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What is Impact Investing? Doing good with your dollars.

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9 October 2023 Read time: 3 min
Expert Reviewer Paul Kearney, CPA, CFP®

In an age where ethical and responsible choices are at the forefront of our decision-making process, impact investing has emerged as a powerful tool to grow your wealth whilst also making a positive difference in the world. In this article, we delve into the world of impact investments and how they can be used to “do good with your dollars”. So if you’ve ever wondered what is impact investing and are curious why it even matters, read on.

What is Impact Investing?

Impact investing is an investment approach that aims to generate positive and measurable social and environmental outcomes, whilst generating a financial return.

This type of investing is about making a difference; not just making money. Impact investors actively allocate their capital to businesses, projects, or funds that aim to address social and environmental challenges.

The “growing impact investment market provides capital to address the world’s most pressing challenges” such as poverty, inequality, climate change, and access to clean water and healthcare. 1

In this way, impact investing is tied closely to the UN’s 17 Sustainable Development Goals (SDGs) which you can read more about here.

 

The elements of Impact Investing.

Impact investing is characterised by several key elements that distinguish it from traditional investment approaches.

The three main elements of impact investing include:

Intentionality
Impact investing is purpose-driven. Investors intentionally set out to generate positive social or environmental impact alongside financial returns. The primary goal is to make a meaningful difference.

Measurable Impact
Impact investments have measurable, quantifiable and transparent outcomes. Investors set clear objectives and then assess the impact of their investments using specific metrics. For example, metrics might include targets like: reduced carbon emissions, improved access to education, or increased job opportunities in underserved communities.

Expected Risk & Returns
Like traditional investments, impact investments involve an assessment of risk and return. Investors expect a financial return on their investment, or at minimum, a return of capital. The risk-return profile varies depending on the specific impact investment. Typically, returns range from slightly below market (sometimes called concessionary) to market rate returns.

You can learn more about the other Elements of Impact Investing here.

 

Why does Impact Investing matter?

Impact investing is not just a passing trend. It’s a movement that’s gaining momentum worldwide.

Here’s why it matters:

Creating momentum and market demand for positive change.
Impact investing channels funds into initiatives that aim to solve some of “the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education.”1

As market demand grows for impact investments, both the quantity and the quality of investment opportunities grow. Global reporting standards, consistent terminology and measurements, and professional capability is also growing in lock-step.

Moreover, many impact investors aim to scale their impact over time. This, in turn, contributes to broader, system-wide change. By influencing industries and policies, impact investors can have a lasting and substantial effect.

Aligning with Values.
Impact investing enables investors to directly support causes they are passionate about.

Whether it’s promoting sustainability, gender equality, or social justice, impact investing allows you to put your money where your mouth is. And, who doesn’t feel good about using purchasing power to advance their principles?

Financial Returns.
Contrary to the misconception that impact investing sacrifices financial returns for social impact, numerous studies have shown that it can be financially rewarding.

According to the latest report from the Responsible Investment Association of Australia (RIAA), 92% of impact investors met or exceeded their financial expectations. And at the same time, 93% felt their levels of impact met or exceeded their expectations.

This shows that as part of a well diversified portfolio that uses other screening techniques for responsible investing, impact investing not only does good for the world, but also your own financial wellbeing.

 

So go on. Consider doing good with your dollars.

The days of big financial gains at the cost of our community and planet are numbered.

With the rise of impact funds and ESG, investors are voting with their feet – leaving traditionally extractive investment practices behind and pushing hard for ethics-based, responsible offerings.

In a world where our actions and choices have far-reaching consequences, impact investing is a powerful way to align your financial goals with your values. Because your investments can be a force for good, and when managed well, they also can make a meaningful impact on the world.

Contact us to discuss your impact investing goals, ESG performance or how our Investment Philosophy might help you put your money toward a better future.

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