Impact investing demonstrates that society demands that companies not only prioritize generating financial benefits. Consumers and society in general expect companies to also do good and have a purpose.
What is impact investing?
Impact investments are those investments that are made with the intention of generating a positive and measurable social and environmental impact together with a financial return.
The growing market for impact investing provides capital to address the world’s most demanding challenges in sectors such as:
- sustainable agriculture
- Renewable energy
- Affordable and accessible basic services (health, housing and education).
One of the keys to impact investing is the intention to create a positive social or environmental impact. This differs from ethical investing or responsible investing, which generally seek to avoid any negative impact but do not necessarily seek to create a positive impact.
What are the elements of impact investing?
The practice of impact investing is made up of the following elements:
- Intentionality: the investment must have the intention of generating a positive social or environmental impact.
- Economic Return: Impact investments are expected to generate a financial return on capital or, at a minimum, a return on capital.
- Measurable impact: the impacts generated, positive or negative, must be quantified and communicated.
The investor is committed to measuring and reporting on social and environmental performance. In addition to ensuring transparency and accountability, while also reporting on the practice of impact investing.
Investors’ approaches to impact measurement may vary depending on their objectives and capabilities.
Impact measurement best practices for these types of investments generally include the following:
– Establish and declare social and environmental objectives to interested parties.
– Establish performance metrics/targets related to these objectives (trying, whenever possible, to use standardized metrics).
– Monitor and manage the performance of the companies in which it is invested with respect to these objectives.
– Report social and environmental results to interested parties.
Why bet on impact investing?
The impact investing market offers various opportunities for investors to promote environmental and social solutions through investments that also produce financial returns.
Many types of investors have been entering the growing impact investing market, typically motivated by:
- Banks, pension funds, financial advisers, among others, can offer different investment opportunities to clients with an interest in general or specific social and/or environmental causes.
- Government investors and development finance institutions can provide proof of financial viability to private sector investors while also targeting specific social and environmental objectives.
- Family and institutional foundations can leverage greater assets to further their core social and environmental goals.
Impact Investing and Sustainable Development Goals
Each Sustainable Development Goal (SDG) has targets that require some form of financial investment. If we look at the SDGs, we find categories such as reducing poverty, increasing gender equality, access to clean and affordable energy, and creating more sustainable cities and communities.
Companies are currently being created to improve social and environmental well-being. However, they need financing to develop. This is where impact investing plays a critical role as it has unlocked private capital to address societal issues.
In DoGood we want to change the world with small actions in an innovative and measurable way.
In addition, we help you activate the SDGs, improve your ESG metrics and improve the Non-Financial Information Statements through your teams.
If you want to know more about how we work to create a positive social and environmental impact, click here.