Finance has always been regarded as evil and a male dominant industry, often obliterating any scope of social impact through its means. Many people consider it synonymous with money and capitalism. When I tell my peers about my interest in finance, their usual reaction is that of the assumption of my direct interest in making money in the future. Even though coined several times, the term 'impact investing’ is still not known by several people. However, in recent years, especially after the 2008 recession, the importance of social good has been pressed in all facets. Thus, the investors are increasingly investing their money in this area to stimulate a social and positive impetus in society and yield profitable returns. For example, renewable sources of energy have several benefits for the environment but are more expensive in many aspects. But investing can be an efficient medium of providing the capital to set the base.
Investing has always been a great medium to gain the attention of the public through its activities and fluctuations. Thus, with an increasing notion of impact investing among the investors, the same idea is instilled in the general public. Indirectly or directly, finance taking the impact investing route also stimulates the general public to do so. As more people start to invest with impact, growing business demand ensures that these businesses perform well and as impact investment becomes more general, the integrity reports of the companies can be easily ascertained by investors. But, it is often difficult to associate the term ‘social good’ with ‘impact investing’; however, this has constantly been challenged by various projects undertaken around the world. Likewise, students are interested in majoring in this intersection and exploring the field in depth.
What is impact investing?
Impact investing directs capital to enterprises that generate social or environmental benefits. With a rise in social responsibility, society expects businesses to do more in terms of providing benefits to society. Moreover, a misconception of the capitalist approach of the businesses in the community further distances the two. Impact investing takes this venture no not only to satisfy the motive of investing but also to improve the relationship between community and businesses. Impact investing is increasingly becoming popular among millennial members because they tend to have higher interests in environmental and positive social change.
The rise of impact investing has resulted in more companies proactively developing and pursuing practices of Corporate Social Responsibility. Several economists and analysts have challenged the notion of the success of impact investing. Additional problems lie in assessing the impact of investing results. The lack of methods or processes for measuring the tangible effects that corporate social or environmental policies provide. Likewise, many companies’ commitments are often peripheral with little or no action. Environmental impacts tend to be easier to measure than social impacts because there are more quantifiable data such as the CO2 trend or air pollution emissions in different cities.
On the other hand, the measurement of social impact may be inconsistent across different investments because of the vast array of impacts. Similarly hitting the right balance between delivering a strong return to investors and ensuring a substantial social impact is another issue the process is navigating. One key misconception about impact investing is that it requires some form of customer sacrifice at some point. However, impact investment still provides the same exciting opportunity to yield profitable returns while having a social or environmental impact at the same time.
Some people consider impact investing as a means of financial inclusion. In a digitized world where the central players are fintech, artificial intelligence, and digital security, financial inclusion serves as a medium to reduce the rising income inequality. Thus, both sides have compelling arguments for the efficiency of impact investment in the 21st century. In other words, impact investment is looking out to bind various factors of the new economy through its focus.
Is impact investing just a trend or is it here to stay?
Impact investing is proliferating with some significant investors involving and setting up their impact investing funds, but the industry is still in its infancy. How can we decide where the money is required to be invested the most? Today, several global problems need to be addressed including the humanitarian crisis of refugees, alleviating the impact of the environment, rising climate change, ocean plastics, and much more. Thus, the thinking behind investing now involves a mind map of the pressing problems and allocation of funds in different areas. What is so different about impact investing is the combination of traditional investing and the core principles of philanthropy. Some agree that the growing attention towards a company’s sustainability and good business practices isn’t just a trend- it is a structural and permanent shift in approach.
Reaching the end tip, several crises, some irreversible, are urging businesses to take a different route and serve society for long-term benefits. Long has gone by the time when the only motive was to maximize shareholders by prioritizing profits.
In this new venture, the United Nations launched the Sustainable Development goals(SDG), also known as global goals to focus on what needs to be achieved and measured to solve world challenges. Galvanizing a robust foundation, this support is prompting more attention and action towards impact investing.
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