Written by Laimonas Noreika, CEO and Co-Founder of HeavyFinance
Impact investments offer both financial returns and environmental benefits through their focus on doing social good with private capital. This type of investing has long been appealing to established financiers, but is becoming more popular with all types of investors across the board. It is gaining attention as an exciting way to turn profits while helping the world become a more sustainable place.
In 2015, the United Nations (UN) proposed 17 Sustainable Development Goals (SDG), hoping to create a more prosperous, sustainable future by 2030. It is estimated that developing countries are experiencing a whopping four trillion-dollar investment gap that needs to be filled in order to meet SDGs. The gap extends beyond the abilities of government investment spending and needs to be closed by private equity.
What is Unique About Impact Investing?
Impact investing has the unique characteristic of being modifiable to fit any business’ financial situation and goal. Any sized investment has the potential to drive financial returns and create positive social change. It also helps meet the challenges brought on by the COVID-19 pandemic. Investors are developing strategies for impact in public markets and researching how to merge social and environmental impact into the very fabric of the investment process.
How Impact Investing Benefits Businesses
Impact investments are also thought to be less volatile to market changes, making them a great way to diversify an investment portfolio with lower risk. The nature of these investments also prioritises social, environmental, and health benefits. In this way, impact investing is also a great way to contribute to a company’s corporate social responsibility. This makes impact investment a great alternative to donating; the ROI potential is limitless.
Impact investing can be as small as needed, and often help grow various sectors such as social, health, or environmental-based companies in a sustainable way. This puts company values and company goals together in a positive way; the need to grow is not at odds with the desire to do good.
How Impact Investing Benefits the Environment
Impact investing has the potential to tackle some of the world’s most pressing issues; climate change, poverty, and gender equality. By investing in organisations and projects that focus on social and environmental improvement, impact investing works towards a better future.
More specifically, green investing is a type of impact investing that supports environmentally friendly organisations. This can include businesses developing eco-friendly products or innovation centres working on the next way to produce clean energy. Not only does this type of investment provide financial returns, but it also helps advance the UN’s Sustainable Development Goals (SDGs).
For example, SDG number seven, Affordable and Clean Energy, aims to ensure access to affordable and reliable energy around the world. Investing in innovation centres or tech start-ups dedicated to researching and developing clean energy alternatives is a crucial way to enhance the SDGs.
Impact investments made into companies developing sustainable practices also help tackle SDG number 11, Sustainable Cities and Communities, which aspires to create career and business opportunities while building resilient societies and economies. For example, investments in agriculture can help empower a farmer from a lower economic background by enhancing his business operations and help excel the economy in developing countries.
Best Practices for getting started with Impact Investing
Getting started with impact investing can seem overwhelming as there are so many options to choose from and the question of whether an investment will actually result in positive change is common.
Firstly, it is imperative to examine a company’s financial goals and ability to handle risk. Impact investing is flexible, making it a great option for all business sizes.
Secondly, understanding company values ensures that impact investments coordinate with company goals. This is what makes impact investing so great; investments can be chosen with more than just profit in mind.
Finally, it is important to make data-driven decisions. This begins with proper data collection and management that aligns with stakeholder goals and practices.
Impact investing is becoming more popular every year. Changing the culture around investing to reflect the desire to create positive change as well as turn a profit can help bring impact investing to the forefront of investor’s minds. With the help of private equity investments, SDGs can be met and the future can be a more inclusive, healthy, and sustainable place.