How Impact Investing Works
What is Impact Investing?
Historically, the focus of the majority of investors has simply been finding profitable companies that produce a substantial financial return. More recently, investors have cared more about companies’ operations, social, and environmental impact while making their financial decisions. Impact investing challenges the notion that only philanthropic organizations have the desire and ability to address pressing issues through investment. Whereas philanthropic ventures can be classified as donations to a specific cause, impact investing is an investment in a business, technology, project, or venture that aims to alleviate some sort of social or environmental pressure. Impact investing utilizes the power of the market to address the critical problems by providing capital to companies that can provide returns on investment to the investor. Some industries where impact investing is making an impact are agriculture, renewable energy, finance, and accessible human services like affordable housing.
Impact investing attracts all asset classes to be involved in financing influential organizations. Impact investing has attracted various investors like individual investors, private equity firms, fund managers, and more. Some investment opportunities are closed off to certain investors due to various reasons like financial resources. However, Regulation Crowdfunding, allows individuals and entities,without accreditation status, to invest in early stage impact projects. The Raise Green Marketplace has a collection of clean energy and climate impact projects available for investment. There are other investments called sustainable investments that focus on ensuring that investments do not have a net-negative impact. Some examples of Environment, Social, and Governance (ESG) investing and Socially Responsible Investing (SRI). In contrast, this is different from impact investing because impact investing focuses on ensuring a net-positive impact, while sustainable investing does not necessarily have to be net-positive.
Strong Returns On Investment
Some critics of impact investing believe that the real financial returns become weak compared to other market investments that you might see on the stock market. However, survey data by the Global Impact Investing Network found that roughly 88% of investors saw average or outperforming financial returns ("What you need to know about impact investing," GINN). This indicates impact investing's viability as a profitable investment strategy.
Though impact investing is a relatively new arena, its sheer growth and market size signify its potential to become a significant component of investment portfolios. The GINN attempted to calculate the total market value of impact investing and estimated around $715 billion ("2020 Annual Impact Investor Survey", GINN). With the continued flow of new investors that are conscious about their impact and public pressure to make a positive difference, most investors are generally very optimistic about the future of impact investing due to its growth, scalability, and efficiency.
Get More Projects Off The Ground, Faster
Impact investing has shown considerable progress in its development. For example, there is vastly more data, transparency, high-quality investment options, and government support for impact investing. Regardless, impact investing still hosts a variety of challenges that limit its potential. There seems to be a lack of existing financial infrastructure for organizations to receive funding. Also, the question of how much a specific investment leaves a positive impact is largely subjective since there has been little to quantify the effect that investors would prefer to see.
Becoming socially responsible about your financial actions has drastically become more influential in the past years. With change comes opportunity as organizations and companies utilize the market economy to solve society's problems but often lack the resources to make a difference. Impact investing addresses the resource problem by focusing on socially impactful investments while making a considerable financial return on investment. With the projected growth and social pressure for sustainable and positive impacts, who is to argue against impact investing's immense potential to revolutionize how we invest?
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This Blog is for discussion purposes only, expresses the views of Raise Green, and is not investment research. This is not investment or tax advice, and does not constitute a solicitation to sell or an offer to buy any securities. Certain information is from or links are to third party sources. Although they are believed to be reliable, we do not guarantee their accuracy, completeness or fairness. Raise Green is a licensed Funding Portal with the SEC and FINRA, and is not a Municipal Advisor. Prior to being approved to list a company on the Raise Green portal, a diligence review is completed. Prior to investing. investors must sign up for an account on the portal. Raise Green does not provide tax, accounting or legal advice. Investing in crowdfunded offerings involves risk and you should review the risks of a particular investment prior to investing. You are strongly encouraged to consult your professional advisors before investing. Go to www.raisegreen.com for additional information on services, the funding portal, regulation, and investment risks. Or, direct inquiries to firstname.lastname@example.org. Copyright © 2021