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Impact investment in private equity and venture capital

Private equity and venture capital managers are well placed to drive change in business. By working closely with management and supporting a business with capital, expertise and networks, investors have demonstrated that they can drive improved growth and profitability for companies of every size and stage, across a very wide range of sectors and geographies.

BVCA members have already done a significant amount to incorporate ESG issues into investment decisions – driven not only by a sense that it is the right thing to do, but also by a clear-eyed awareness of the reputational and other commercial risks that can be incurred by neglecting this area.

Limited partners have been a driving force in this process. And increasingly, these same LPs want to know if managers are looking at opportunities where benefiting stakeholders or contributing to solutions also presents a significant value creation opportunity – allowing them to achieve tangible social and/or environmental benefits alongside attractive financial returns.

Impact investing is also an appealing strategy for managers looking to attract and retain the best new talent entering the private equity and venture capital industry. Countless studies indicate that the millennial generation, in particular, is more likely to want their job and employer to align with their personal values – which will inevitably affect where they choose to work.

In short, private equity and venture capital has a vital role to play in the future growth of impact investing. This ownership model is uniquely positioned to provide the kind of capital, strategic insight and operational support that will help this new generation of enterprises to succeed at scale – and by doing so, managers will be better placed to attract the very best people.

Reaching a tipping point

The graph below shows the ‘adoption curve’ of impact investment to date – starting with a small group of pioneers in the early years, who have been joined in recent years by a growing number of large financial institutions as this strategy becomes increasingly mainstream.

The adoption curve of managing for impact, and examples of new entrants
Source: The Rise of the Impact: Five steps towards an inclusive and sustainable economy, UK National Advisory Board 2017

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