If you’re new to the investing world, you might wonder what all the excitement is about impact investing. What is it? How does it work? Is it worth your time and money? We’re here to answer all those questions and more. Keep reading to learn everything you need to know about impact investing.
What is impact investing?
Impact investing is a type of investment that aims to generate both monetary return and social or environmental impact. In other words, with impact investing, you can make money while also making a difference. For example, you might invest in a company that uses sustainable practices or provides access to clean water in developing countries.
Impact investing takes many forms but often includes investments in affordable housing, renewable energy, and microfinance.
The impact investing market has grown rapidly in recent years as more investors look to put their money into projects they believe will make a difference. According to the latest data from the Global Impact Investing Network (GIIN), the total amount of capital committed to impact investments was estimated at $502 billion in 2018, up from $228 billion in 2015, and has risen in recent years as climate change and its impacts take center stage.
Despite this growth, there still needs to be clear data and resources around impact investing. This makes it difficult for potential investors to understand the risks and opportunities involved.
However, several organizations are working to change this, including the GIIN and the Impact Investing Institute. These organizations are helping to develop standard definitions and metrics for impact investing so that it can become a more transparent and accessible market.
How does impact investing work?
You can invest in both for-profit and non-profit organizations with impact investing. There are a few different ways to get started with impact investing.
One way is to invest in an impact fund, which pools money from various investors and invests it in companies or organizations that align with the fund’s mission. Another way is to invest directly in a company or organization that aligns with your personal values.
Perhaps the easiest way is to invest in an ETF that tracks an index of impact investments. This way, you can support multiple projects without picking and choosing individual investments.
Another option is to invest in a fund focusing on a specific area, such as renewable energy or microfinance.
Why is Impact Investing Important?
There are two main reasons why impact investing is so important. First, it allows regular people to support causes that they’re passionate about. Rather than simply donating money to a charity, you can actually use your money to finance real-world solutions to pressing global issues.
Secondly, impact investments have the potential to generate healthy financial returns. This is especially true in developing economies with a greater need for infrastructure and social initiatives. By investing in these areas, you can not only do good but also make a profit while doing so.
Is impact investing worth it?
Like any investment, there’s no guarantee that you’ll make money from impact investing.
However, many people believe that the social or environmental benefits of impact investing are worth the risk. And as more people gain interest in making a difference with their investments, the demand for impactful products and services will only increase.
Conclusion
With impact investing, you can make money while also making a difference. There are a few different ways to get started with impact investing, and the best way for you will depend on your personal goals, values, investment goals, risk tolerance, and time horizon.
However, impactful investments may be just what you need to diversify your portfolio and help create positive change in the world.
