Impact investing means providing capital to organizations to create a measurable positive impact while generating financial returns.
Impact investing is getting increasingly popular; a 2018 study from The Forum of Sustainable and Responsible Investment (“USSIF”) reported that sustainable investment assets reached $12 trillion in the United States and $30 trillion globally. However, Impact Investing is a relatively new concept, and because of a lack of awareness, there are still many questions about its benefits.
In this article, one of the top impact investing firms provides five significant benefits of impact investing to help you make a better, more conscious decision.
Solving World Problems
In today’s world, we are faced with significant issues such as ending poverty, protecting the planet, and ensuring prosperity for all. The United Nations recently adopted the Sustainable Development Goals (SDGs) to take action on these issues. When looking at the 17 SDGs, every goal has targets that require some sort of financial investment, however, governments and public sources of capital have failed to provide enough investment. According to the UN, developing countries alone face a $2.5 trillion gap in financing. Impact investments are being used by private capital sources to help fill this financing gap and achieve the United Nations’ Sustainable Development Goals (SDGs).
Competitive Financial Returns
It is now widely accepted that you do not need to sacrifice returns to achieve measurable impact with your investments. While it is true some intentionally invest for below-market-rate returns, impact investing allows you to invest in profitable, socially responsible projects with competitive returns. In fact, a majority of impact investors (nearly 67%) pursue market-competitive and market-beating returns. According to the Global Impact Investing Network (GIIN) report, about $15 billion of impact investments produced market return rates equal to other companies.
Aligned with Your Values
Investing doesn’t have to be all about profits. Conscientious investors are looking for avenues to invest in projects that don’t just harm the planet but do good. They want to promote developmental projects that are aligned to solve issues they genuinely care about. Impact investing is the best way to align your values with your investments. They can provide you competitive returns while contributing to global causes you passionately care about.
Unlike other noble causes, impact investing uses measurable key performance indicators (KPIs) based on SDGs and Environmental, Social, and Governance (ESG) goals. You can measure the impact of your investments with clearly reported data. With impact investing, there is no question about how your investment is being used to help solve global problems.
Impact investing isn’t only about climate change or sustainable development. It covers a broad spectrum of sectors and industries, including healthcare, education, aquaculture, packaging manufacturing, and agriculture. Moreover, impact investments aren’t limited to asset classes either. Private markets play a critical role in supporting the impactful business through private debt, private equity, and venture capital. In the future, public equity markets may also play a role in the growing impact ecosystem.