new development, impact investing has great potential to become an effective way to invest.

The ingenuity of the impact investment model has become clear to investors all over the world and the market is growing rapidly. Market research has established that the financial returns of impact investments can compete dollar for dollar with alternative forms of investment. As such, impact investments have become substantially more appealing than traditional investments because they incorporate social benefits as an added bonus. In other words, impact investments allow modern investors to yield full returns on investments and social improvements, without needing to compromise profits. The impact investment market, already managing tens of billions of dollars, is poised to boom in the next decade.

Looking at the numbers, in 2014, $60 billion was invested with impact, a 30% increase from 2013. Within the next ten years, annual investment into impact funds is expected to increase more than six fold—projections indicate that impact investments will surpass $400 billion per year by the end of the decade. Moreover, impact investments are targeting and achieving market-rate returns at an 80% clip. The excellent performance of impact investments provides strong backing for these predictions.

Israel, no stranger to Tikkun Olam, finds itself uniquely positioned to become a leader in impact investing. Otherwise known as “Startup Nation,” Israel is home to some of the world’s most sophisticated technological minds. Israeli startups, such as Waze and GetTaxi, have proven themselves as innovative and successful companies with global reach. So far, Israeli start-ups have been handicapped by investment funds that focus exclusively on maximizing shareholder value by providing products to the global market with limited regard to their social impact. Impact investments, however, can combine Israel’s business savvy and culture of innovation with its spirit of Tikkun Olam and deliver stakeholder value together with shareholder value, to create huge social benefits on a global scale. With the capital and expertise that impact investment funds provide, Israeli innovations can expand beyond everyday innovations and start building solutions for more of the world’s social problems.

Several companies built solely to invest in socially engineered startups have already recognized Israel’s enormous potential and taken root in the Jewish State. Initial investments are focusing on digital healthcare, underserved populations and environmental technology. While several Israeli companies are already demonstrating an impressive social impact, they are only beginning to realize their potential as providers of solutions to social challenges. As impact investing builds momentum in Israel, given the country’s ability to consistently produce technological breakthroughs, Israel is poised to emerge as the industry’s most exciting frontier. Now is the time for investors to start helping “Start-Up Nation” add a new title to its name: “Impact Nation.”

Cecile Blilious is the co-founder and managing partner of Impact First Investments, an Israeli investment firm.

 

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