Identify Target Social Or Environmental Outcomes
The second step in calculating an IMM is identifying the desired social or environmental outcomes and determining whether existing research verifies that they are achievable and measurable. Fortunately, investors can draw on a huge array of social science reports to estimate a companys impact potential. Over the past decade foundations, nonprofits, and some policy makers have relied heavily on research results to guide funding for social programs. This what works movement has spurred the development of an industry around social-outcome measurement, led by organizations such as MDRC, a nonprofit social-policy research organization the Abdul Latif Jameel Poverty Action Lab , at MIT and Mathematica Policy Research, based in Princeton, New Jersey.
For AlcoholEdu we drew on a 2010 randomized controlled trial demonstrating that students who had been exposed to the program experienced an 11% reduction in alcoholrelated incidents such as engaging in risky behaviors, doing or saying embarrassing things, or feeling bad about themselves because of their drinking. That would amount to some 239,350 fewer incidents. According to the National Institutes of Health, alcohol-related deaths account for about 0.015% of all deaths among college students in the United States. Rise estimated that AlcoholEdu would save 36 lives among the approximately 2.2 million students who were projected to engage with the program over a five-year period.
Climate Impact Investing Can Super
We all do our best to address climate change – but did you know that your personal finances could be even more powerful than eco-actions such as recycling and living car-free?
Take your superannuation, for example – Future Super, which specialises in fossil-fuel-free Super, has measured the impact you can have when you switch your Super to a sustainable option :
Other climate impact investments include banking, energy retailers and giving companies you already invest in a little shove to do better with their climate targets by voting at Shareholders’ AGM. And if we collectively demand more sustainable options for our finances – imagine the systemic change we can drive!
What could that mean for you?
Not only will Climate Impact Investing allow you to positively impact the planet, but it also has more perks specifically for you!
Similar to any act of Impact Investing, Climate Impact Investing will allow you to grow your wealth through the generation of substantial returns.
The S& P Global Clean Energy Index is a great example. Measuring the performance of 30 companies from around the world that are involved in clean energy-related businesses, comprising a diversified mix of clean energy production and clean energy equipment and technology companies, has displayed a 33.05%* annualised 3 years return
Not too shabby if you ask us!
How Does Impact Investing Differ From Other Forms Of Investment
Since impact and traditional investing are related, it may be challenging to set them apart. However, there is a definite difference between them. First, an impact investor is only interested in socially responsible investing. They never just put money anywhere.
Impact investing has both monetary return and environmental impact. The investor will be interested in learning both of them.
That should also be reflected in your proposal. It is the only way to convince any impact investor to put money into your business or company.
How your company will contribute to climate change should be clearly spelled in the proposal, which is not a necessity in the case of other investment plans. Impact investors are eco-conscious.
They are looking for companies and businesses with the potential to make the planet a better place for current and future generations.
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Examples Of Impact Investing Firms
Vital Capital Fund: Vital Capital Fund is a private equity fund focusing on emerging areas, principally sub-Saharan Africa. Their primary investment focuses on developing infrastructure, housing, agro-industrial projects, renewable energy, health care, and education.
Triodos Investment Management: Triodos Investment Management is a subsidiary of Triodos Bank and one of the founding members of the Global Impact Investing Network, managing a dozen sustainable investment funds. With its investments spread throughout Europe, South America, Africa, and Southeast Asia, the main areas of interest include sustainable food and agriculture, green energy, health care, and education.
Reinvestment Fund: The Reinvestment Fund is a non-profit community development financial institution operating primarily by assisting distressed neighborhoods and communities in the United States. The fund finances housing projects, access to health care, educational programs, and job initiatives. Additionally, it provides U.S. cities with public policy advice and data analysis services to assist in developing community initiatives.
Understand The Impact Investing Ecosystem
The impact ecosystem is divided into four levels. You can decide which of these you want to invest in. Lets again quickly highlight the different layers for ease of understanding.
- Asset owners: This is where you belong if you want to join the impact investing sphere. Financial performance will be your second consideration after ESG factors. Once you become an impact investor, you will have to build a system for measuring impact.
- Asset managers: These professionals assess the impact investment to understand the portfolio to avoid harm. They also report to asset owners about the performance of their portfolios.
- Asset: This is the actual item of trade used to solve the problem and generate returns.
- Impact advisory: This level also consists of professionals who offer advice on portfolio construction and maintenance.
