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20 Jul 20
Do Good in the World and Make Money
What if we were to tell you that your investments could make a difference in the world right now? Our guest writer John Fleetwood from 3D Investing explains more about Impact investments.
What is Impact Investment?
Impact investment has become a bit of a buzzword as investment managers seek to demonstrate their green credentials, but what is it and does it actually deliver on the promises’? The Global Impact Investor Network (GIIN), defines impact investments as “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” In other words, an impact investor seeks to do good whilst making money. The practice of impact investing is further defined by the following four core characteristics:
- Intentionality – There is an intention to have a positive social or environmental impact
- Investment with return expectations – Impact investments are expected to generate a financial return
- Impact Measurement – measurement and reporting on the social and environmental performance
- Range of returns and types of investment – From sub-market performance to competitive financial returns, and across asset classes, including cash, property, bonds, infrastructure and shares
Crucially, 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.
According to GIIN, the total size of the impact market is $502 billion, whereas the total global wealth is estimated to be more than 700 times this figure at $360 trillion If these markets could be mobilized, the total impact could be huge.
So what does this mean for you? How can you be part of mobilizing money to make a positive impact?
Traditionally, impact investment involved investments that are hard to sell and often carry higher levels of risk. This limited their access to relatively wealthy individuals and institutional investors, for whom this was less important. Now, things are very different. Firstly, crowdfunding has opened up community-based investments such as local renewable energy projects, affordable housing and even partnerships with local authorities. On a bigger scale, there has been a mushrooming of listed investment funds that seek to invest in companies generating a positive social or environmental impact. Not only this, but they meet the definition of an impact investment by measuring the impact associated with their investments and publishing the results. Typically, this might include the amount of renewable energy generated, waste water treated and CO2 avoided.
 ‘Sizing the Impact Investment Market’, GIIN, April 2019
 ‘The Global Wealth Report’, Credit Suisse, 2019