The rise of impact investing
And why doing good is good for business
By Renee Fortune
It started with ESG
This may come as a surprise, but (Environment, Social, Governance) ESG investing began in the 1906s. Generally speaking, a company’s ‘ESG’ rating or status described how its operations affected the environment, their employees and immediate communities, and their management, investors and stakeholders. Back in the 1960s, the major ESG issues centred around labour law and ethics. For example, many investors during that era excluded tobacco production companies from their portfolio, or firms that had political connections that were deemed unethical.
Impact investing – a new frontier
Fast-forward a few decades and ESG is now a major determinant of investment decisions, although with the unique challenges of the contemporary world, ESG has taken on a somewhat different form. For a brief period, ESG investing was referred to as “Sustainable Investing”. Today, these factors fall under the umbrella of “Impact Investing,” and this new socioeconomic dimension is revolutionizing financial markets on a global scale.
In a very short space of time, the world has changed beyond recognition. This accelerated change was brought on by the onset of the Fourth Industrial Revolution, the rapid advancement of digital technology, the emergence of social media, and the effects of the COVID19 pandemic, which ushered the world into a new and unfamiliar dispensation we now refer to as the ‘new normal’.
The question that investors all over the world are asking themselves is: ‘what kind of world am I investing in?’.
For many (and this number is increasing exponentially), the answer is an equitable world – one that is fair and just and built on values like mutual cooperation, peace, sustainable development and social welfare.
According to the most recent Annual Impact Investor Survey, conducted by the Global Impact Investing Network (GIIN), the current market size has reached an estimated $715 billion. This growing figure is illustrative of the supply of capital allocated to companies that make an impact environmentally and socially.
Impact investors are equally concerned about the potential risk of their investments and the return those investments will produce, as they are about how the companies they invest in, will impact the world.
A recent report produced by Barclays Private Bank, GIST Initiatives and Campden Wealth provided some encouraging findings:
1. The proportion of respondents who view impact investing as their primary investment strategy grew from 15% in 2019, to 18% in 2021.
2. A further 45% have multiple impact investments across different asset classes/causes.
3. The majority (52%) of traditional investors who indicated they are not involved in impact investing have changed how they make decisions about their traditional investments.
The business case for impact investing
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