Introduction

When most think of investing, the first thing that pops up is profit earning. Investing can be more than the acquisition and preservation of wealth. What if there was a way to give back to society while investing? This is where impact investing steps into the picture. More and more investors are turning to this unique strategy to use their money as a force for good while generating financial returns.

In this article, you will be introduced to what impact investing means, its types, and examples.

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What is Impact Investing?

Though the term impact investing was coined in 2007, the concept of impact investing isn’t new by any means. This is an investment strategy that focuses on reducing the negative impact of business activities on the environment or society in general. In a way, this investment philosophy has roots in philanthropy.

In impact investing, investors consciously look for companies with a strong focus on the betterment of society. Whether it is their sense of duty towards community outreach programs or positive social impact, investors opt for companies that leave a positive footprint. The idea is not just profit-making but creating a better present and future. Some common examples of impact investing include investing in stocks of companies that aid the less fortunate, supporting community initiatives, and working in the field of sustainable energy.

Impact Investing Types

Environmental, Social, and Governance (ESG)

This includes investing in companies with a strong ethical outlook and a track record of participating in activities or projects that are related to the environment, the relationship with the community, and its governance. For instance, a company with positive environmental impact might be associated with waste management, optimisation of resource consumption, etc.

Socially Responsible Investing (SRI)

The concept of SRI is quite similar to ESG. This, too, involves looking for companies that have a positive social impact. However, the companies chosen differ. Instead of merely looking for a positive social impact, companies are screened on certain ethical guidelines. So, companies involved in certain industries or practices, such as weapons manufacture, tobacco, alcohol, etc, are avoided. The motivations to engage in this type of impact investing can be varied, but they all come down to one thing – avoiding harm and creating a positive impact.

Impact Investing Examples

A common example of impact investing in India includes the Reliance Foundation. From economic upliftment to social development, they are involved in several activities, programs, and initiatives for the betterment of the society. Impact investing isn’t restricted geographically. Several global players including the renowned Gates Foundation are examples of impact investing.

Impact investing isn’t restricted to those with access to large-scale institutional funds, but it can be done through individual investments, too. Here are some options you can consider as part of impact investing.

Look for Positive Social Impact

The simplest way to begin is by looking for companies that either contribute to social and environmental missions or avoid investing in companies with a negative social impact. Some examples include healthcare providers, sustainable energy solutions, companies with strong philanthropic outreach programs, etc.

Consider Impact Funds

Consider investing in impact funds that pool capital from multiple investors just like mutual funds and invest in a well-diversified portfolio of ESG and SRI companies.

Go Local

Impact investing is not restricted to national or global initiatives. In fact, you can do your bit for local development by contributing to local projects and businesses.

Conclusion

Impact investing is an excellent means to make a difference in this world while chasing your financial goals. Whether you opt for the ESG or SRI route, the result is the same – doing your bit for society. From subscribing to impact funds to screening stocks and selecting well-researched individual stocks, different strategies can be employed for impact investing. However, as with any other form of investing, it’s important to ensure the chosen route aligns with your risk tolerance and investment goals.