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5 Reasons Why Impact Investing is Important

In a world where pressing social and environmental issues abound, it is more important than ever to invest in solutions that will have a positive impact. One way to exercise responsibility is through impact investing. Impact investing is the act of making an investment in a company or project with the goal of achieving social or environmental impact, as well as financial return.

Impact investing is a type of investment strategy that, in addition to financial rewards, strives to have positive social or environmental effects. Impact investments can take the form of a variety of asset classes and have a variety of results. Below, we will explore five reasons why impact investing is important.

The Goal of Impact Investing

The goal of impact investing is to use money and capital to achieve positive social outcomes. While the financial returns of impact investments are often lower than traditional investments, the hope is that the positive social or environmental impacts will make up for this difference. Impact investing is a relatively new field, but it has already attracted interest from a number of high-profile investors.

There is No Such Thing as Neutral Investment

Every investment has a measuring impact. Every investment is a decision to make the world more like one thing and less like something else. When you invest in a socially blind or ethically dubious company, what impact does that have on the world? Businesses, after all, are the engines that drive our economies, and your money is the fuel that powers them.

As socially responsible investors, we need to ask ourselves what impact our investments are having on the world. Are we funding companies that are polluting the environment or contributing to social injustice? Or are we supporting businesses that are working to make a positive difference?

When you invest in companies that are making positive changes in the world, you are not only helping to create a better future for everyone, but you are also supporting businesses that are more likely to be successful in the long run. Sustainable businesses are resilient businesses, and they are usually better managed too. So ask yourself: what kind of world do you want to live in? And then invest accordingly. because remember – there’s no such thing as a neutral investment.

The argument that your investment management don’t matter, or that you can invest without consideration is untenable. We have a choice when it comes to how our money influences the future, and it’s time to start making choices.

Businesses Will Not Alter if Not Influenced

Businesses have always been a source of innovation and change. In the past, businesses have been the drivers of world-changing innovations such as the automobile, the telephone, and the internet. Today, businesses are once again at the forefront of innovation, with companies leading the way in developing new technologies that are changing the world.

However, not all businesses are equally responsible when it comes to environmental sustainability. In fact, a large number of businesses are still engaged in practices that are damaging to the environment, such as emissions from factories, deforestation for palm oil plantations, and the overuse of plastics. If we want to create a sustainable future for our planet, it is essential that we encourage businesses to adopt sustainable practices.

One way to do this is through government regulation. By setting standards for emissions and other environmental impacts, governments can incentivize businesses to adopt more sustainable practices.

Another way to encourage sustainable business practices is through consumer pressure. When consumers demand products that are environmentally friendly, businesses have no choice but to respond.

Finally, impact investors can also play a role in promoting sustainable business practices by investing in companies that are leading the way in sustainability. By working together, we can ensure that businesses play a positive role in creating a sustainable future.

It Can Make a Difference

Pessimists have said that Impact Investing is a fad or that the benefits of socially responsible investing are exaggerated. In fact, when JP Morgan and the Rockefeller Foundation published a report claiming that by 2020 Impact Investing would reach between $400 billion and $1 trillion in assets under management, they had doubts. 

In 2020 the market reached roughly $715 billion in assets under management according to GIIN, and roughly $2.1 trillion according to the International Finance Corporation (IFC). Despite the challenges of 2020, estimated growth for 2021 is between 20-30%. 

This growth can be attributed to an increase in awareness of the impact of our investment choices as well as an overall shift in culture. Younger generations are increasingly interested in making a difference with their money and establishing a values-based approach to their finances. At the same time, we are seeing a growing number of institutional investors who are focused on long-term sustainability and resiliency and recognize that environmental, social, and governance (ESG) factors are essential to consider when making investment decisions.

In a world that is increasingly connected and interdependent, the decisions made by companies can have a big impact on society. As consumers become more aware of the social and environmental impact of their purchasing choices, they are beginning to demand that companies take responsibility for their actions. Those companies that are able to respond to this demand will find themselves at the forefront of a new wave of sustainable business. Those that don’t will be left behind

A Safer Way to Invest

How risky an investment depends on who you ask. A thrill-seeker in search of a boom or bust investment will have a different perspective than a long-term investor interested in slow, steady, low-risk growth. The beauty of Impact Investing is that it can suit the needs of both types of investors. 

Contrary to popular belief, Impact Investing is not inherently more risky than traditional investing. In fact, Impact Investing can provide a type of security that traditional investments can’t—protection against the demands of a socially conscious world. With traditional investments, there is always the risk that public opinion will turn against a company or industry and cause a sudden drop in value. This risk is mitigated with Impact Investing because companies and industries that do well socially and environmentally are less likely to be affected by negative public opinion. 

So, whether you’re the type of investor who loves a good thrill or you prefer slow and steady growth, Impact Investing has something to offer you. And you can rest easy knowing that your investment will have a positive impact on the world while it grows.

It Can Make Financial Returns

The greatest myth surrounding Impact Investing is that you’ll always see a worse return on your investment. That’s simply not true. Looking back to tumultuous 2020, sustainable funds weathered COVID’s effect on the market better than traditional funds. 

Consider these key findings from Morgan Stanley

  •     U.S. sustainable equity funds outperformed their traditional peer funds by a median total return of 4.3 percentage points.
  •     U.S. sustainable bond funds outperformed their traditional peer funds by a median total return of 0.9 percentage points.
  •     U.S. sustainable equity funds’ median downside deviation was 3.1 percentage points less than traditional peer funds.
  •     U.S. sustainable taxable bond funds’ median downside deviation was 0.4 percentage points less than traditional peer   funds.

And why wouldn’t they? The future demands preparation for our changing climate, and it demands cognizance of issues like diversity and inclusion. 

Impact investing is important. It has the potential to make a real difference in people’s lives all over the world, and it’s something that we should all be paying attention to.

Looking for more information?

If you’re using an advisor, check out our previous blog post, Are you asking your investment advisor the right questions?

Start Investing for Good and Reap the Rewards

We believe that impact investing is one of the smartest, most efficient ways to invest your money. Not only will you be doing good, but you’ll also be doing well financially.

If you want to learn more about impact investing, reach out to Changemakers. We would be happy to introduce you to some of the best minds in this growing field.

Start Investing Confidently

We can connect you with a socially and environmentally responsible investment advisor so you can put savings away while investing in companies dedicated to saving the planet.