Heightened interest in social responsibility, equality, and sustainable development, especially among the younger generation, has prompted investors to rethink where they are directing their capital. Through impact investing, individual and institutional investors alike are unleashing the power of their capital for social and environmental good.
According to the Global Impact Investing Network (GIIN), impact investments are “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”. These investments are made towards businesses, organisations, projects, or funds to help finance solutions to some of society’s biggest challenges.
While the term impact investing may be new to some, individual and institutional investors have been making impact investments for decades. Throughout its history, impact investing has challenged the notion that social and environmental issues must only be addressed through philanthropic means, and that investments must only focus on achieving financial returns.
As such, impact investing has directed capital to finance new ideas and fresh solutions that address society’s biggest prevailing challenges, such as poverty, inequality, and the lack of access to education, health care, housing, and other social services. It has also supported the development of diverse sectors such as microfinance, renewable energy, biodiversity conservation, and sustainable agriculture, just to name a few.
With this renewed interest in impact investing, the concept is often grouped together or used interchangeably with other responsible or ethical investments, such as environmental, social, and governance (ESG) investing and socially responsible investing (SRI).
However, these other forms of ethical investing tend to focus on deliberately avoiding investments that have a negative impact on society or the environment, or actively choosing investments based on specific ethical considerations. Beyond mitigation, impact investing goes a step further by putting its money where its mouth is — towards ideas and solutions that yield both positive social outcomes and financial returns.
Across the globe, impact investment firms help businesses and organisations achieve specific goals and social outcomes. Arowana Impact Capital, for one, partners with small to midsize enterprises (SMEs) that focus on livelihood protection and creation, education and healthcare, sustainable urbanisation, and financial inclusion.
Globally, the impact investment market continues to grow. Today, more than 1,720 organisations worldwide are currently involved in impact investing, with current market size estimated at US$715bn, according to the 2020 Annual Impact Investor Survey of the GIIN. While impact investors have differing expectations with regards to financial returns, most pursue competitive, market-rate returns on their investments.
We at Arowana Impact Capital continue to partner with enterprises whose principles and practices align with our vision of sustainable development. We remain committed to growing enterprises that advance social and environmental good. Learn more about the impact of our responsible investments here.
This is just the first in our series of articles on impact investing. In the next instalment, we will walk you through the key characteristics of an impact investment.