What is impact investing? Types, examples, how to participate in impact investing.

What Is Impact Investing?

According to the Global Impact Investing Network(GIIN), Impact Investing is defined as investments made into companies, organizations and funds with the intention to generate a measurable, beneficial social or environmental impact alongside financial return.

Types Of Impact Investing

Socially Responsible Investing(SRI)

Socially responsible investing(SRI) selects investments according to specific moral and ethical guidelines which could be based on religion, personal values or political beliefs.
In essence, investors who practice SRI choose companies that appeal to their moral or ethical views. For example, some investors may choose not to invest in companies that manufacture cigarettes because of it's negative effect on people's health but will rather invest in a company that conducts research on renewablegg energy sources.

Environmental, Social and Governance(ESG)

This approach involves considering environmental, social, and governance (ESG) factors in investment decisions. Investors assess companies based on their sustainability practices, ethical standards, employee welfare, diversity, and other relevant criteria.
This investment promotes corporate social responsibility but it's main objective remains financial returns.

Forms Of Impact Investing

These are some organisations or institutions through which impact has been made unto the society:

1. Fund Managers


2. NGO's


3. Private Foundations


4. Religious institutions


5. Insurance companies


6. Development finance institutions


7. Individual investors


8. Private foundations

Importance Of Impact Investing

• Creates Impact:
  It gives investors financial returns while still creating a positive impact on Society.



• Develops Sustainable Business:
  Impact Investing leads to the creation of companies that are committed in providing social and environmental beneficial services to mankind.



• Returns In Investment:
  It brings about returns in investment. According to GIIN, in 2020, impact investing funds have given better returns in 88% of investments.



• Corporate Social Responsibility(CSR):
  It encourages corporate social responsibility by pushing companies to look past just making profit and contribute positively to the growth of society.



• Social and Environmental Benefits:
  Investing in projects that reduces pollution, poverty, deforestation helps to bring about social and environmental benefits.



• Job Creation:
  Through impact Investing, jobs are provided to the so many people that would come to work in impact creating foundations, companies, firms.



• Innovation:
  Impact Investing can bring about innovation by supporting new business models, technologies and solution to social and environmental problems.

How To Participate In Impact Investing

Choose An Area Of Impact

What problems would you like to solve? In what areas would you like to make an impact? Is it in renewable energy, sustainable agriculture or health? Once you have found the area inwhich you want to be impactful, then you can start researching or seeking for companies that offer such investment opportunities.

Invest In Stocks

After choosing an area of impact, the next thing to do is to find an impact investment. Investing in stocks can be one of them. Buy stocks in companies with the area of impact you are willing to invest in.
Most companies issue social impact or corporate responsibility statements that detail social and environmental factors influenced by the company. You can review these statements and look for companies with reports that interests you.

Invest In Mutual Funds

There are many mutual and exchange-traded funds with strong ESG scores traded on the regular exchanges with a focus on sustainability. Look into a fund's prospectus to find the small print about what you’re investing in, if it aligns with your interest, you can go ahead and invest.

Invest In Bonds

Identify organizations, including governments, municipalities, corporations, and development banks, that issue impact bonds. Research their track record, financial stability, and the specific projects or initiatives the bonds aim to finance. Look for transparency in reporting on the impact metrics and outcomes. Assess the creditworthiness of the issuer and the bond's interest rate, maturity, and potential for capital appreciation. Choose issuers with a strong commitment to impact and sustainability. Look for organizations with reputable third-party certifications or sustainability ratings that validate their commitment to responsible practices.

Microfinance Loan

Microfinance involves providing financial services, such as small loans, to individuals or businesses in underserved or low-income communities who have limited access to traditional banking services. By investing in microfinance loans, individuals can support economic development, poverty alleviation, and financial inclusion while earning financial returns.
You can choose to invest directly in microfinance institutions by lending money or purchasing loan portfolios. Alternatively, you can invest indirectly through intermediaries like impact investment funds or platforms that specialize in microfinance.

Use Of Impact Investing Platforms

Invest with an impact Investing Platform. Examples of companies that are focused on sustainable investing are Wealthsimple, Earthfolio, Openinvest.

Examples of Successful Impact Investments

The Gates Foundation

Bill & Melinda Gates Foundation, with a total endowment of nearly $50 billion. Most of the Gates Foundation is engaged in philanthropy but it also has a strategic investment fund with $2.5 billion under management, which is invested in ventures that align with the Foundation's goals of improving health, education, and gender equality.

Soros Economic Development Fund

Soros Economic Development Fund is part of the Open Society Foundations, launched by billionaire philanthropist George Soros. Soros has contributed about $18 billion to the Open Society Foundations, $90 million of which is actively invested in impact ventures.

Total and d.light

d.light produces and sells solar lights and other sustainable power products in mostly developing companies. d.light is essentially a social enterprise, working to bring lighting to some of the most under-developed parts of the world.