There are different methods of supporting social and environmental causes, with philanthropic foundations, charities and crowdfunding initiatives being popular choices. For businesses and individuals looking to lend their financial support to good causes and diversify their investment portfolio, impact investing combines the best of both worlds.
Firstly, what is impact investing? According to the United Nations Development Programme, impact investing is “the deployment of funds into investments that generate a measurable and beneficial social or environmental impact alongside a financial return on investment.” Simply put, impact investing is using capital for good, investing in social and environmental enterprises all while making returns. This is what sets it apart from charity, loans or grant giving: impact investments are meant to generate positive and measurable social and environmental impacts, as well as make a profit for investors.
Impact investment has three steps: i) defining the desired impact and influence the investments would have, ii) identifying the specific issues or areas that the investments will address and iii) researching innovative solutions and underserved communities that would benefit from investment. The four characteristics of impact investing are to make a positive contribution to social and environmental impact, to use evidence and data in designing strategies and identifying risks, to manage the investment performance, and to contribute to the growth of impact investing. Examples of impact investing include renewable energy, microfinance, the circular economy, inclusive finance, climate-smart agriculture, healthcare and education.
There are several benefits to impact investing for both the investor and the beneficiary. Social enterprises, startups, environmental initiatives and companies can get the resources necessary to scale their operations. They can also gain market access, mentorship and visibility. For the investors, diversifying their portfolio increases their expectations of financial returns. A 2022 report by the Global Impact Investing Network on impact investing shows that for companies and individuals, their portfolio performance overwhelmingly met or exceeded investor expectations for both social and environmental impact and financial return. These investments span emerging markets, developed markets, and the investment market as a whole. The global impact investing market is estimated to be worth around USD$1.164 trillion and will continue to increase as the social and environmental support and ventures increase. Institutions such as the European Investment Fund and Impact Bridge have funding programmes dedicated towards social and environmental impact.
Ghazan Global fulfills its commitment towards impact investing through our support of companies working in sustainability and financial inclusion. Through our investments in Plastrans, CO2BioClean, BioLogiQ, Uphold, Ripple and Linqto, we contribute to an equitable and sustainable world.
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