Impact investing serves a dual purpose — creating positive social and environmental change while achieving corporate or personal financial gains. According to The Brainy Insights market research firm, the global impact investment market was valued at $3 trillion USD in 2023 and is projected to reach $7.78 trillion by 2033.
If you are new to this increasingly popular investment strategy, check out this impact investing guide to learn more about it.
Impact investing is a strategy that seeks to effect positive social or environmental change while generating a financial return.
For example, you invest in a company that aims to revolutionize solar energy. That company hopes to attract investors to support its goals. When you invest in the organization, you share a common environmental goal to harness and, hopefully, revolutionize solar energy.
Along with supporting a positive, sustainable effort for the planet, you, as the investor, also hope to see financial returns on your investment.
According to the Global Impact Investing Network (GIIN), impact investing dollars help fund initiatives in various global sectors, including sustainable agriculture, conservation, microfinance, and renewable energy, and create “affordable and accessible basic services including housing, health care, and education.”
In many areas, impact investing seeks to invest capital that supports and enables the greater good for people and the planet.
Companies and individuals alike are making impact investments. Common impact investors include:
A financial advisor can steer individual impact investment clients or businesses toward investment opportunities that align with social or environmental causes they support or wish to support.
Investors’ financial return expectations vary. According to GIIN’s 2020 Annual Impact Investor Survey, 67% of respondents seek risk-adjusted, market-rate returns.
Impact investors look for specific criteria when choosing a company to invest in. Namely, companies with environmental, social, and governance (ESG) practices “that have ethical governance, prioritize the well-being of workers in their supply chain, or work towards positive environmental outcomes and sustainable business practices,” according to Investopedia.
They may also practice socially responsible investing (SRI) and choose to avoid investments in businesses that produce tobacco or have poor working conditions. By comparison, they can also invest in companies that make solar panels or other sustainable efforts.
Some may consider combining ESG and SRI factors when making investment picks. Many investors appreciate companies that are transparent about their corporate social responsibility (CSR). A CSR is accountable to itself and its shareholders in four focus areas:
When a company fulfills these CSR commitments, it helps build trust with investors. In the same GIIN survey, 88% of investors noted that their investments have met or exceeded their financial objectives.
Here are some examples of impact investment opportunities supporting social or environmental initiatives.
Impact investing allows investors who want to help create positive environmental and social change to support various sectors worldwide. This global investment strategy is a win-win for investors and investees alike.
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