Impact investing is an investment strategy that aims to generate financial profits while also creating positive social or environmental outcomes. Although a relatively new field, it has experienced rapid growth in recent years. The global impact investing market was estimated to be valued at $715 billion in 2022 and is projected to reach $1.5 trillion by 2026.
The increasing popularity of impact investing can be attributed to several factors. Firstly, investors are showing a growing interest in aligning their investments with their personal values. Through impact investing, individuals can contribute financially to companies and projects that make a positive difference in the world.
Additionally, the financial performance of impact investments has been proven to be strong. A study conducted by Harvard Business School in 2020 revealed that impact investments yielded higher returns compared to traditional investment approaches over a decade.
Below are ten reasons why we remain optimistic about the future of impact investing beyond 2024;
1. Rising demand from diverse investors
Investors across various categories such as individuals, institutions and family offices are increasingly drawn towards impact investing. According to a recent survey conducted by the Global Impact Investing Network, 85% of global investors have expressed interest in this field.
2. Strong financial performance
Studies have demonstrated that impact investments can yield similar, if not better, results compared to traditional investments. For instance, a recent research conducted by Harvard Business School in 2020 revealed that impact investments generated higher returns than their traditional counterparts over a span of ten years.
One of the advantages of impact investing is its ability to help investors diversify their portfolios and mitigate risks. By investing in various sectors that create positive societal and environmental impacts, investors can minimize their exposure to any single sector or industry.
4. Long-term investment horizon
Impact investing is a strategy that requires a long term perspective. Impact investors aim to make tangible positive changes in society and the environment, which necessitates patience and perseverance. Investors should be prepared to maintain their impact investments for an extended period.
5. Government support
Governments worldwide are increasingly supportive of impact investing. Many governments have implemented tax benefits and other incentives to encourage individuals and organizations to engage in impact oriented investments.
6. Technological advances
Advancements in technology have made it easier to identify, measure and track the effects of investments. This accessibility has made impact investing more appealing and feasible for investors from various backgrounds.
7. Growing awareness of social and environmental issues
The global population is becoming more conscious about the social and environmental challenges we face today. There is an increasing understanding of the urgent need for action in addressing these issues.
The increasing demand for impact investments that can address these challenges is driving the interest in this field.
8. Alignment of values
One of the benefits of impact investing is that it allows investors to align their investments with their personal values. They have the opportunity to invest in companies and projects that actively work towards making a positive difference in the world.
9. Potential for positive impact
Impact investing holds great potential for creating real and meaningful change globally. By investing in companies dedicated to social and environmental causes, investors can contribute to job creation, poverty reduction, educational improvement and environmental protection.
10. Credibility of impact investing market
The impact investing market has gained substantial credibility over time. With established impact investment funds and platforms now available, this market operates under the same regulations as traditional investment markets.
Impact investing is not only a financially sound investment strategy but also an avenue for making a positive social or environmental impact. Although still relatively young, it has experienced rapid growth in recent years and is expected to continue expanding in the future.
Apart from the ten reasons mentioned above, there are other factors supporting our optimistic outlook on impact investing beyond 2024.
To begin with, the impact investing market is still in its early phases of growth, indicating that there is ample opportunity for further expansion. Additionally, the impact investing market is progressively becoming more efficient, making it simpler and more cost effective for investors to support impactful companies.
Moreover, we are witnessing a rise in attention from institutional investors like pension funds and endowments towards the impact investing market. This increased interest not only validates the legitimacy of impact investing but also makes it appealing to a broader range of investors.