Impact investing has become an important source of financial returns and a means of making helpful contributions to the environment and society. So, what are impact investments? They are investments or deals made to generate positive social effects alongside financial benefits. They can be made to associations, firms, or organizations. For this case, the investors intend to bring about social and environmental effects alongside financial returns.
The ordinary investing can cause either positive or negative social effects. When it comes to impact investing, the efforts are mainly applied to initiate measured positive effects. It has two main sides: impact investor (investments made with the goal of generating measurable social effects alongside adequate financial returns) and impact investee (an organization that is mission-driven for nonprofit, profit, or hybrid reasons with a strategy that is market-based).
THE IMPORTANCE Of IMPACT INVESTING
Some people and organizations prefer impact investing to the rest simply because it balances commerce and compassion. Also, it offers a huge range of options when compared to many other options. Some strategies focus on financial benefits while not forgetting positive societal effects. Other strategies put social impact first but accept financial returns that can be below the market rate.
One good example of impact investments can be a financial institution that is community-based whose main intention is to support entrepreneurs or to help low-income stakeholders in matters related to finance. Investments such as solar power are commonly applied and are good examples too. At times, they can be complex. At other times, they can create new kinds of arrangements between particular partners. Although these deals can generate cash for startup enterprises in society, they need expert advice especially when newcomers are involved.
Impact investing offers a platform for getting social benefits with a huge variety of assets when compared to the traditional philanthropy. The manner in which some private foundations in the United States of America operate can be a perfect illustration of impact investing. They usually make grants worth 60 billion U.S. dollars, while holding assets worth 865 billion U.S. dollars. This is a good way of leveraging philanthropic dollars. The acquired returns can be reused severally to multiply the effects.
Impact investing gives donors flexibility and freedom to check innovative techniques to get their financial returns while seeking the impact. Some donors apply it with the intention of complementing their philanthropic strategies. Statistics have shown that incorporating this kind of investment can initiate positive social changes.
Another good thing about impact investing is that an investor can invest in a series of helpful organizations and projects. With this method, simple returns of principal generate philanthropic leverage which cannot be acquired through traditional grantmaking. The law requires foundations in this category to disperse a minimum of five percent of their assets every year to attain charitable goals. Impact investing ensures philanthropic money is leveraged for both environmental and social change.
IMPACT INVESTING is CATCHING ON
Impact investing is a type of investment that delivers financial benefits while doing good to the society and the environment. According to statistics, this kind of investment has been expanding steadily for the last few decades. It is becoming a promising tool for philanthropists and investors.