Roadmap for the Future of Impact Investing: Reshaping Financial Markets

Impact investments are ones that are made with the goal of producing both a positive financial return and a verifiable social and environmental impact. Depending on the strategic objectives of the investor, impact investments can be made in both emerging and mature economies and aim for a range of returns from below market to market rate.

The world’s most urgent problems are being addressed by the expanding impact investing market, which is funding initiatives in fields like microfinance, sustainable agriculture, renewable energy, conservation, housing, healthcare, and education.

As funds in this asset class begin to create more insightful methods of monitoring their outcomes, impact investing has grown significantly more sophisticated. The increasing support of international investors for frameworks like the UN’s Sustainable Development Goals (SDGs) is also boosting awareness of and conversation about this yet relatively specialized investment field.

Why do impact investing?

Impact investing contradicts long-held beliefs that market investments should only be focused on generating financial returns, and that societal and environmental issues can only be addressed through charitable donations. Through investments that also provide financial returns, the impact investing industry provides a variety of realistic alternatives for investors to achieve both social and environmental solutions. Following are some typical investment motivations:

Investment opportunities

Financial advisors, wealth managers, pension funds, and other institutions can offer clients opportunities to invest, to both people and organizations interested in a broad range of social and/or environmental concerns.

Use significantly greater assets as leverage

Institutional and family foundations have the capability to use considerably greater assets to further their primary social and/or environmental objectives while preserving or increasing their total endowment.

Deliver financial viability credentials

Government investors and development finance organizations have the ability to target specific social and environmental goals as well as provide evidence of financial viability for investors in the private sector.

Reasons to Consider Impact Investing

Impact investments, which produce both financial profits and social or environmental benefits, have long been a specialized market for wealthy financiers. What’s all the fuss about, then? Why are financial backers like us participating?

Combat the world’s problems

Government funding alone cannot address the world’s most urgent issues, such as climate change, extreme poverty, and poor access to healthcare and education.

Obtain market-rate returns

“Do well while doing well” has always been a possibility, but this is much more true today. Global opportunities are global challenges. The financial winners of tomorrow will be those that offer solutions to today’s challenges. The estimated $15 billion impact investment business delivers market rate returns, according to data from the Global Impact Investing Network.

Ensure the stability of your investments

When combined with other assets in your portfolio, impact investing can be a helpful addition. In a recent study, Morgan Stanley looked at over 10,000 equities mutual funds over the course of seven years and discovered that social impact funds on average showed significantly lower fluctuation than comparable non-impact funds.

Align your investments and values

Investors can pursue a triple-bottom-line strategy of “people, earth, and profit” without any problems. Values and profit no longer need to be in opposition with the help of impact investment. Without sacrificing returns, this style of investing enables you to demonstrate your commitment to acting responsibly.

Satisfy customer demand

According to studies, one of the main reasons investment businesses are
increasingly delivering impact investments is client demand. For businesses to remain competitive in the trust-based, the socially responsible investing environment of today, they must provide impact investment services.

Fundamental Trends that Influence Investing

Automation

Work is becoming more and more automated, which is seen everywhere. Impact investors place a strong emphasis on the demographic groups that stand to lose the most, at least temporarily, from changes brought on by technology. Investors will need to modify their plans to assist their target beneficiaries through these changes, maybe by investing in skill development or in industries with less susceptible professions, like facilities management or high-end customer service.

Fintech Revolution

Stakeholders in the impact investing sector will need to take into account how fintech is changing investor preferences and ways of doing business as they work to increase access to and interact with a new generation of asset owners. In order to direct more money toward investments that are good for social welfare and the environment, those who are creating financial products should search for ways to benefit from the efficiency advantages of this technology wave.

Data’s Democratization

The world we envision is defined by transparency, particularly when it comes to the impact performance of investments. Increased data sharing could help remove the mystery surrounding where and how money is invested.

The Need for Action to Advance Impact Investing

The Roadmap outlines the urgent measures necessary to drive a long-term transformation. It specifically lists 18 steps (through six categories) that the impact investing community should undertake in order to significantly increase the scope and efficiency of impact investing and hasten the realization of our vision.

1. Identity- Enhance the identity of impact investing by setting guidelines and standards and expressing a common goal for capital with a range of impact goals and risk-return profiles.

2. Paradigm that controls investment behavior and societal expectations- This behavior and expectations for finance need to be changed. Capitalists must create incentives that promote beneficial influence. It is also necessary to update the theoretical models that support investing behavior to incorporate impact along with risk and return.

3. Products- Increase the availability of impact investment products for all types of investors retail to institutions, which would include risk-sharing instruments and items that better address the requirements of investors.

4. Services and tools- Create tools and services that incorporate effect in addition to risk and return for portfolio management, financial analysis, and benchmarking.

5. Education and training- Support the education and training of financial professionals in their early and mid-career stages as well as business owners starting ventures to solve social and environmental concerns.

6. Policy and regulations- Promote legislation and regulations that remove obstacles, such as those relating to fiduciary duty, mandate impact investments, and establish incentives for them.