Impact Investing: balancing social responsibility and profit

The term impact investing was coined by the Rockefeller Foundation in 2006, but the practice had been around for decades before that. It is a form of investment that seeks to create both financial return and social impact and lies somewhere between philanthropy and traditional investment.

Impact investing fosters social entrepreneurship, improves welfare solutions and allocates new resources in areas where there is a need for social progress.

According to the Global Impact Investing Network (GIIN), this market grew to about $715 billion invested internationally in 2020 from $370 billion in 2015. This implies that there is room for both concept and practice expansion.

The rise of such a practice can be attributed to several factors: a desire among investors for a more balanced approach to investment, an increase in the number of socially conscious institutional investors, such as universities and foundations, and an increase in social entrepreneurs seeking capital for their businesses.

Impact investing: making money while doing good

Impact investing, as a type of socially responsible activity, encourages people to invest in organisations, products, and services that have the potential to generate both financial returns and measurable positive social or environmental impact.

Some examples include investments in companies that address specific social issues, such as sustainability or affordable housing, or whose success contributes to the resolution of societal issues, such as food waste, water scarcity, and climate change. Another option is to invest in early-stage startup companies that have the potential to transform entire industries and create new jobs for people at all stages of their careers.

Impact investing has indeed proven it is possible to invest and make a positive difference. In fact, according to the Global Impact Investing Network, it now attracts $12 trillion in assets under management worldwide — double what it was just four years ago.

There are many ways of achieving this goal and several available tools. Among them are impact funds, green social and sustainability bonds, and payment by result instruments.

Impact funds are invested in companies that have a positive social and environmental impact. Some have their own social mission, while others invest in projects that benefit society.

Green social and sustainability bonds enable investors to fund companies or projects whose activities, in particular, contribute to environmental protection or sustainable development goals.

Payment by result instruments represents another way to achieve social progress. These include hybrid loans where the lender receives interest payments but also repays part of its capital if certain conditions are met (for example, if there is no pollution).

The trend is on the rise and it may become the norm

With the release of Sustainable Development Goal 8, we are on track to reach our initial climate goals. However, by analysing current socio-economic trends, we can see that global inequality is rising and nearly half of the world’s population will still be living in extreme poverty in 2030.

That’s why society must continue to harness creative and innovative solutions to tackle these challenges. The first step is to make strategic investments in socially responsible businesses.

Impact investing is still in its early stages, and many investors are unaware that a positive outcome is possible. Education and technology, in particular, are viewed as potential growth sectors for the field in the coming years.

Others may believe that such a goal is only available to the very wealthy and does not apply to their own lives. In reality, this approach can benefit everyone in society, from the ultra-wealthy to the struggling middle class. All one needs to know is how.

Finally, impact investing is quickly becoming the norm rather than the exception. Impact investors can expect plenty of opportunities for success in the coming years, as socially responsible investing grows in popularity.


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Published on 19-07-2022