Impact investing

Professor Kevin Haines
February 2022

The vast majority of ESG/SDG-related investing is based on the premise of reducing harm. The majority of ESG rating agencies focus on risk mitigation/reduction. Impact investing is totally different. Rather than looking backwards at harm reduction/risk mitigation, impact investing looks forward.

The Global Impact Investing Network (GIIN) defines impact investing as: “…investments made with the intention of generating a positive, measurable social and environmental impact, alongside a financial return.”

The key features of impact investing according to wealth management company Union Bancaire Privée (UBP) are:

  • Generates financial returns: impact investing is not philanthropy
  • Generates social and environmental performance
  • Uses the UN’s 17 Sustainable Development Goals as a roadmap
  • Primary investment focus is on the products/services offered by a company, not how it is run
  • Measures the social and environmental impact alongside financial performance
  • Innovation typically plays a leading role in the underlying investments
  • Long-term horizon
  • Active ownership/engagement

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Impact investing represents a paradigm shift. Rather than looking backwards, impact investing is focused on achieving positive future oriented change – primarily in the social and environmental spheres – whilst also generating financial gains. There are, of course, issues of measurement and predicting the future is fraught with difficulty. However, doing something positive (rather than avoiding something bad/negative) is a powerful motivator. 

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