What is Impact Investing? It’s Doing Well by Doing Good

We've broken down everything you need to know

Maria Collinge
September 6, 2023
(Photo: Logan Weaver/Unsplash)
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As human beings, we are hard wired to want to help others and make a positive impact on the world. The good news is that there are now more ways than ever to make a difference and impact investing is one of them. Whether you're looking to support renewable energy or reduce poverty, impact investing offers a unique opportunity to align your finances with your values.

The act of helping others and supporting causes you care about has traditionally been associated with giving away money. But what if we told you that it’s actually possible to make your money grow in the process? This is precisely where impact investing comes in.

What is impact investing?

As an empowering investment strategy, impact investing allows individuals to align their financial goals with positively impacting the world. By choosing to invest in companies and industries that are making a difference, impact investors can feel empowered knowing that their wealth is supporting ethical values.

But, it's not just about doing good in the world –  impact investing can also lead to impressive financial returns. Taking this approach to investing sends a clear message to corporations that social responsibility matters, and investing in positive impact is a priority. These investments have the power to support important initiatives and movements, all while ensuring that the investor's portfolio is a reflection of their values. 

(Photo: Caldo/Death to Stock)

Impact investing vs sustainable investing

It's a common misconception that impact investing and sustainable investing are the same thing – put bluntly, they're not. While sustainable investing looks at environmental factors, such as CO2 emissions and carbon footprint, impact investing includes a wider range of values and considerations. 

Beyond environmental concerns, impact investing also takes into account important factors such as leadership, modern slavery, and child labour. In essence, impact investing empowers individuals and organisations to invest not only in the health of our planet, but also in the health and wellbeing of individuals and communities.

Why is impact investing important?

The clock is ticking, and the stakes are high. At the current pace of progress, climate change alone will have permanently transformed the world before women achieve equal representation. It's a sobering thought, and one that sends a clear message: we can no longer afford to wait for change. 

Fortunately, we do have one powerful tool at our disposal – financial power. Impact investing allows us to put our money where our values are, and make a tangible difference in the fight against climate change, labour rights and gender equality. By investing in socially responsible ventures, we can help to build a more equitable world for all. Doesn’t that feel good?

"It's simply about having access to the right tools and knowledge"

How does impact investing work?

This approach involves investing in companies, funds, and projects that deliver both environmental and social returns, aiming to create lasting change and promote sustainable economic development. Through impact investing, investors can attract capital and entrepreneurial talent to companies that create positive change, leverage their power and influence to encourage companies to improve their social and environmental performance, and contribute to a more sustainable future. 

Whether it's through shareholder engagement in public markets or direct investment in impactful ventures, impact investing provides a unique and effective way to maximise financial returns while making a meaningful difference in the world.\

3 myths about impact investing

1. An investment either makes an impact or it doesn't

While some may believe in the existence of a perfect investment, the truth is that it doesn't exist. Just like finding true love, it requires compromise and prioritization of different values. Whether it's protecting animals, promoting diversity, or tackling climate change, impact investing allows you to make a difference while achieving financial returns. So don't be discouraged by the lack of a perfect investment. Instead, embrace impact investing and use it to empower yourself and create a better world.

(Photo: JP Valery/Death to Stock)

2. Impact investments give a lower return

The question of whether impact investments outperform traditional investments has been the subject of endless debate. While some years the sustainable investments outperform, there are times like in 2022 when traditional investments have the upper hand due to unforeseeable events. This reminds us that impact investing is not so much about chasing returns, but rather about making a positive impact on the world.

3. Impact investing is difficult

Investing has always been viewed as a risky venture. However, with the growing awareness of the impact investing trend, there is a renewed sense of responsibility and power that comes with investing. Impact investing doesn't have to be difficult – far from it. It's simply about having access to the right tools and knowledge. Once you have armed yourself with this knowledge, you can take the first steps towards making a meaningful impact.

Does impact investing mean compromising on returns?

No! Impact investing has proven to be a powerful tool for those who want to make a positive impact on the world while also meeting their financial objectives. According to the Global Impact Investing Network, nearly 70% of impact investors reported that their investments helped them achieve their financial goals. Even more impressively, a fifth of them even exceeded these goals. This statistic shows that it’s possible to make a real difference in the world while also making smart financial decisions.

Women and impact investing

Women are proving themselves as a driving force behind a this up and coming form of investing. It's no surprise that women are leading the charge in this area, with studies showing that they prefer to put their money towards institutions and businesses that prioritise sustainable practices and do social good. In fact, about 52% of women would rather invest in companies that have a positive social or environmental impact, according to a recent poll by Cerulli Associates. That’s true for 44% of men.

The trend exists beyond US borders, too. About 43% of women (versus 34% of men) think a company’s stance on social or environmental issues is “very important” when deciding whether to invest, according to S&P Global, which polled investors in 11 countries, including the US. This growing body of research shows that women are more likely than men to marry their values with their investments, meaning that impact investing is opening up a meaningful avenue for women to break into the investing world in a way that works for them.

Final thoughts on impact investing

Are you tired of feeling helpless in the face of global issues like climate change, social injustice, and gender inequality? It's time to take action and use our personal and financial power: money. The concept of impact investing empowers you to make a difference with your financial decisions. It isn’t just about feeling good about your investments, it's about recognising the power of money as a tool for change. 

We truly do have the power to shape the future we want to see by investing in companies and initiatives that align with our values. By stepping into our financial power, we can use our money as a voice for change and make the difference that the world needs to see right now.