Organizations that have a positive social or environmental effect on the world are sought out for impact investment. Typically, the work they do will be measured in terms of how many children are given an education, how much waste is recycled or how many liters of water are saved. When a person is dedicated to a specific cause, such as animal welfare, social equality or minimizing climate change, they can choose investments based on their concern. Furthermore, as impact investments can be highly profitable, they can also create strong financial returns.
Is impact investing a charitable act?
No, this is not about giving a lump sum to struggling charities. Impact investing can provide reliable investment returns, despite supporting companies that deliver social and environmental value. So, as well as turning a profit, individual investors and groups hope to affect global change as a further benefit. The idea is not just being pursued by a few green-minded investors, so getting started simply involves seeking out reliable fund managers. Solitude Capital is an established firm that offers plenty of choices for new and experienced clients. They locate investment ideas across Asia for pension funds, foundations and family offices, then work hard to provide a superior ROI for every client.
How does impact investing work?
Impact investing involves a slightly different approach compared to standard investing. As an example, let’s take an impact investor trying to select the best option by choosing between a business that provides ink cartridge refills and one that sells originals. Along with establishing which would provide the best return on investment, they would also consider how each company’s activities affect the environment. In general, an impact investor would select the refill specialist, particularly if they offer a similar or higher ROI. Should the original cartridge company offer a better ROI, the impact investor may still choose the refill specialists, because their environmental impact is more positive.
What do impact investors gain other than a profit?
Impact investors hope to curate a profitable portfolio, while also helping to preserve the environment or improve healthcare provision at the same time. It’s not an entirely new tactic, but it does represent a different style of venture capitalism. The focus is not solely on profit, but impact investors can make impressively stealthy gains which should not be underestimated. Here’s a look at why more and more investors have an altruistic mindset.
They become part of a global solution
Poverty and climate change, as well as a lack of decent healthcare for some, are issues that affect the global community. Unfortunately, the remedies are often complex and expensive, meaning governments alone cannot foot the bill. Some private investors who are concerned about these problems are prepared to step in and help out, knowing that in the long term, their solutions will deliver a profit.
Their portfolios suffer less volatility
All investors hope to lower the market risk of their portfolio, and this may be achieved through impact investment funds. A 2019 study carried out by Morgan Stanley found that funds that benefited social or environmental causes “experienced a 20% smaller downside deviation than traditional funds”. This means that individuals or companies with a few sustainable investments under their belt are adding extra stability to their assets.
Their money works for them and others
When capital is placed into programs that promote health, education or environmental causes, the investment is socially responsible — but also profitable. In comparison to donations or grants that support good causes, impact investing in eco-friendly start-ups, farming communities or innovative healthcare companies, makes it easier to meet financial objectives. That’s because the investor’s money is being put to work and therefore has the potential to grow.
Management firms are already meeting client demands
Although some investors remain focused on the bottom line, there are a growing number of socially responsible investors. In order to meet the demands of this group, many firms are finding strategies that cater to their preference for sustainability and social awareness. As client demand for impact investments continues to rise, these companies will be in a far more competitive position compared to those that have failed to respond.
They are considering more than financial returns
Individuals and companies are seeking investment solutions that mirror their world views and concerns. People who are anti-smoking are unlikely to invest in tobacco and those with a green outlook will steer away from coal, for example. Taking the place of these more controversial investments are those which contribute in some way to tackling the big problems. These could include better wages for all, the use of more sustainable energy sources or an end to child labor. Investors know that the choices they make can become a catalyst and slowly help to bring about positive changes.
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