Around the world there is a growing desire to address climate change challenges, such as poverty, financial inclusivity, and other increasingly important and urgent issues. This desire has created a new type of investing – impact investing – which prioritises social and/or environmental benefits. Rather than investing in certain projects for pure profit, impact investors puts their money into projects that will reap rewards for the environment and communities.
Examples of investment options that are appealing to impact investors include clean-tech businesses that are creating environmentally-friendly solutions, and not-for-profit organisations that work to create improvements in communities.
Different to a traditional investor, an impact investor looks at the following factors when making an investment: intent, contribution and measurement.
The intent of impact investors is to find the causes that they are passionate about and to identify the beneficiaries of their investments. Impact investors must identify the environmental and/or social challenges that they hope to improve with their investments. The impact investor’s contribution should also be shown to have made a demonstrable impact, either financially or non-financially – showing how their donation helped to achieve a goal. Investors must also find a way to measure how their investment has created a positive impact in social or environmental terms, and they should keep track of their progress in order to amend their investing where necessary to achieve their stated goals.
As Jonathan Bennion-Pedley knows, there are many different ways for investors to make an impact. Most impact investors fall into one of two categories: the ‘impact first’ investor or the ‘finance first’ investor.
The State of the Global Impact Investing Market
An ‘impact first’ investor looks to invest in projects that will directly contribute towards an issue. Enterprises that offer products or services that create a positive impact on the community are favourable to an ‘impact first’ investor, and whilst some of these enterprises are not-for-profit, others do generate a profit; however, this profit simply enables their work to continue.
In contrast, a ‘finance first’ investor looks to invest in for-profit companies that operate in the area of environmental and/or social change. An example of a suitable company for a ‘finance first’ investor is a housing company that delivers sustainable housing.
Jon Bennion-Pedley has
founded a business that gives advice and analysis on fund generation. Popular
with the younger generation of investors, impact investing benefits companies
that have committed to environmentally and socially-minded practices, and
investors tend to invest in the organisations and initiatives that reflect their
own ethics and interests.
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