Impact Investing: How to Merge Financial Success with Social Good

Growing up ‘doing good’ was always subtly embedded in my life as I visited orphanages, participated in bake sales for a cause at schools and found other ways to give back in a small way to my local community.? Thisinterest and desire to give back developed with me as I grew older, but it was always separate from my day-to-day professional life and I never realizedits connection to the world of finance until much later and how I could actually give back not only on a personal level, but through my professional work as well

Initially, I separated my professional goals from my personal goals and was quite unaware that there was a space where the two could actually meet. Previously, considerations of environmental, social, and governance (ESG) factors were more of an afterthought, however in today world investments are following a different ethos. The drive for a positive impact and not just financial impact is a new lens through which more organisations view and act upon opportunities.

The concepts of “finance” and “giving back” have started to merge. As I saw firsthand, you can invest and conduct business while positively impacting the environment and the social elements of your communities.?

That’s impact investing. And it has increasingly become something I am more passionate about.?

An Introduction to Impact Investing

Impact investing transcends charity. It’s about finding opportunities. Impact investing aims to join financial returns with positive social and environmental change, and you use private capital to create that change. The goal is financial returns, but those financial returns mean nothing without having a measurable and intentional positive impact on the communities around us (GIIN, n.d).??

The Challenges of Impact Investing?

Impact investing is still a developing field. It’s taking time for investors (myself included) to understand its intricacies and determine how to define and measure an investment's actual social and environmental impacts. There is no standardised way to measure success in this sector - we must solve this problem before we jump into investing.

Another important consideration is that impact investments typically target emerging sectors that are inherently more risky and volatile. Any investor should conduct their due diligence and risk analysis to avoid making a (costly) decision they’ll regret. This process takes time, but I assure you, it’s integral to whether or not your investment is successful.?

Seven Recommendations for Impact Investors

I’m grateful to have worked with some amazing people. They’ve all emphasised the importance of "beginning with the end in mind.” If you know your target, you can work backwards from it, and success is more achievable. The flip side is when you move onwards without a target and wander aimlessly while success eludes you.?

I can recommend the following to all impact investors:?

1. Look inward. Qualify the space you want to operate in, the region, the sector, the scope, and whether it aligns with your values and goals. Identify the space you want to operate in?

1. Adopt a longer-term mindset. Impact investing takes time; it takes time to see the impact you want to see?

1. Get on the ground to forge partnerships, engage with the communities and open communication channels.??

1. Craft a comprehensive value creation plan pre-acquisition, identifying key initiatives and strategic milestones.

1. Set measurable milestones throughout the investment lifecycle to track progress and make data-driven decisions.?

You can start with the low-hanging fruit, the things you want to accomplish within six to nine months. Then, you can move on to the medium-term targets - things you want done between nine and 24 months post-investment. From there, you can reach long-term goals, which could take 24+ months.

1. Clarify your measurement approach. You need to know what success looks like and measure your investment's social and environmental impact. Accurate data collection is imperative in this process.?

1. Beyond financial support, emerging companies often need guidance, technical expertise, and mentorship. Consider how you can offer these intangible benefits.?

Investing for a Better a Future

Some people think that if you invest in projects meant to do good, you'll make less money or have a harder time getting your money out. I strongly disagree. You can invest in making the world a better place while still meeting your financial goals. You just need the right approach and mindset - do your research, find your niche, and follow your passion for the long-haul.?

What are your thoughts on impact investing? Please share with me.

REFERENCES

Global Impact Investing Network. (n.d.). Impact investing. Retrieved May 16, 2024, from https://thegiin.org/impact-investing/#:~:text=Impact%20investments%20are%20investments%20made,impact%20alongside%20a%20financial%20return?