In recent years, impact investing has been picking up in popularity. Some individuals have become well-acquainted with this subject, while some others have never heard of it. With the uproar in popularity for this area, it is important to educate oneself on the subject.
What is Impact Investing?
Impact investing is a type of investing strategy, but rather than only being used to generate financial gains, it is also meant to create specific positive social or environmental effects. These have been picking up in popularity because it acts as a way for passionate individuals to use their financial resources to generate positive change. Although this has been around for well over a decade, the rise in people growing involved with environmental and societal change within the past couple of years has driven more people to explore impact investing.
Not only has impact investing been a way for institutional investors and individuals to get involved with change, but it has been used even more frequently by businesses. Companies have begun taking a closer look at the effect they have on the environment and on society. Impact investing has become a way for them to lessen any negative impact they are having and to commit to corporate social responsibility, which is an aspect that many investors look at prior to getting involved with a business.
What Are the Types of Impact Investments?
Impact investments are able to be made in a variety of industries, mainly in healthcare, education, energy and agriculture. Most of these impact investments can be summarized in one of the following categories: Environmental, Social and Governance (ESG) or Socially Responsible Investing (SRI).
ESG encompasses the environmental, social and governance practices of an investment. This aspect of impact investment is focused more on financial performance, but it does have a relation to social consciousness. SRI takes ESG a step further by making intentional investments based on ethics. This might look different depending on the business or individual, but these decisions are often motivated by political, personal, or religious beliefs.
While impact investing is still a growing trend, it is sure to grow in popularity in the years to come. Businesses are wanting to become more socially responsible, and impact investing is an easy way to do so. These investments will help benefit worthwhile causes while also garnering a profit.