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:
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.