A Brief History of Impact Investing

Impact investing, a term coined in 2007, marks a significant shift in the traditional investment landscape where the financial return was the sole focus. This method emphasizes not just financial gains but also positive societal impact. It evolved from the concept of socially responsible investing (SRI) that emerged in the 1960s and 70s, which sought to exclude investments in companies associated with harmful products like tobacco, alcohol, and firearms.

Current Market Trends in Impact Investing

Today, impact investing has taken a proactive approach, with investors actively seeking out companies that generate positive social or environmental results. The Global Impact Investing Network (GIIN) reports that the market size of impact investing reached $715 billion in 2020, up from $502 billion in 2019, demonstrating growing interest in this investment approach.

The Impact and Implications of Impact Investing

Investors today view impact investing as a means to drive change while also delivering competitive financial returns. However, like any investment strategy, it has its benefits and risks. The most significant advantage is the dual return—financial and societal. On the downside, measuring the actual impact can be challenging, and there can be a perceived trade-off between financial return and social impact.

Practical Application of Impact Investing

Real-world examples of impact investing include investments in renewable energy companies, affordable housing projects, and businesses creating job opportunities in low-income areas. These investments generate a financial return for the investor while also contributing to social or environmental progress.

Key Considerations for Impact Investing

• Understand Your Goals: Decide what you want to achieve with your investments—financial return, social impact, or a balance of both.

• Do Your Research: Evaluate potential investments not just based on their financial potential but also their ability to generate positive societal changes.

• Diversify: Like any investment, diversification can help manage risk.

• Seek Expert Advice: Consult financial advisors with experience in impact investing to ensure you make informed decisions.

In summary, impact investing offers a unique approach that allows investors to align their financial goals with their values. By understanding its historical context, current market trends, and practical implications, you can make informed decisions about whether this strategy aligns with your personal finance and investment goals.