Here’s What You Need To Know About Impact Investing
Are you thinking about bringing some noticeable benefits from the social or environmental perspectives, alongside financial gains? Then maybe it’s time to think about impact investing. For starters, these investments are for generating good impacts on social and environmental fronts while giving great financial returns. It provides capital so that you can address both social and financial concerns.
While the primary concern is the monetary benefit, without building a proper investment strategy, it’s impossible to have productive outcomes. The strategy works in a manner that would ensure the best impact from investing. Most industries that are rapidly growing have the baking of investors. But it tends to shift in the direction of the investment policy that is on the rise.
Impacting investments has the backing of individuals, institutional investors, banks, mention funds, private foundations, and fund manages. And why not? Going by the classic definition of impact investment, it is essentially helping the less fortunate and underprivileged sections of the society. At the same time, it also helps the investor to increase their wealth.
What Are The Types Of Impact Investments?
You can choose these investments that occur in the form of capital and investment vehicles. Much like any other type of investment class, this one also offers investors wide-ranging possibilities regarding returns. But what particularly stands out is that the investments offer financial returns and are in sync with the conscience of who invests.
If you study the Global Impact Investing Network (GIIN) survey carefully, you will notice an interesting phenomenon. It shows how a vast majority of investors who opt for this investment have also been on the lookout for returns made on market-rates.
Coming to industries, impact investments are popular across this healthcare, agriculture, energy, and education sectors.
How Does Impact Investing Work?
While the coining of this term dates back to 2007, the practice has been long prevalen. One of the major goals of impact investing is to reduce the harmful effects of business activities on the social environment. It wouldn’t be hence unwise to term this as a philanthropic venture.
All such investors who resort to this investing strategy are more likely to consider a company’s commitment to adhere to CSR or corporate social responsibility. This is akin to an individual’s basic sense of duty to tend and serve society. Some individuals develop this sense of responsibility even before getting involved with the company or organization. The impact type that emanates from impact investing differs largely. This is primarily because of the industry and the company that belongs to that industry. However, a few examples, like looking after those in need of investing in sustainable energy practices, can help save the planet.
Institutional investors usually take over the lion’s share of the investing, but few socially conscious financial companies or web-based investment platforms and networks allow individuals to participate. Like microfinance loans, for instance, which provide expansion or start-up capital help to small businesses in developing countries. Often, women are beneficiaries of these loans.
Impact Investing Vs. Socially Responsible Investing
In short, impact investing is a subset of Socially Responsible Investing, meaning ‘socially responsible investing.’ But what is SRI? Socially conscious or sustainable investing would be the apt word here. This strategy is often called ‘green investing.’ Going back to socially responsible investing- this encompasses avoiding harm or anything negative; impact investing, on the contrary, seeks to bring about positive impact through investments.
All such investors who rely on socially responsible investing are firm believers in choosing companies that subscribe to views with respect to environmental protection, human rights, and a basic sense of duty and responsibility towards consumers. For instances, a few investors may not want to invest in manufacturers or distributors of cigarettes. Thanks to the negative effect that cigarettes bring on people’s health, they may simply opt-out.
Nowadays, several asset management companies, investment houses, banks, and more are ready to offer funds tailor-made for socially responsible investors. And if that’s in place, it is a great way to get started. This is especially true for those who haven’t really made a move but intended to for a long time. However, make sure you understand the pros and cons thoroughly before making an investment decision. Talking to a financial advisor can help you get a better perspective too.
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