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Impact Investing: All You Need to Know in 2024
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Life is expensive, and as inflation continues to rise faster than salaries can catch up – more and more people are learning the importance of investing, such as impact investing.
Impact investing is a new way of investing that is attracting individuals, businesses, and global leaders alike for its unique approach to investing.
How can impact investing serve as a wise financial move for individuals and businesses alike?
What is impact investing?
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Impact investing is relatively new, and it is a term used to describe investments made across multiple asset classes, sectors, and regions.
Impact investments are investments made in attempts to create a quantifiable social and environmental impact in coordination with good financial return. Impact investments can be made in both developing and established markets, and focus on increasing the range of returns from below market to meet the current market rate. However, it is important to note that these potential returns with impact investment are contingent on the investors financial goals.
As impact investments grow in popularity across the market, a newfound sense of capital is being extended to face global predicaments across multiple sectors – such as sustainability in agriculture, sourcing renewable energy, overall conservation of value resources, healthcare, education, and providing basic resources and housing for developing countries and communities.
It’s clear that impact investing has a positive impact on a multitude of social and environmental issues, but what is the ultimate goal of impact investing?
“ The main goal of impact investing is to create both tangible, financially lucrative return while also benefiting social and environmental sectors. ”
How does impact investing work?
Impact investing works based on several core values, missions, and principles.
First comes the intentions behind the investors desire to create a positive social or environmental change through their investments.
“ This is a primary key component of impact investing, and if there is no intention behind the investment – it ultimately cannot be constituted as an impact investment as it won’t have an “impact” on any other sector beside the economic one. ”
Next come the investors' expectations on financial return. Similar to all other investments, impact investments are able to generate a reasonable financial – often, at least at minimum, a return of capital.
An investor interested in impact investing should decide their range of return expectations and asset classes. In other words, anyone using impact investments should be prepared to make risk-adjusted moves for financial gain when necessary – and consider fixed income, venture capital, and private equity before and while using impact investments.
Lastly, it’s imperative that the owner of the impact investment is committed to measuring the data and sharing these numerical reports with others on the environmental or social progress that their investment is creating.
“ This is another quintessential part of impact investing, which aligns with other ESG values such as transparency. ”
Sharing the social and environmental improvements made through impact investing help to establish transparency and responsibility in investing, all while creating and maintaining sustainable and socially ethical business practices.
An investor’s method to measure their social or environmental impact is contingent on their goals and capabilities.
However, most impact investing measurements should include creating and monitoring the social and environmental objectives related to the investor of the impact fund, allowing for performance goals related to the original motives of the impact investment to strive for improvement whenever possible, the continuous managing and adjusting of the performance of the impact investment, and to report the social and environmental performance to other stakeholders involved in the impact investment.
What is the difference between impact investing and socially responsible investing?
Socially responsible investing refers to a method of investing where a company or individual chooses or discounts a potential investment through environmental credentials, such as an ESG score or a company obtaining an ISO 14001.
Impact investing, on the other hand – is when a business or organization seeks to contribute to a social cause through their investments.
“ Both socially responsible investing and impact investing are selective and strive to carefully create a portfolio that does not only pertain to economic gain, with the ideal to yield positive results across other sectors – such as social issues and environmental difficulties, like climate change. ”
Why choose impact investing?
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Impact investing gives new and improved meaning to philanthropy – by demonstrating that it is possible to benefit both social and environmental issues whilst still contributing to personal, financial gain.
Philanthropy implies that projects that provoke substantial change to social and environmental sectors can only be made by superstars or millionaires that have superfluous cash laying around. The investment market pontificates the values of achieving measurable financial returns and financial gain.
Impact investing defies both!
The market of impact investing provides a wide variety of viable opportunities for investors to contribute to social and environmental issues through investments whilst simultaneously working towards a financial return.
More and more investors are growing interested in the benefits of impact investments. For example, banks, pension funds, and other various financial figures or managers are able to offer investment opportunities to individuals and businesses alike to anyone interested in benefiting an environmental or social cause. Also, impact investments allow the business or individual to support more assets that benefit other causes whilst still improving their own finances. Government investors would also appreciate impact investments, as it is a way for a company to delineate their commitment towards sustainability and improving the environment. Therefore, the government would be more likely to invest or provide future funding to the business or organization currently using impact investing.
