What is impact investing?
Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
What does “impact” mean?
“Impact” is a positive improvement accrued in the social or environmental aspects of an investment. Impact is an added value in the social or environmental performance of an investment.
What is the aim in impact investing?
Impact investing yields the best results when the intention for social and environmental value creation is incorporated into the business plan alongside the profits excepted for the initiative. In this way, social and environmental gain is monitored, sought and attained while achieving the business financial targets. When an investment is targeted as an impact investment, there is a triple bottom return which mitigates risk, guarantees financial return and generates social or environmental value.
What areas is impact investing used in?
Impact investment are done both in emerging and developed markets, targeting areas like sustainable agriculture, renewable energy, energy conservation, micro finance, affordable and accessible basic services like housing, education and healthcare.
What is the source for impact investing?
When the United Nations announced the Sustainable Development Goals in 2015, there was a paradigm shift which led to an increase in impact investments. United Nations has 17 Sustainable Development Goals and 169 targets to be met until 2030.
Why impact investing?
- Impact investing challenges the long-held views that social and environmental issues should be addressed only by philanthropic donations, and that market investments should focus exclusively on achieving financial returns.
- The impact investing market offers diverse and viable opportunities for investors to advance social and environmental solutions through investments that also produce financial returns.
Who can make an impact investment?
- Insurance Companies
- Individual Investors
- Fund Managers
- Private Equity Companies
- Pension Funds
- Public Organisations
- Public Companies
- Private Companies
- Development Agencies
- Non-Profit Organisations
What is the difference from other “impact” oriented investments?
- The purpose of the investment is to make a contribution to social or environmental solutions,
- Targets a financial return between a below-market-rate return and a risk-adjusted market-rate,
- Different kinds of assets may be utilised,
- Investor commits to measure and report social or environmental performance.
Is philanthropy impact investing?
Philanthropy is not impact investing. It is rather a donation of money, goods and even time directed to the individuals/ institutions in need. The motivation behind a donation is usually the feeling of gratitude and a will to give back to society. The purpose of donation can also be religious or social motivations. A donation comes from the feeling that it is right to give back as the society has once given opportunities to this individual. There is no intention to make a profit.
Is corporate social responsibility (“CSR”) impact investing?
CSR is not impact investing; it is about sustainability and caring for community. It plays a critical role in protecting the environment, seeking human rights, preserving ethical values of a company. At the same time, it defines the image and reputation of the company and indirectly has an impact on the company’s financial performance. CSR projects do not aim to make a direct profit, but to generate a good image and reputation for the benefit of the corporation.