Googling the term ‘impact investing’ will return search results that entail the type of investment that aims to contribute to the achievement of measured positive social and environmental impacts. Slowly and steadily, impact investing has emerged as a significant opportunity to mobilize capital into investments that target measurable positive social, economic, or environmental impact alongside financial returns.
Joining the bandwagon, many investors are incorporating impact investments into their portfolios and are adopting the SDGs and other goals as reference points to illustrate the relationship between their assets and impact. These investments are made into companies, organizations, and funds to generate social or environmental impact alongside a financial return.
There are two sides to any impact investing deal: the impact investor and the impact investee. The goal is for both sides to benefit.
Impact Investor: Investments made to generate measurable social impact alongside a financial return.
Impact Investee: A mission-driven organization (for-profit, nonprofit, or hybrid) with a market-based strategy.
Now that I have covered the basics, let me give you a look at some ways investors can continue to align their capital with their vision for a more sustainable world:
Encourage financial incentives
Investment means buying, and the number of people buying stocks reflects an increase in the stock price. Many corporate leaders love a high stock price, which signals that their company is in good health.
As an investor, you’re essentially voting for a company when you invest in or divest from it. In other words, your investment choices matter – sustainable investing means using your investment dollars to influence the path of a corporation.
Increasing shareholder pressure also drives companies to explore and embrace better environmental, social, and governance (ESG) practices and socially responsible policies. These can include setting environmental or social goals and mitigating negative impacts.
Help advance racial equity at companies and asset managers
There are several approaches you can take in this area, including supporting diverse-owned/run asset managers or looking for investments in companies that create products or solutions to address the needs of disadvantaged communities.
You might also consider looking at publicly traded companies’ diversity and inclusion records and minimizing or avoiding exposure to companies with lagging racial-equity records.
Support equality for women in the workforce
Gender equality emphasizes a balance in representation across all genders, which can help to broaden perspectives and drive better decision-making across organizations of all sizes. As it turns out, diverse perspectives can potentially increase the portfolio’s bottom line.
So, suppose you’re interested in gender lens investing. In that case, I can help you find the right strategies, whether those involve shareholder efforts to increase gender diversity in the boardroom or investing in businesses with products and services that benefit women and girls or are female-led and owned.
Motivate companies to do more and better
Anyone who buys a share of a public company has the right to vote on resolutions discussed at annual shareholder meetings. Many of these resolutions relate to sustainability issues such as climate change, diversity, human rights, or pay equity.
The average shareholder support for solutions addressing environmental and social issues has risen significantly. This has resulted in shareholders taking sustainability seriously. ESG has been a strong theme in recent proxy seasons, with activist investors increasingly willing to call out companies’ shortcomings on environmental, social, and governance issues.
The cost of green projects goes down.
Investors can favor the bonds as well as the stocks of responsible companies. Responsible companies need capital for renewable energy and energy efficiency projects to help them reach their carbon-reduction goals. Green bonds are a fast-growing avenue to raise money for such tasks.
Multiple studies have also shown that companies that score high on sustainability rankings have a lower “cost of capital”—that is, they pay less to raise money through issuing bonds or selling stock.
Bottom line
Nobody can be successful in a world that fails. With the significant influence, we have as prominent long-term investors, we need to do our part in helping deliver a healthy future for the next generations. Engagement and having a sustainable product offering are crucial components to deliver on this mission. Impact investing is undoubtedly leading the way toward a brighter future.
