In the past, the concepts of “financial gain” and “social good” have seemed mutually exclusive. But with impact investing on the rise, this is no longer the case. The logistics, though, are a little tricky. How, for example, does one determine a worthwhile investment — that is, something that will generate returns and also create real impact?
It can be especially difficult for private sector organizations and individuals to figure out where to start. Below, we dig into the who, what and how of impact investing, as well as a few tips for getting your foot in the door.
In simple terms, impact investing refers to any investment in a company or organization that results in environmental and social returns in addition to simply financial gain. This might look like anything from social entrepreneurship to a for-profit corporation providing microloans to sustainable agriculture projects.
Impact investing has experienced increased popularity in recent years: A recent Google report found that search volume for impact investing has overtaken that of angel investing in the past decade. Silicon Valley startups and established corporations alike are seeing a surge of impact-driven initiatives, and throwing financial weight behind such projects. There’s also evidence that suggests impact investments frequently outperform those with strictly financial motivations.
Both institutional investors and private sector investments are important pieces of the puzzle.
The UN’s Sustainable Development Goals are a series of 17 directives to address issues affecting our planet: Everything from developing methods of clean energy to achieving gender equality to eliminating world hunger. Those are serious goals, and there’s need for serious capital to make them realities; it would take the financial power of the entire country of Japan to fully realize them. And unfortunately, there’s only so much that governments and institutional investors can do to help.