The Basics of Impact Investing
Impact investing is an investment that aims to generate environmental or social effects in addition to financial return. It is a subset of SRI (Social Responsible Investing), but while SRI encompasses avoidance of harm, impact investments are made with the goal of creating a positive impact. They can be made in both developed and emerging markets, and target various returns, depending on the strategic goals of the investor.
The impact investment market is growing and provides capital to address some of the most pressing challenges, such as renewable energy, sustainable agriculture, education, and education.
Characteristics of Impact Investing
The core characteristics of impact investing are:
- Intentionality. The investors must have the intention to make a positive impact on
- Investment with return expectations. They are also expected to generate a financial ROI or a return of capital (at least).
- The range of return expectations. The expected financial returns can range from below market to risk-adjusted market rate. They include but not limited to private equity, venture capital, fixed income, and cash equivalents.
- Impact measurement. The investor commits to measure the environmental and social impact and be accountable and transparent while reporting about their practices of impact investing. The approaches to impact measurement depend on the investor’s capacities and objectives. The best practices include establishing objectives, setting performance metrics, monitoring the performance against these metrics, and reporting to relevant stakeholders.
How Impact Investing Works?
Before becoming involved with a company, impact investors have to consider that company’s commitment to CSR (corporate social responsibility) and see whether they truly make a positive impact in the society. The most common examples include investing in sustainable energy practices and helping the less fortunate, but it depends on the industry. Impact investments are made by institutional investors on the large part, while a range of socially conscious investor networks, web-based investment platforms, and financial service companies also participate.
Why Choose Impact Investing?
The environmental and social issues that impact investing addresses need to be tackled. This way, impact investment calls into question the long-held view that these issues should be something only philanthropic donations should address. Market investments need not be focused solely on maximizing their ROI and impact investing offers different opportunities for investors to help and get their returns at the same time.
Common Investor Motivations
- Development finance institutions and government investors. They can target specific environmental and social goals by providing proof of financial viability for investors from private sectors.
- Family and institutional foundations. They can leverage greater assets to advance to their philanthropic goals while growing or maintaining their overall endowment.
- Wealth managers, financial advisors, pension funds and banks. They can provide investment opportunities to institutions and individuals.
Impact investments attract both individual and institutional investors, such as individual investors, fund managers, private foundations, development finance institutions, insurance companies and pension funds, family offices, religious institutions, and non-governmental organizations.
The Impact Investing Market Today
Recently, there has been growth in new collaborative efforts (on an international level) to speed up the development of the impact investing market. Even though some investors have been making impact investments for decades, the market is still relatively new. Investors expect increased efficiency and scale in the future.
Blackhawk Partners investment professionals can help by guiding you through the realm of impact investing. As a top-tier strategic advisor and investor, we can aid in deciding where to make the best possible impact investment while making sure that it is aligned with our combined business objectives and philanthropic mission.
Investing the time up front to clarify what will move the needles dramatically increases the odds that simple rules will be applied where they can have the greatest impact.