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The Complete Guide To Impact Investing

Finances FYI Presented by JPMorgan Chase

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.

What Is Impact Investing?

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.

Impact Investment Sectors

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.

Who Is Making Impact Investments?

Companies and individuals alike are making impact investments. Common impact investors include:

  • Private foundations
  • Pension funds and insurance companies
  • Corporations
  • Banks/diversified financial institutions
  • Fund managers
  • Religious institutions
  • Individual investors

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.

Investment Criteria

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:

  • Environmental responsibility
  • Ethical responsibility
  • Philanthropic responsibility
  • Financial responsibility

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.

Photo: torianime via 123RF

Impact Investment Examples

Here are some examples of impact investment opportunities supporting social or environmental initiatives.

  • The Bill & Melinda Gates Foundation — The Gates Foundation has a strategic investment fund that focuses on furthering its goal to “embrace science and technology innovations that solve old problems in new ways, challenge the status quo, and build on past breakthroughs.”
  • The Ford Foundation — In 2017, the automaker committed $1 billion of its $12 billion endowment fund to support “mission-related investing,” according to a press release. The foundation’s initial focus was “affordable housing in the United States and access to financial services in emerging markets.”
  • Lok Capital — This fund promotes “inclusive growth in India” and supports Disha Medical Services (Drishti-Eye Centre) with long-term equity investments. Its goal is to provide comprehensive eye care to people who previously didn’t have access to quality eye care.
  • Vital Capital — Vital Capital is a private equity fund that invests in developing areas, including sub-Saharan Africa, “in businesses and projects designed to enhance quality of life and offer substantial investment returns.”
  • Triodos Investment Management — Triodos Investment Management is a subsidiary of Triodos Bank. The firm’s headquarters are in The Netherlands, and it has a 30-year track record in impact investing. Focus areas include sustainable food and agriculture, energy (including renewable energy), climate, financial inclusion, and more.

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.

Finances FYI is presented by JPMorgan Chase. JPMorgan Chase is making a $30 billion commitment over the next five years to address some of the largest drivers of the racial wealth divide.