There is a lot of sustainability concerning investment types. Starting from green investing, socially responsible investing, to ESG investing. But have your heard of impact investing?
Impact investing: the final, ultimate evolution of every sustainable investing
Adec Innovations summarized the key characteristics of impact investment into four points.
As the name implies, the environment and society are two of the main concerns for impact investment. Foundations often choose in corporations that impact to related issues such as climate change, hunger, poverty, HIV/AIDS epidemic, and others as their investment target.
Despite its strong nature to give impact on environmental and social issues, financial return is also as much important in decision making. Impact investing will still seek for at least a return of capital, and also profit.
Impact investing covers a wide array of asset classes. Cash equivalents, microfinance, private equity, and clean technology are available for investment.
One distinct characteristic of impact investing is the practice of annual evaluation on its social and environmental impact. Impact investors proceed with a regular assessment on the corporations’ impact in benefitting society and the environment. This step is needed to assure investors of transparency and accountability.
The practice of impact investment in real life
One of the impact investment starters is the Rockefeller Foundation. According to Investopedia, the foundation played a great role in growing the demand for impact investments. Numeral financial institutions, such as Morgan Stanley, Merrill Lynch and UBS Inc, slowly kept up with the demand and provide impact-investing platforms that target specific causes.
Other old players in this field are Pax World Management, Domini Social Investments and Parnassus Investments. Their main investments are often mutual funds in environmentally and socially conscious companies.
The practice of impact investment has since started to grow. Investors are now taking into account other media of investment such as microfinance loan. Investopedia reveals microfinance loan is a lot more approachable for people with limited access to start a new business. High-net worth entities usually prefer microfinance loans. At times, investors may receive higher returns from microfinance loans than broader markets.
Read also: Impact Investing, Can It Generate Huge Income?
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