What is impact investing?
Impacting investing is an investment strategy that allows the investor to monitor the social and environmental impacts of their investment while still perceiving financial gain. Challenging the widely held notion that social issues can only be addressed by philanthropic donations, and inversely, that market investments will only generate financial return, impact investing helps the investor unleash the power of capital for good. Impact investing allows capital to be redirected towards today’s most pressing challenges, such as sustainable architecture, renewable energy, and affordable public services. It may sound too good to be true, but the Global Impact Investing Network (GIIN) suggests that impact investments perform as well financially, if not better, than traditional investment methods.
Putting impact investing to the test: financial performance
Like any other investment strategy, every impact investor has their own financial goals. While some will choose to intentionally invest for below-market-rate returns to stay in line with their strategic objectives, others pursue market-competitive and market-beating returns. Respondents of the GIIN 2020 Annual Impact Investor Survey reported that their portfolio performance overwhelmingly met or exceeded their expectations for both financial return and social/environmental impact. With regards to risk, the GIIN survey cites business model execution and management as the most often-cited contributor. In short, impact investing produces similar returns as traditional investing, but with the added benefit of creating positive social and environmental impact in line with the investor’s intentions.
Impact investing: an emerging sector
Many significant investors are realizing the potential of impact investing– banks, financial advisors and wealth managers can tailor investment opportunities to their client’s specific social and/or environmental goals, institutional and family foundations can pursue their values while maintaining and growing their capital, and government investors can target specific social and environmental objectives while remaining financially viable. Impact investing has attracted every type of investor, from fund managers to NGOs, religious institutions, and even individuals. Currently valued at USD 715 billion and managed by over 1700 organizations, the impact investing market is, though relatively new, growing at a brisk pace, and current investors are optimistic about the promising future of impact investing.