The who, what and how of impact investing
In the past, the concepts of "financial gain" and "social good" have seemed mutually exclusive. But with impact investing on the rise, this is no longer the case.
The logistics, though, are a little tricky. How, for example, does one determine a worthwhile investment — that is, something that will generate returns and also create real impact?
It can be especially difficult for private sector organizations and individuals to figure out where to start. Below, we dig into the who, what and how of impact investing, as well as a few tips for getting your foot in the door.
The "what": Impact investing
In simple terms, impact investing refers to any investment in a company or organization that results in environmental and social returns in addition to simply financial gain. This might look like anything from social entrepreneurship to a for-profit corporation providing microloans to sustainable agriculture projects.
Impact investing has experienced increased popularity in recent years: A recent Google report found that search volume for impact investing has overtaken that of angel investing in the past decade. Silicon Valley startups and established corporations alike are seeing a surge of impact-driven initiatives, and throwing financial weight behind such projects. There’s also evidence that suggests impact investments frequently outperform those with strictly financial motivations.
The “who”: Major players
Both institutional investors and private sector investments are important pieces of the puzzle.
The UN's Sustainable Development Goals are a series of 17 directives to address issues affecting our planet: Everything from developing methods of clean energy to achieving gender equality to eliminating world hunger. Those are serious goals, and there’s need for serious capital to make them realities; it would take the financial power of the entire country of Japan to fully realize them. And unfortunately, there’s only so much that governments and institutional investors can do to help.
Those are serious goals, and there’s need for serious capital to make them realities.
Which is why private capital plays an important role in impact investing. In the past, a lack of transparency, actionable data and incentive has proven a barrier to entry for private investors. However, recent years have seen an increased rate of collaborative, international impact investment efforts — from both organizations and individuals. This is an excellent indicator of rising momentum. And as more data and educational resources become available to private sector entities, the overall process becomes more intuitive.
The “how”: How to get involved
On a down-to-earth level, impact investing is a win-win with more ROI than simply money in your pocket: It means investing in the future of the planet and supporting worthy causes that impact the greater good. For anyone who has ever wanted to "get involved" but has struggled to figure out how, impact investing is an easy way to make money and make a difference at the same time.
The first way to dive headfirst into the world of impact investing is relatively straightforward: Investing in listed companies that contribute to the UN's SDGs. But investing in private markets requires a little more research.
In a recent article on the UBS website, James Gifford, a senior impact investing strategist outlines specific approaches to three key industries: agriculture, healthcare, and education. Each of these sectors addresses specific goals aligned with the UN's SDGs.
For example, to contribute to the UN's SDG target to "end hunger, achieve food security and improved nutrition and promote sustainable agriculture," Gifford suggests investors focus on direct investments in farming practices and irrigation systems, support projects to develop sustainable fertilizers, or finance seeds or sustainable agricultural technologies.
In the arena of healthcare, investors may turn to supporting private clinics, ambulance services or information and communication technology (ICT) solutions for improving healthcare.
To support education, Gifford writes that investing in ed-tech solutions, particularly those directed toward developing parts of the world, is one helpful way to make a difference.
Want to learn more about sustainable investing? Check out UBS's online resources to learn more about putting your money to work in more ways than one.
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