Everything You Should Know About Impact Investing

Problems related to social, economic, and environmental issues have been plaguing most economies. To tackle these issues, the governments require huge funds, and if so, they are not easy to eradicate within a few months or years.

Issues like poverty, starvation and climate change are deep-rooted and require a lot of time, resources, and effort from both the government and the people.

Due to this reason, the concepts like ESG, SRI, and impact investing have been gaining prominence in recent years. You can find these three form a part of sustainable investing, with the prime goal of encouraging investors to look beyond financial returns and concentrate more on bringing environmentally sustainable development to the world.

Sustainable investing seeks to generate funds to tackle these socio-economic problems one step at a time. This article is to focus on the concept of impact investing and various other things that you need to know about impact investing.

What Is Impact Investing?

Green investing

A common misconception among investors is socio-economic and environmental problems can be tackled only through philanthropy, without expecting any returns. Here is where impact investment begs to differ. The charm of impact investing is that it lets the investors contribute toward a better world while generating financial returns.

Impact investing offers investors a myriad of opportunities to invest in growing areas like renewable energy, affordable housing, education, health care, sustainable agriculture, and other similar fields that seek to eradicate certain social, economic, and environmental issues.

Investing in these areas can allow companies to focus more of their funds on overcoming various ESG challenges.

Things You Need to Consider Before Impact Investing

Stack of coins with figurine

Impact investing is not about investing in companies or organizations striving to make a positive impact on the world. Apart from focusing on sustainability, impact investing also generates financial returns for investors. Therefore, it is essential to consider various factors while making investment decisions.

  • Beware of Risks: Any investments carry risks with them and a rational investor must always assess the risk while investing in a particular organization. Compare those risks and analyze the potential threat they might pose.
  • Diversify your portfolio: A common practice among investors is to spread their money in various sectors. It reduces risks and provides a backup to recoup the funds lost if any of the companies crash. You can apply this principle to impact investments since they have risks attached to them like regular investments.
  • Plan ahead: You must always plan for the future while investing. Since you are investing in constantly developing fields, you must always foresee the relevance of your investments and the future developments in these fields, along with the potential risks. It will help you plan your portfolio accordingly and open more reinvestment opportunities.
  • Invest through an investment manager: Investing through an investment manager is much safer than investing all on your own. If you are new to impact investing, getting the assistance of a manager is highly recommended. Investment managers can make informed decisions on your behalf while ensuring that your funds are in the right hands.

With sustainable investment gaining popularity, more and more companies seek potential investors to research and find new ways to solve various environmental, social, and economic issues.

Moreover, many companies promote sustainable investing and guide investors through the ins and outs of this investing. It has created new hope for governments around the world, and in a few decades, it will solve most of the problems and create a better world.