Impact Investing Helps You Make Money and Change Lives
The world of investment is often criticised for only caring about the bottom line. But, as impact investing proves, it can be much more than this.
What is Impact Investing?
Impact investing is an approach focused on more than just money. Those who practise impact investing look for companies, organisations, and funds created to foster social and environmental change. They use their financial power not only to make money but to improve the world along the way.
This might sound very limiting, but it isn’t.
The past forty years have seen a proliferation of successful businesses with social or environmental agendas.
Renewable energy companies are thriving, with wind and sun providing a growing percentage of our electricity.
Sustainable agriculture, much of it organic or fair trade, has found a place for its produce in cafes, markets, and supermarkets.
Microfinance lenders offer loans to struggling small businesses around the globe, transforming communities in the developing world.
Unlike making a donation to a charity or a political party, this is a way to fund change that also supports your own bank balance.
Ethical businesses have a growing and fiercely loyal customer base that makes them profitable. Impact investing can support you even as it transforms the world.
How it Works
Impact investing is all about intentionality – investing in companies for the specific goals they will achieve, not just the money they will make.
The aim might be to reduce humanity’s carbon footprint, stop animal cruelty, or provide affordable housing and health care.
Whatever the aim, it’s not just to raise the bottom line. Some impact investors focus on a specific area.
Perhaps you want to protect the environment.
Maybe you’d like to support communities within your own country or want to help the poorest parts of the world.
You can select a portfolio of businesses and funds related to that cause.
Others invest in a broad range of businesses, looking to maximize impact or income while remaining ethical.
Whatever the approach, measuring the effect is central to impact investing.
The companies you invest in should have clear, measurable, stated goals, and report on how they’re progressing with them. By doing this, they prove that they really are living by their values, and let you see the change you’re supporting.
Because of their interest in doing good, these businesses are usually keen to report. For example, Triodos Bank regularly provides its savers and investors with case studies of the difference their money has made as well as quantitative data to show the broad picture.
Critical Reception
In an age dominated by the extremes of laissez faire capitalism, they believed that blurring the lines between finance and politics was a bad idea.
According to these critics, such businesses undermined the proper function of the market and would inevitably fail.
Since then, views have changed. People have increasingly recognized that any investment is political, as it shapes the world we live in.
The impact of investing in an arms firm or a gambling company is just as political, but in a different direction.
More practically, the predictions of failure have been proved wrong.
According to investment platform Ethex (https://www.thetimes.co.uk/article/be-a-mix-of- trump-and-mother-teresa-with-impact-investing-b9j9cj9ng), the impact investment market in the UK alone is worth £150 billion.
Two thirds of impact investment (https://thegiin.org/impact-investing/need-to- know/)offers returns at the market rate or better, and these organisations overwhelming meet, or exceed, the expectations of their investors.
A Secure Future
The signs for the future are equally bright, though they come from very different directions.
On the one hand, young people are demanding more from their elders and from their businesses.
Millennials have been brought up in an advertising culture that claims that all products have meaning.
It’s a message created by the mass market but that has inadvertently played into the hands of ethical businesses.
Customers expect their companies to stand for something. Increasingly, they look at the ethical standards of businesses and withdraw their custom if they don’t like what they see.
At the opposite end from these youthful idealists, the predatory eyes of big finance have spotted an opportunity.
Financially-focused powerhouses such as BlackRock, Goldman Sachs, and KKR have realized that there’s money to be made from ethical investment and have set up funds to exploit the market.
The very institutions that once predicted the collapse of impact investment are now benefiting from the phenomenon.
Impact investment isn’t for everyone, and many investors use it as just a minor component of their portfolio.
But with the ever-growing throng of ethical businesses reaching the market, the chance to make money while changing the world is hard to resist.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
