Along with government aid and philanthropy, the world increasingly realizes that private enterprise can be a major player in solving social problems. Investors who channel their funds to projects that contribute to solving specific societal challenges fall under the category of impact investors. The term impact investing is now the buzzword for responsible investment, which involves seeking social and environmental good along with financial returns.
The increasing focus on impact investing is partly attributed to the growing concern in corporate circles to make lives better and Millennials’ demand for a more just and equitable society. Although compared to a standard investment this method of investing may require more research, legwork, and diligence, the rewards are worthwhile. Global challenges are investment opportunities, and those who seek to provide solutions to today’s problems become the financial winners of tomorrow. Impact investing can complement your other investments.
Investors increasingly realize that impact investing provides a myriad of benefits for all parties involved. Impact investing can help shape the world’s future by expanding access to healthcare and education, reducing poverty, and attaining food security and eradicating hunger. Such investments can also help to close the income gap, promote peace, and achieve gender equality. And impact investing can be done by anyone, anywhere.
Until recently, this investment approach was a preserve of private equity, but today, it has expanded and evolved to include listed securities. Impact investing is now offering all types of investors a way to generate a positive social impact alongside stable and attractive long-term financial returns. Impact investing is increasingly gaining traction among investors such as real estate developers, financial institutions, fund managers, private foundations, and high net worth individuals, among others. To stay competitive in today’s socially-conscious investing environment, many investment funds include an element of impact investment.
With impact investing, the profit motive and social values no longer have to collide or compete. This investment method allows the investor to commit funds for social good without giving up financial returns. Impact investing is intentional, as the investor aims to be part of a measurable social benefit or the initiator of a project that changes society for the better. Impact investing necessitates that investments be managed and implemented toward that intention. A good impact investment initiative includes feedback loops and communicating performance indicators to support and motivate others.
For investors, it is easy to become focused on the return on investment and the sectors of the economy that typically dominate investment portfolios. Impact investment may or may not involve tradeoffs between social benefit and financial goals. Investment impact is vital to investors who seek more than the warm glow associated with corporate social initiatives or good public relations through occasional acts that benefit society. Social impact investors want to contribute to continuous improvement that can be seen and measured.
Investing in environmental or social opportunities not only broadens your horizons, but gives you a golden opportunity to impact society through positive change. Such investments also provide an efficient and socially acceptable way of meeting your organization’s social responsibility goals, with tangible effects that are often much greater than you could ever get by distributing grants or donations.