Impact Investing: What you need to know
Investors around the globe are making impact investments to harness capital 's strength for good. Continue reading to learn about the key features of impact investing, who makes impact investments, the benefits that these investments will achieve, and more.
What is Impact Investment?
Impact investments are investments made with the goal of creating significant, observable social and environmental effects alongside a financial return. Impact investments may be made in both developing and developed markets, and target a range of returns from lower to market rates, depending on the strategic objectives of the investors.
The rising impact investment market provides resources to address the most pressing issues facing the world in sectors such as sustainable agriculture, renewable energy, recycling, microfinance, and affordable and accessible basic services like housing, health care, and education.
Some characteristics of Impact Investment
· INTENTIONALITY The aim of investors to have a positive social or environmental effect through investments is important for investment effect.
· INVESTMENT WITH RETURN Goals Affect investments are required to produce a capital gain or, at a minimum, a capital return.
· RANGE OF RETURN EXPECTATIONS AND ASSET CLASSES Investments target financial returns ranging from under-market (sometimes referred to as concessionary) to risk-adjusted market rates, which can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, which private equities.
· IMPACT MEASUREMENT A hallmark of impact investment is the investor 's commitment to monitor and report on the social and environmental performance and success of the underlying investments, maintaining transparency and accountability while educating the impact investment process and developing the sector.
The approaches of investors to measure impact can differ based on their priorities and capacities, and the choice of what to measure typically reflects investor objectives and, ultimately, investor intent. Components of best practices in impact assessment for impact investing typically include:
1. Identifying and setting social and environmental goals for specific stakeholders
2. Set performance metrics / targets for these targets, using standardized metrics wherever possible
3. Tracking and management of investor success against those goals
4. The reporting to specific stakeholders on social and environmental results
Why should you try out Impact Investment?
Impact investing contradicts the long-held views that social and environmental problems can only be tackled by philanthropic contributions, and that private investments can concentrate solely on financial returns.
The impact investment market offers investors broad and viable opportunities to advance social and environmental solutions through investments which also yield financial returns.
Many types of investors join the market for the investment effect. Here are a few reasons common to investors:
1. Banks, pension funds, financial advisors and wealth managers can provide individuals and institutions with an interest in general or particular social and/or environmental causes with CLIENT INVESTMENT OPPORTUNITIES.
2. Institutional and family foundations should promote their core social and/or environmental priorities while retaining or increasing their total endowment.
3. Government investors and development finance institutions may give private sector investors a PROVIDE OF FINANCIAL VIABILITY while targeting realistic social and environmental targets.
Who is making this market?
Impact investment has attracted a wide variety of investors, both individual and institutional.
Fund Managers
Development finance institutions
Diversified financial institutions/banks
Private foundations
Pension funds and insurance companies
Family Offices
Individual investors
NGOs
Religious institutions