It is 2021 and we have no doubt that you have heard the term Impact Investing. But what exactly is Impact Investing?
According to the Global Impact Investing Network (GIIN), impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
Impact investments can be made in both emerging and developed markets and target a range of returns from below market to market rate, depending on investors’ strategic goals.
The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education.
The video below explains it best:
Why does impact investing matter?
The UN’s 17 sustainable development goals had alerted us to long-simmering inequalities and social challenges, but the pandemic has abruptly laid them bare. The remedy is not merely in short-term interventions such as a successful vaccine rollout, but in a sustained reallocation of capital into businesses that can move the needle on a more equitable, long-term recovery.
Impact Investing is one such strategy.
Impact investing could encourage more people to get involved in efforts that have been traditionally relegated to philanthropy or charitable contributions.
There are also the financial returns to consider. Multiple studies have shown that investors can build ESG-focused portfolios without compromising returns. In fact, Morningstar found that in 2019, US-based ESG funds actually outperformed their conventional fund peers.
How to get involved?
The impact space in South Africa is slowly growing. there has been a shift from “why we should consider impact”, to “how we practically implement impact strategies”. The participants have also changed from more niche players to the largest Asset Managers on the continent.
Most direct Impact deals are still only available to institutional investors, but the retail market is growing steadily. When assessing Asset Manages, we look at their ESG (Environmental, Social and Governance) framework or their SRI (Socially Responsible Investment) policy. These add an extra layer of scrutiny to the underlying investments a fund may choose to hold.
Over time, we will reach a tipping point where the number of investments with an embedded impact exceeds those without, and perhaps “impact investing” will be a misnomer as all investing will carry with it some form of impact.
We will look back and be fulfilled knowing that our investments not only returned a decent return, but also had a positive Social and Environmental Impact.