Everything you need to know about Impact Investing

Listed Under: Blog

Impact investing is quickly becoming a hot topic in investments. According to Investopedia, the market grew by 42.4% between April 2019 and April 2020. That growth was in terms of both assets and the number of organisations. 

 

So, what exactly is Impact Investing and what do you need to know? 

 

What is impact investing? 

Impacting investments are investments made with the intention to generate positive, measurable social and environmental impact alongside financial return, as defined by Global Impact Investing Network(GIIN). We liked this straightforward definition, as you know at Glenrose, we have a no-jargon approach to financial planning, we also like Gin!  

 

But on a more serious note, Impact investing is where investors are actively looking to make a positive impact with their investment strategy. They look to invest in a range of companies that are working to benefit the community or the environment, such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible services like housing, healthcare or education. Impact investing attracts both individuals as well as institutions.

 

GIIN has developed a list of 4 Core Characteristics of impact investing

  • Intentionality – The investor has an intention to positively contribute to social or environmental benefit. 
  • Use Evidence and Impact Data in Investment Design – data and evidence to be used where possible to drive intelligent investment design.
  • Manage Impact Performance – Using feedback to communicate performance against the specific intention of the investment 
  • Contribute to the growth of the Industry – Shared learning as to what actually contributes to social and environmental benefit. Shared use of industry terms, conventions and indicators for describing their impact strategies. 

 

Why it’s the Hot Topic?

Over recent years, there has been a rapidly growing interest in both environmental and social awareness with more and more people looking to help solve wider issues that affect us all. From big name Hollywood celebrities raising awareness of the melting ice caps to schoolgirls from Sweden and Pakistan leading the way in social change, the world is changing, and we all want to help in some way. 

 

Climate change is leading the way in impact investing due to its increasing impact on more of us than ever before. Scientist state that it’s the biggest existential threat to life on our planet so it’s no wonder more of us are taking note than ever before. From increased risk of flooding to decreasing air quality and increased wildfires and reduced agricultural yields. The Climate Crisis is front and centre stage, so more investors are looking at how they can turn the tide on client change while gaining a financial return. Impact investing offers that solution. *Please note investments will fall as well as rise and it is important that any investor understands the expectations of their investment. *

 

Investing in climate change is rapidly been seen as a must for wealthy investors and to ignore it is a mistake. Take fuel for example. According to the International Energy Agency (IEA) Renewables 2020 report, in sharp contrast to all other fuels, renewables used for generating electricity will have grown by almost 7% in 2020. In October 2020, shares of solar companies worldwide had more than doubled in value from December 2019 and they project that total installed wind and solar capacity will surpass natural gas in 2023 and coal in 2024. A growing industry that should be at least considered by any investor. 

 

In a report from PWC, climate investments are growing faster than AI investments. Their state of climate tech report states that climate tech represented 6% of global annual venture capital funding in 2019, their analysis finds this segment has grown over 3750% in absolute terms since 2013, 3 times faster than AI. 

 

How to get involved

So, it’s hard to deny that Impact investing is a hot topic and rightly so. Whether you are new to investing or have been investing for a while, now is the time to review and consider your investment strategy. Does it need updating and can you or should you look to add positive environmental or social impacts to your own strategy. The team at Glenrose are ideally placed, as independent advisors to help you with your own investment strategy and how impact investing could work for you. *Please note investments will fall as well as rise and it is important that any investor understands the expectations of their investment. *