Impact investments are investments that have not only a monetary but also a social or moral investment value. These investments can be made in companies, organisations or funds, but the underlying intention is to generate a measurable impact for society or the environment, as well as the financial return.
With the growing level of globalisation in today’s economy, investing with a moral consciousness is becoming increasingly popular. However, while impact investing is easy to define as a concept it is slightly trickier to isolate as a financial product due to the fact that it can be done through various asset classes including private equity, debt and fixed income.
Not as New as It Appears
While global supply chains and an increased level of pressure on the world’s raw materials have pushed impact investments into the headlines recently, they are not a new concept in themselves.
Philanthropic business people have for centuries worked to minimise the negative impact of their business activities and sought to invest in the quality of life of their workforce and society as a whole, while still making money at the end of the day.
World Heritage Site New Lanark in Scotland, for example, was built with the aim of delivering a social enterprise. A cotton spinning mill built in the 1780s, one of the site’s founders Robert Owen sought to ensure that the business was as efficient as possible, but also to see that the people who lived and worked at the mills were morally satisfied. He said that his work at the mill was “the most important experiment for the happiness of the human race that has yet been instituted in any part of the world”. Whether or not this claim was true is of course disputable but it is an early example of a social enterprise that may well have been of interest for modern impact investors.
Impact Investing Today
The difference with impact investment is the scale to which it can be done today; the potential to have a very strong positive impact on people’s lives and our planet has been opened up enormously through the introduction of impact investment funds, which have grown significantly in recent years.
The range of businesses, funds and assets that are available to be invested in has also grown exponentially as people the world over seek to build sustainable businesses in the face of global growth and threats to the environment and the people who work on our supply chains across the planet.
Impact investing is growing massively as people increase their own awareness. But it is still crucially a financial product and while funds promise to invest in agreed kinds of businesses, their end goal is still to make a profit for their investors, making this a popular alternative asset for those looking to make money without damaging the world they live in.