What is social impact investing and how does it benefit society?

Sep 30, 2019 | 2 months ago | Read Time: 3 minutes | By iKnowledge Team
What is social impact investing and how does it benefit society?

Social Impact Investing is one of the best investments to generate social and environmental impact along with financial return. It generally brings together capital and expertise from public, private and non-profit sectors to collectively achieve a social objective. These investments can be made into companies, organizations or funds, which may be non-profit for profit.

Where investors are involved, they would like to get a return on their investment, but it is dependent on the level of social outcomes achieved. These investments can be made in both emerging and developed markets.

With the growing investment market, there’s scope for capital to address the world’s most pressing issues in sectors such as renewable energy, microfinance and sustainable agriculture, among others.

Impact investing can be defined by a few key characteristics:

  • Intention: Firstly, an investor must have an intention to make a positive social or environmental impact through investments
  • Investments with Returns: Generally, such investments are expected to generate a return on capital or a return of capital
  • Range of return expectations: These investments target returns that range from below market to risk-adjusted market rates and can be made across asset classes.
  • Impact measurement: Lastly, the investor must measure and report the social and environmental performance and progress of investments to ensure transparency and credibility in the practice of social impact investing.

Why social impact investing?

It has been generally assumed that social and environmental issues should only be addressed by philanthropic organizations and that market investments should only focus on targeting returns. The impact investment market offers a range of opportunities and ideas to come up with solutions through investments and at the same time produce financial returns. The global market for impact investments is projected to grow to $300 billion [1] or more by 2020, according to a study conducted by the Global Steering Group on Impact Investment. This has also led many mainstream investors to venture into this space and the dialogue is shifting from investing to investing for impact.

Social Impact Investing in India

India is gradually becoming a hotbed for such investment activities. Between the years 2010 and 2016, the country had over 50 active impact investors, who put in more than $5.2 billion worth of investments[2].

There is a high demand for such investments owing to the growing population, underlying economic growth and stable financial markets. There are four reasons behind this trend shaping in India: diversity in capital sources, spurt in deal sizes, more diversity in sectors and alignment of investment objectives.

Benefits of Social Impact Investing

While one may assume that impact investing has no benefits, there are many if you venture into this space.

Let’s take a closer look:

1. Helps you meet global challenges

There are so many pressing problems plaguing this world, right from climate change, extreme poverty, healthcare and education. Though there are government funds to tackle these issues, it’s never enough. Private capital always helps, and you can do your bit by investing here, plus it is a great form of long-term investment.

2. Achieve market-rate returns

Contrary to assumptions, one can do good while doing well and in today’s scenario, it is possible. One can treat global challenges as a stepping stone to opportunities. Those who can provide solutions to issues today by way of investments will tomorrow be financial winners. This means that your investments will generate market-rate returns, so fret not!

3. Stabilizes your portfolio

It will be a great enhancement to other investments in your financial portfolio. According to a study conducted by Morgan Stanley, which accounted for 10,000 equity mutual funds[3] in the past seven years, found that social impact funds were less prone to volatile markets than other funds.

4. Efficiently puts your capital to work

When you make investments in either social or environmental causes, it gives you an efficient means to meet your own or your company’s social responsibility goals with a higher Return on Investment rather than donations, which only give out money. Here, these types of funds allow the investors to aid the growth of those involved such as a small farmer or a start-up that is looking at resolving energy challenges, so you know where to invest.

Impact investing is a great option, but if you are someone who’s not really been into this space, you can try your hand at an option offered by Aegon Life, a trusted insurance provider. You can choose from a range of six plans, based on your needs and requirements.

Begin by taking small steps and enjoy this journey. You never know you might make an impact with your investments in the long run. After all, every single drop makes an ocean. To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


Citations:

[1] https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/impact-investing-finds-its-place-in-india

[2] https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/impact-investing-finds-its-place-in-india

[3] https://www.morganstanley.com/ideas/sustainable-investing-myth-busters


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