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What is impact investing? | 15Rock

What is impact investing and how is it measured?

Do you want to make a difference with your investments? If so, impact investing may be the right choice for you. Impact investing is a type of investment that seeks to generate positive social and environmental impact alongside a financial return. This blog post will discuss what impact investing is and how you can get involved. We will also explore the benefits of impact investing and provide some tips on getting started. Are you ready to make a difference?

What is Impact Investing?

GIIN defines it as “investments made to generate positive social and environmental impact alongside a financial return.” Impact investing is distinguished from ESG supported by the intentionality of the investor. Environmental, social, and governance (ESG) factors are considered in ESG investing, but impact investing takes it further. Companies whose business solutions (products or services) can fuel social and environmental development are targeted for this type of investment.

When you invest in something, you're putting your faith in it. So make sure you pick something you believe in wholeheartedly - whether that's a cause like conservation or making the world a better place.

How does impact investing look today?

The GIIN estimated the total market for impact investing at $502 billion in 2018. This number included various types of investors but not individual investors. Because impact investing is a relatively new category (the term was coined in 2007), individual investors make up a small segment. Individuals have fewer options in this category than other types of investments because it is newer. Also, new things have a shorter track record, which adds to the uncertainty. Even though impact investing is still in its infancy compared to traditional investment options, individuals have a growing demand for it. According to the GIIN's most recent (2019) survey, over $33 billion was invested in impact in 2018.

According to a Morgan Stanley report, 75% of individual investors are interested in sustainable investing. When asked millennials, the figure is 86%. Interestingly, the same report finds that among individual investors, 80% want impact investing solutions tailored to their needs.

What is the future?

The 2017 Morgan Stanley report shows that impact investing is becoming mainstream. But there are growing pains. We're still not there, three years later.

One barrier to mainstreaming impact investing is the perception that it is philanthropy and entails a financial trade-off. Sometimes sustainable or impact-focused investments outperform the market. Another obstacle is the high cost of investing in real and perceived impact.

Linked to this, measuring impact is not as simple as measuring financial gain or loss. An investor wants to know the actual impact of their investment. When we invest in effect, we want to ensure it is generated. We don't want to be misled by ambiguous metrics or inadequate reporting. Fortunately, progress is being made in impact reporting, metrics, and standardization.

More on this vital subject in a future blog post.

Gautam Bakshi

Head of Product & Engineering

Former: MD - Private Markets, Wealth & Asset Management, Manulife. Education: Ryerson University, Seneca College

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