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Amid bleak reports about the future of our planet, more and more people are looking at how they can do their bit to help build a more sustainable future. Impact investing provides one way.
What Is Impact Investing?
Recently, investors have begun putting money into impact investments. These are investments that revolve around making a positive difference while also turning a profit. Returns generally aren’t as lucrative as other investment categories. However, they are well worth considering as potential investment opportunities.
Check a Company’s Record of Social Responsibility
Most people who are looking to make an impact investment evaluate a company’s corporate social responsibility. This forms the basis of their decision-making process. Serious impact investors always do this type of vetting before they choose to invest in a particular company.
Notably, the companies these investors choose to invest in tend to be those that support societal and environmental change. On the other hand, the business itself might revolve around making a positive difference.
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More and more people—especially young people—are becoming consciously aware of the effects human beings have on the planet. Therefore, companies that take a positive stance are aligning themselves for a successful future.
Where Are Investors Targeting?
Studies show that impact investors focus chiefly on fighting poverty and climate change. However, many also seek to improve universal standards of education and healthcare.
Although plenty of investors have found the profits to be attractive, some find that the returns are not as attractive as those in, for example, crypto and property. That’s because many impact firms do not put profit at the forefront of their goals.
Some of these companies even rely upon grants and charities. In these cases, individuals must spread their investment portfolio across a variety of assets to compensate for risk and return expectations.
Be Aware of the Potential Drawbacks to Impact Investing
The idea of impact investing still has a long way to go before entering the mainstream. For example, one of the major issues with impact investing is the lack of transparency.
Even with the rise in impact investment opportunities, potential investors still have difficulty in getting the required information to compare with other opportunities. Expectations are often unclear about both financial returns and environmental impact.
Plan an Exit Strategy
If you’re planning to do some impact investing, also plan for a realistic exit strategy. The norm is to sell shares or a stake in the company at the most opportune moment for the investor.
However, there is an element of concern when taking this approach in impact investments. That is, investors might want to ensure that the company will continue to be successful after they sell their shares. For this reason, impact investors tend to focus on government support for the firms that are taking strides to address environmental and societal issues.
Impact Investing Points to a More Positive Future
Impact investments are widely regarded to be the future of investing. That’s because the firms that impact investors want to invest in are conscious of building a more sustainable future. In this way, they are aligning themselves with the next generation of investors.
Apparently, the days of investing in projects for pure monetary output are gone. Once the transparency issues and other issues have been ironed out, impact investing is likely to hit the mainstream. Moreover, impact investments are set to become commonplace in the world of investing.