Impact investing

The vast majority of ESG/SDG-related investing is based on the premise of reducing harm. The majority of ESG rating agencies focus on risk mitigation/reduction. Impact investing is totally different. Rather than looking backwards at harm reduction/risk mitigation, impact investing looks forward.

The Global Impact Investing Network (GIIN) defines impact investing as: “…investments made with the intention of generating a positive, measurable social and environmental impact, alongside a financial return.”

The key features of impact investing according to wealth management company Union Bancaire Privée (UBP) are:

• Generates financial returns: impact investing is not philanthropy
• Generates social and environmental performance
• Uses the UN’s 17 Sustainable Development Goals as a roadmap
• Primary investment focus is on the products/services offered by a company, not how it is run
• Measures the social and environmental impact alongside financial performance
• Innovation typically plays a leading role in the underlying investments
• Long-term horizon
• Active ownership/engagement
  

Do you want to know more?

• https://thegiin.org/impact-investing/need-to-know/
• https://www.impactinvest.org.uk/
• https://www.ft.com/content/85fb1340-0aa8-11ea-8fb7-8fcec0c3b0f9
  

Assessment

Impact investing represents a paradigm shift. Rather than looking backwards, impact investing is focused on achieving positive future oriented change – primarily in the social and environmental spheres – whilst also generating financial gains. There are, of course, issues of measurement and predicting the future is fraught with difficulty. However, doing something positive (rather than avoiding something bad/negative) is a powerful motivator.