As depicted in our article, Foreign Direct Investment, it is the conviction of KITE Invest that there is an undeniable link between FDI and the economic progress of countries. The cyclical nature of economic growth is not only promoted but also elevated by FDI, and thus, FDI can have a direct role in enhancing the quality of life for the host communities.
Less than a decade ago, FDI transactions began to transform and take on a more nuanced approach toward investments that simultaneously sought out to create and promote positive social and environmental impacts, as well as, a financial return. Governments also played a hand in this manifestation of FDI, as they took on a more active role in seeking out FDI that would provide the country with the most wide scale and sustainable results.
In 2007, this new approach was coined “impact investing”. The ‘impact’ of these investments is that they actively aim to be long-term and socially responsible. An evaluation process set by a criterion of positive social and environmental outcomes is conducted throughout the entire investment process in order to determine the impact of investments. As a form of FDI, impact investing occurs across international borders and through common vehicles of private equity, venture capital and individual angel investors. Examples of typical impact investing have included, but are not limited to, investments in microfinance, community development finance, and clean technology.
The trend of impact investing is still somewhat new, but even in its early stages, this new and improved form of FDI is anticipated to gain further interest and support. It is estimated that the impact investing industry could grow from its current $50 billion in assets to as more than $500 billion by 2020.
Impact investing has swept the field of FDI because it showcases the direct and indirect positive role FDI can have on emerging and developed economies. With impact investing the intent is clear, as seen by the explicit measures taken during the investment process mentioned above. Yet, critics still note that challenges prevail, specifically with respect to determining the extent of the impact in the years following the investment.
KITE Invest applauds the scrutiny by analysts and critics alike as to whether or not real impact has occurred from impact investing, because it will only ensure that greater accountability measures are performed. KITE also recognizes that the intents of impact investing should not be confined to social and environmental enhancements, but moreover, it should encompass a vision towards community preservation that entails reducing risk associated to conflict.
As discussed in our article, FDI Inflow of Emerging Economies in 2012, KITE Invest maintains the opinion that FDI global levels shall see an increase in 2013 and 2014. Taking this point and the level of attention garnered by impact investing in the last few years and its projected growth into consideration, it can be concluded that FDI might be going through a lasting transformation.