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Impact investing aims to protect and grow investors' money, while at the same time having a positive social or environmental impact. Here’s what you need to know.
The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.
Impact investing aims to protect and grow investors' money, while at the same time having a positive social or environmental impact.
Here, we explain what the main features of impact investing are, how it differs from ethical investing, and some of the reasons why investors may want to consider this approach.
The impact investing approach is still relatively new, but broadly speaking impact investments have two main aims:
Impact investing may therefore appeal to you if you’re looking to protect and grow your assets, but also want to use your capital to target pressing social and environmental issues, particularly causes that are personally important to you.
Ethical investing involves sticking to a particular set of values. So, for example, some ethical funds use “negative” screening, which means they avoid certain sectors and stocks, such as armaments or tobacco.
An impact approach, however, considers both the positive and negative impact of the investment. So, for example, impact funds may hold more controversial investments, such as companies that produce genetically modified (GMO) food, as long as those companies can demonstrate they are taking positive steps to adopt a greener approach and improve the environment.
Find out more about the differences between ethical and impact investing
As a relatively new and growing sector, measuring the size of the impact investing market can be difficult. However, according to the 2017 annual member survey from the Global Impact Investing Network (GIIN), $114 billion of investments were made by members.1
There are various factors driving the growth of impact investing. These include, for example, the UN Sustainable Development Goals, which has committed 193 countries to social, environmental and economic targets for global development. Developing countries are estimated to require another $2.5 trillion to deliver on their commitments.2
It’s a common misconception that investors have to give up financial returns to make a positive impact.
Impact investments generally perform like any other investment. Some will meet their targeted returns, some won’t, and some will exceed them.
Certain impact investors, however, such as not-for-profit fund managers and foundations, may target lower returns in line with their strategic objectives, although most investors surveyed by the GIIN in 2016 said they pursue competitive market-rate returns.3
Like any other investment, it’s important to remember than with impact investments your capital is at risk, and you may get back less than you originally invested. You may get more or less return than you might have done with a non-impact approach.
Please bear in mind that this article is for general information purposes only. If you are unsure where to invest, seek professional independent advice.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.
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