There is more to be earned than money alone. Company leadership today are starting to realize just how important aspects of a stronger community and environment are for the health of everyone’s future (including their own).
As impact investing has grown more popular, those who don’t get on board are really missing out, says investor and philanthropist Chris Kuchanny.
What is Impact Investing?
Coined as a formal term in 2007, impact investing has grown tremendously and continues to increase in popularity. Impact investing looks for ways to use capital to do good things. Rather than strictly work about the monetary return on investment (ROI), impact investing also takes into consideration less tangible values.
It becomes more than just financial returns, including:
- Empowering (not exploiting) people and planet
- Aiming for more equal society constructs
- Taking care of the community
- Valuing and protecting resources
- Supporting new ideas and markets
The demand is higher because the return on the investment goes beyond just the bottom dollar. At the end of the day, impact investing takes more time, thought and understanding to ensure the project is going to benefit others as well as make a profit. The profit may not be as high as a traditional investment, but the reward (intrinsic and extrinsic) is often greater, explains Chris Kuchanny.
To truly meet the global needs, more capital needs to be used towards impact investing. According to the US SIF (The Forum for Sustainable and Responsible Investment), the 2020 “Trends Report” found that sustainable assets have passed $17 trillion. This shows continued growth of a 42% increase from 2018 when assets were reported $12 trillion.
“Money managers and institutional investors are using ESG criteria and shareholder engagement to address a plethora of issues including climate change, sustainable natural resources, and agriculture, labor, diversity, and political spending,” said US SIF Foundation CEO Lisa Woll.
How to Get Started with Impact Investing
Sometimes getting started is the hardest part when you want to do something correctly.
“There are many ways to get into impact investing for companies who want to make a lasting difference with their capital,” says Chris Kuchanny. “One of the biggest things you have to do before starting is to truly understand the industry and all the impact (good and bad) that your investment could have.
Sometimes, things that look like helpful investments actually cause more harm to the local economy or environment because someone didn’t have the full picture.”
Do Your Research
Not only do you need to understand the ramifications of your investment from every angle, you should have a strong understanding of the people impacted and the industry you are considering for your investment. Learn the terminology so you can truly understand your investment and evaluate your choices.
It’s important to find the investments that you can really get behind. Look for areas where you can make a difference while supporting the things you feel most passionate about. When you feel strongly about a cause, it is much easier to do the research required to make a sound investment. Areas might include:
- Affordable housing
- Emerging and developing markets
- Sustainable agriculture
- Renewable energy
- Equal opportunity healthcare or education
- Microfinance
- Conservation efforts
Find an Expert
Talk to an expert in the industry before investing. It is usually a good idea to have an investor who will help guide your choices to ensure you still get a return on your investment. You shouldn’t expect to lose money, unless you are a philanthropist planning to donate your money to a worthy cause. Impact investments should still pay returns, and in some cases the financial returns can be material.
Know Your Goals
With impact investing, the goals can often get a bit fuzzy. Typical investments are driven by their bottom-line and increasing financial profit. However, an impact investment is multi-faceted.
It is important to fully understand your impact goals, as well as those of the company or organization you are investing in. If your goals don’t align, the investment may not be a good match. Defining your goals (or intentionality) helps ensure you are getting out of this partnership the value you expect. This allows you to be prudent with your wealth (getting competitive returns) and feel good about the values you support (intrinsic rewards).
Chris Kuchanny states that “true Impact Investment integrates social and/or environmental impact analysis, sets relevant non-financial goals, measured through KPIs, and monitored on an ongoing basis. There is a strong body of evidence that non-financial, impact-related goals can be achieved alongside competitive financial returns.”.
Start Now
There is no time to start like the present, says Kuchanny. There are plenty of options available at all levels for impact investments. Waiting until you feel “ready” often means never feeling prepared to jump in at all.
You may feel like you can’t contribute much, but if all individuals and companies aligned their investments with positive social and environmental goals, the world would be a much better place.
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