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What Is Impact Investment
In a 2017 survey of the global community of impact investors , the Global Impact Investing Network reported that those 200+ entities manage more than $100 billion in impact assets.
Just a year later, in that same annual survey, that number jumped from $100 billion to $228 billion in impact assets . In 2017 alone, respondents invested more than $35 billion across 11,000 impact investment deals, and in 2018 that number is expected to grow by 8%.
Listen to a powerful presentation from Amit Bouri, GIIN Co-founder and CEO, on trends in impact investing. According to Amit, impact investing has made tremendous progress. However, current progress is not enough to make a long-term system change to reduce income inequalities, which have grown even more after the COVID-19 Pandemic. The current system is not working. Everyone from business, impact investment to philanthropy needs to make a significant shift to improve the environment and equality and equity.
Start Small But Start Now
Like any investment, impact investments need time to yield higher, more impactful returns. For this reason, start your impact investing now rather than later. Even if you have only a small amount of money to invest, it can go a long way. It may even be in your best interest to start small so you can begin to understand your risk tolerance toward impact investments.
The beauty of impact investing is that you can customize it to fit your goals and what you value. By diversifying your investment portfolio, youll be able to maximize your returns, which will provide you with money to put toward retirement or the purchase of an annuity, as well as the ability to say you made a difference in the world.
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When Impact Investing Is Worth It
There is more to life than building wealth, enjoying family and taking a spontaneous personal day every few months. As we enter the season of giving, its time to reflect on how we can do more with a greater purpose and intent.Since we all have a myriad of personal and professional responsibilities, any spare time we have is precious. We can use that time to volunteer for causes and organizations that align with our values, or we can commit to giving charitable contributions that will create a positive impact in our communities. A $10 bill donated to the local food bank at the local grocery store checkout will help families enjoy a Thanksgiving meal, and its certainly a great start.But, what if there was a way to make that $10 bill do double duty by investing it instead?Its not always about return on investmentits about rethinking ROI as “return on impact.” You can make a difference by exploring options beyond the traditional investment products and into the fascinating world of social impact investing.
Corporate Impact Investing: Will It Bring In New Money
As the global economy grows more volatile and aid budgets are increasingly stressed, financing the Sustainable Development Goals has become more challenging. But there is a mostly untapped pool of capital that could bring new money to address such challenges: corporate balance sheets.
The conversation on how to mobilize private capital to close the growing SDG financing gap, which is estimated at $4.2 trillion a year, has largely focused on how to attract more investors. But corporations can also play a key role, not only through their products and services but by using their own financial assets, said Amit Bouri, the CEO of the Global Impact Investing Network.
Its clear that public funds wont be sufficient. So impact investments, which have intentional investments with specific, measurable, targets and objectives, for example around energy access, health care, or reducing poverty, could be part of the solution.
Companies worldwide often sit on large amounts of cash for acquisitions, operations, and as a backstop for future challenges. Could some of that be turned into corporate impact investments that could reduce poverty, improve health, or support climate adaptation?
The potential isnt entirely clear, but GIIN estimates that there is some $2 trillion of capital in those corporate coffers and recently launched an initiative designed to help them utilize cash balances and investments for positive impact.
Read more:
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How Does Impact Investment Contribute To Csr
Corporate Social Responsibility is about organizations giving back, doing good, and investing money into chosen causes. Impact investing is about using the investment to achieve the same ends. Most importantly, the two complement each other.
Examples of Corporate Social Responsibility:
- Community programs
- Educational programs
Here, its also important to recognize that where CSR efforts, which are largely non-profit, are often non-sustainable , impact investment often doesnt have the same problem. Starting a company or group, starting a for-profit organization, or investing in a for-profit organization doing social good will continue to generate rewards and social good long after you stop investing in it. The only catch is that any initiative you start or invest in must be properly managed and maintained independently, which is where CSR efforts of coaching, mentoring and offering volunteer labor can greatly aid your impact investment.
Align Investing With Your Values
This is what some people term as being specific. We have seen how broad the impact spectrum is. And fortunately, you already know areas to focus on according to your values.
You will not be investing your funds blindly. A good indicator of your value is your charitable contributions. Check where you have given donations as a symbol of areas to consider.
Do you want to help orphans get an education, promote the building of health facilities, reduce pollution, care for the elderly, or where do you want your funds to go?
Define the specific problem. Maybe you have seen poor road networks and want to contribute towards infrastructure development.