Are impact investments financially lucrative?
So, impact investments are good for social and environmental issues – but are they good at creating noticeable profit?
The answer is yes!
According to the Global Impact Investing Network’s 2020 Annual Impact Investor in 2019, 68% of people partaking in impact investments said that their impact investments helped them meet their financial goals – and 20% reported that their impact investments helped them exceed their financial goals.
Are there any cons to impact investing?
However, just like any investment tactic – impact investing has risks.
The good thing about impact investing is that sustainable investments usually offer lower risk than traditional investments. While this is good across all ESG sectors, it means that the potential for immediate and grandiose financial returns is lower.
However, given the many pros of impact investing, such as implementing a sustainable business practice while also benefiting social and environmental causes in conjunction with financial gain – it’s hard to see a reason to not remain interested in impact investing.
Does impact investing help the environment?
Impact investing isn’t just financially beneficial to your company’s economic sector, but it also serves as an easy and convenient way to help the environment!
Because impact investments strive to improve a company’s contribution to environmental, social and corporate governance (otherwise known as ESG) factors, impact investments provide a way to help social issues created by climate change without doing any additional work.
Impact investing ultimately promotes more sustainable business habits, and it’s like killing two birds with one stone.
Is impact investing good for the future of your business?
Impact investing is extremely good for the future of your business.
This is because impact investing not only directly aids a worthy social or environmental cause, but it does so while also financially benefiting your own business or company.
Long story short – impact investing is a win-win situation for everyone involved.
Future investors, customers, and employees alike will be glad to contribute to a product or service that seeks to help other sectors. As climate change continues to worsen the state of our planet, businesses that seek nothing more than financial gain are slowly going out of style.
Examples of impact investing
There are quite a few examples of impact investments from well known companies and organizations that you may not have known of otherwise.
For instance, The Rockefeller Foundation not only gives grants – but invests in projects seeking social improvement. The Rockefeller Foundation has invested in the Disability Opportunity Fund, which aids financial projects that seek to provide housing, education and job training for anyone with disabilities. This serves as an example of impact investing as the Rockefeller Foundation is financially benefiting from the investment while also aiding positive social change.
Also, popular banks in the United States like Bank of America, Capital One, and Wells Fargo have invested in Craft3 – which is a non-profit organization that lends money to other non-profits or start-up businesses to help them get their feet off the ground.
These well known American banks investing in future businesses not only financially helps them, but helps other companies establish themselves at the same time.
If you’re an individual interested in impact investing, you can also recruit a robot-advisor for financial guidance, or seek ESG friendly investments on your own time.
How can you start impact investing?
You don’t have to be a part of a big organization or CEO of an already financially lucrative business to take part in impact investing.
If you’re interested in getting started with impact investing, here are a few ways to get the ball rolling.
Assess your company's most important values
What are the issues you care about? If you’re passionate about sustainable energy, you’ll want to ensure you invest in assets that cater to that. Deciding where you want to create an impact can help you narrow down your investment choices later.
Do it yourself, or find someone to do it for you?
Impact investments can be done alone, but sometimes they can yield more success if you seek third-party assistance. It’s easy, too – because you can ask for help with impact investments with robot-advisors!
Robot-advisors can help create personalized portfolios for impact investing, so you or your company can find solace in positively contributing to the social or environmental areas most meaningful to you.
If you choose to work with a robot-advisor, no other steps will be necessary. However, if you choose to continue on your own – it will be necessary to open a brokerage account, so that you can buy and sell various assets to be a part of your impact investing portfolio.
Seek potential impact investments
It is important to seek investments or financial partnerships with entities that have excellent ESG scores. From here, it is important to strive to gradually increase your impact on each investment to ensure both continued financial growth, and improvement in the desired social or environmental sector.
Overall, there are many types of investing that strive to promote sustainable growth – but it is clear that impact investing is one of the most beneficial methods of investing an individual or business could choose to implement more sustainable business measures and simultaneously promote the importance of ESG values.
What about Greenly?
If reading this article about impact investing in 2024 has made you interested in reducing your carbon emission to further fight against climate change – Greenly can help you!
Greenly can help you make an environmental change for the better, starting with a carbon footprint assessment to know how much carbon emissions your company produces.
Click here to learn more about Greenly and how we can help you reduce your carbon footprint.
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