Impact Investing Review

What is Impact Investing? This is the type of investment strategy that focuses on producing a certain environmental effect or beneficial social. It often takes different f

What is Impact Investing? This is the type of investment strategy that focuses on producing a certain environmental effect or beneficial social. It often takes different forms of asset classes. Sometimes it may result in numerous unexpected outcomes. The main goal of impact investing is to utilize investment and money capital for positive gains.

How does impact investing work?  

Impact investing came to light around 2007, but the actual practice was built years later.  Impact investing is typically meant to reduce the business's negative impacts, especially on the social environment. And that’s why impact investing may be considered philanthropy.

Investors who often use the impact investing strategy focus on the firm’s commitment incorporation to social responsibility.  The kind of impact that can emerge from impact investing differs from one company to another.  However, some popular philanthropy includes giving back to society by aiding the needy or investing in great energy activities to leverage our earth.

The strategy aims to build a positive impact by investing heavily.  For instance, establishing clean technology that benefits our surroundings or opening a nonprofit organization that enhances communities' lifestyles. Remember, the series of impact investing is always achieved by institutional investors such as fund managers, private foundations, pension funds, banks, and hedge funds.

Today, there are different types of impact investor networks, web-based investment platforms, and socially conscious financial service firms.  One of the best impact investments is microfinance loans that give entrepreneurs sustainable capital.  Women are the major beneficiaries of these loans.

What are the types of Impact Investments?     

There are different forms of impact investment globally. Like any other type of investment, impact investment offers a series of possibilities, especially when it comes to returns.  However, the advantage is that both investments provide a financial return as well as meet the investor's needs. 

The Global Impact Investing Network shows that many investors choose impact investing to get many returns. Because impact investments vary, investors are required to invest their money in emerging markets (EM).  Impact investment targets a wide range of companies, like:

·         Agriculture

·         Healthcare

·         Energy

·         Education

Social, Governance, and Environmental

Social, governance, and environmental are the practices of impact investment that generate positive returns in the future.  Many business leaders integrate ESG factors to boost traditional financial analysis by seeking opportunities and identifying risks. But the main objective of the social, governance, and environmental is financial performance.

Socially responsible investing (SRI)

Socially responsible investing (SRI) works better than ESG by selecting or eliminating investments based on certain ethical guidelines.  The main motive goes to political beliefs, personal values, and religion.

Special Considerations

Environmentally and socially aim to attract impact investors. That means firms can benefit from focusing on socially responsible activities. The report indicates that Impact Investing majorly focuses on youths like millennials, preferably those who want to give back to the community. In that case, the practice has a higher chance of expanding since its investors continue to win more across the competitive market arena.

The main aim of impact investors is to gain much profit.  According to the Global Impact Network survey, over 88% of the impact, investors have realized that their investments are gaining positive outcomes. Besides, many have engaged in Impact Investing practices that support their company’s objective largely.  As result, many continue engaging in social responsibility.

What are examples of Impact Investing? 

The Gates Foundation

Bill &Melinda Gates Foundation is the most popular example of Impact Investing.  It was established by the windows pioneer with a total endowment of around $30 billion. 

 Although the majority of the Gates Foundation is based on philanthropy, it comes with an investment fund of $2.5 billion under management. The foundation’s goals include gender equality, health improvements, and education. It also supports projects that add value to the less fortunate communities globally.

The Ford Foundation   

This foundation came to light around 1936 by Henry and Edsel Ford with an endowment of $25,000. Today, it’s among the leading private endowments with nearly $16 billion under management. 

In most cases, the foundation gives grants to help the poorest countries worldwide. In 2017, it announced investing around $1 billion in business practices aligned with its objective.

Soros Economic Development fund

The Soros Economic Development Fund partners with Open Society Foundations.  It was established by billionaire philanthropist George Soros.  He has contributed nearly $18 billion to launch Open Society Foundations. 

The Foundation’s objective is to support open societies by promoting journalism, democracy, higher education, and legal reforms.

What is the difference between sustainable and impact investing?     

Impact investing is related to environmental, social, and governance (ESG). Now, these business practices have become more popular globally. Although they've many common features, they differ in practices.

On the other hand, environmental social and governance (ESG) are practices that can interfere with a company's returns. While impact investing is a type of practice that aims to optimize an objective than a return.  These types of investments include microfinance, clean energy, and microfinance.