The ESG problem can be global or local. For example, your impact investment can help reduce global warming. That makes you a global impact investor. But if your impact funds contribute towards solving the food crisis in your country, that is local impact investing.
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What Is Esg Investing
ESG investing is when an investor makes capital allocation decisions based upon their understanding and analysis of specific environmental, social, and governance factors or assessment criteria.
ESG investing strategies depend largely on the funds ethos, but techniques may include negative screening , positive screening , or thematic investing .
Thematic investing is an area where impact investing and ESG have some crossover. For instance, our examples earlier are funds with impact-oriented, thematic underpinnings.
Many institutional investors and financial services companies have constructed both impact and ESG funds, which have mostly taken the guesswork out of values-oriented investing for everyday, retail investors by allowing them to purchase mutual funds and ETFs that align with their own beliefs .
What To Look For In Impact Investments
To make sure your investment is financially sound, research the same variables you would for any other type of investment. Consider the companys stability in the market, its debt-to-equity ratio, potential dividends and other key metrics that verify its financial success.
However, for these types of investments, youll also want to look for more than the possibility of a financial return.
Impact investing expert Rachael Browning told Forbes, It is stuck in both the old way of perceiving returns and the hope for doing things better in the future, in a world that desperately needs ambitious impact-driven capital.
Although there is the potential financial return, you should determine what alternative type of return you would like to realize to achieve your goals.
There are typically three distinct categories of impact investments that may align with your values environmental goals, social responsibility and governance factors.
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Impact Investing In The Uk Market
Globally, impact investing has experienced steady growth over the past decade, but there has been solid progress in measuring and managing impact. According to the Global Impact Investing Network, the total global market for impact investing was estimated at around $715 billion in 2019.
Weve seen an increase in the number of equity deals involving impact investment firms within the UK private sector. 2021 was a big year for impact rounds. There were over 50 deals announced.
Since 2015, the value of these equity investments has grown year on year. According to Beauhurst, 2021 saw the most significant amount of money invested in impact investments, at a record £368 million. This represents a 109% increase on last years £176 million and a 504% increase on 2011s £60.9 million. The number of impact investments will keep growing as more people mix ethics with investing.
Put Your Money To Work
Impact investing, which is putting your money into social, environmental, and health causes, is a more intelligent use of your money.
Some companies may opt to give the money to charitable organizations as donations or grants for the same reasons. However, you dont get any returns and write off the ownership. We are not saying it is a bad idea to donate, but impact investing will give you a higher ROI for your business or company.
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Measure And Increase Your Impact
Learning how to measure your impact is a crucial step in impact investing. However, it is not an easy task because different companies report their ESG data differently. But for you to increase your impact investment, you need to be sure that your goals are being met.
Impact investors are mainly interested in solving a problem or supporting a course that results in positive impacts. Returns come second on the priority list. That calls for monitoring the social or environmental benefits of your investment.
The best way to do it is by using third-party organizations that bring together like-minded investors to promote their interests to company managers. They usually have better data collection methods, portfolio management strategies, reliable analytics, and transparent reporting.
If the results align with your values, you can increase your impact investment. But again, it should be done in stages.
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What Is Impact Investing Really
Impact investing is loosely defined as investments with both a social and financial return. However, you can further define impact investment as:
- Your impact investment must be intentionally chosen to have a positive social or environmental impact
- You must expect your investment to have a return on capital or a return of capital
- Your investment can range from concessionary to risk-adjusted market rates, in cash equivalents, fixed income, venture capital, private equity, and others.
- Your impact investment report must be measurable in terms of financial and social/environmental performance, to ensure transparency and accountability
- Your investment is made according to defined objectives with set metrics or targets to gauge performance
This means that impact investments can vary a great deal based on their stakeholders, relevant social and environmental objectives, and any targets or metrics used to define a good investment.
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What Is Impact Investing And Does It Contribute To Csr
So, what is Impact investing? And how can it help your corporate social responsibility strategy? Impact investing is an increasingly popular corporate social responsibility strategy , allowing organizations to drive value while contributing to social good. Impact investments are, in short, any investment made with the intent to create positive social change alongside a financial return, making them a good bet for organizations wishing to improve public image, to do good, and to invest funds.
While examples of impact investments can range from sustainable energy, agriculture, micro finances, housing, healthcare, education, or even conservation they all achieve something socially and financially positive. Impact investments will contribute in different ways, may generate financial returns at a variety of rates, and will have a different range of impact on your public image and CSR strategy.
