Impact Investing – Definition

Cite this article as:"Impact Investing – Definition," in The Business Professor, updated July 29, 2019, last accessed July 11, 2020, https://thebusinessprofessor.com/lesson/impact-investing-definition/.

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Impact Investing Definition

Impact investing refers to a form of investment that is tailored towards generating significant environmental and social impact. Companies and organizations that are socially responsible are scouted by investors or individuals that want to make impact investing.

The main aim of impact investing is to make a significant and positive impact through investing, this is however in addition to financial gain or financial return. It is important to know that impact investing is not the same as socially responsible investing, they have similar practices but not entirely the same.

A Little More on What is Impact Investing

Socially responsible investing places priority on avoiding companies that cause harm to the societies such as tobacco producing companies, gambling outlets, ponorgraphy indutsries and others. Impact investing, on the other hand, is beyond the avoidance of companies that are harmful to the society, rather, the goal is to add positive value in terms of significant social, economic and environmental influence.

Impact investing has been in practice long before it was coined. The term emerged in 2007 and the objective of this form of investing is to make positive impacts and reduce adverse effects of the activities of industries on the environment or society.

How Does Impact Investing Work?

Investors achieve positive impacts socially and environmentally through many forms of investing, impact investing is one of them. Individual investors and institutional investors engage in impact investing. The loyalty of a company to corporate social responsibility (CSR) is crucial to impact investing. Also, different companies have varying degrees of social and environmental impacts, investors consider the level of impact a company has before investing.

Usually, institutional investors engage in impact investing more often. Profit is not always the focus, but how they can give back to society, make positive impacts and have social gains are important factors they consider. For example, investors can invest in sustainable technological innovations, sponsor microfinance loans, among others.

Financial Benefits of Impact Investing

For impact investors, the main objective of impact investing is not to make profits. However, in the process of making positive impacts socially and environmentally, companies that are dedicated to projects of this nature attract some financial benefits, so also investors who put money in them. The Global Impact Investing Network (GIIN) established in a 2018 study that quite a high percentage in investors make more than they project by participating in impact investing.

The Future of Impact Investing

The significance of impact investing is one that will transcend beyond the present moment and last to the future time. This reason for this is because not only is the older generation interested in impact investing, the younger generations are also inclined in terms of social and environmental responsibility.

In summary, there is a future for impact investing. Millennials are also interested in positively contributing to the society. Individuals and institutional investors are beginning to contribute more towards good cause, more companies are committed to social and environmental responsibility, not only because of the financial benefits but also to make positive impacts.

References for “Impact Investing

 

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