Impact Investing

By Yuganksha Bhasin

Apart from the financial aspect, the companies of today are also expected to contribute to society and the environment. Keeping that in mind, one such way is “impact Investing”. It is a type of investment strategy that, in addition to financial rewards, strives to have specific positive social or environmental effects. A variety of asset classes can be formed under impact investments and may have a variety of results. Impact investing is gaining traction. Although it is still in its early stages.there are some major investors getting involved and launching their own impact investment funds.

In the last five years, impact investment has shifted its path from being particularly “niche specific” to more accepted and mainstream and is gaining popularity at a sped up rate. The rising consciousness regarding sustainability issues prompted the fast advancement of the strategy. Due to this, investors are keen to include it in their portfolio. It is believed to lay the basis for a steady development of the organisations as well the investors along with a steady capital growth. The rise of impact investing is also visible because of the flexible approach it offers, giving investors an expanded authority over their investments, while the capital keeps on developing over the long run.

The annual impact investor survey 2017 by the global impact investing network showed an overall positive response from the investors. As polled by GIIN, 76% investors said that their investments were performing “in-line” with expectations while 15% said that the performance exceeded their expectations. An increase in the number of investors has also been reported. A decade earlier in 2010, only 50 respondents were part of the survey whereas the number was 300 in 2020. The graph below shows how the total impact investing market has grown in the last few years.

In 2010, it was predicted by The Rockefeller Foundation and JP Morgan, claiming that impact investment was an emerging asset class and it would reach heights as high as $400 Billion to $1 Trillion Dollar. The predictions came out to be absolutely true. As visible in the chart, the market size touched the $114 billion mark in 2017 and went as high as $715 billion in 2020.

 The expectations for the future are placed even higher. After counting the more extensive universe of advancement banks and impact funds without recognized estimation frameworks, The International Finance Corporation (IFC) estimates, the growth upto a huge $2.1trillion. It has already contributed towards 11 of the 17 supportable improvement objectives and can assist in unlocking a piece of the USD 600 billion of extra private capital yearly expected to accomplish the United States’s SDG targets particularly on the initial two objectives of zero hunger and no poverty. Moreover, Blackrock – the world’s biggest venture company overseeing more than $6 trillion of resources is advising organizations to think about their social obligations. ” Society is demanding that companies, both public and private, serve a social purpose”, as said by Blackrock CEO Larry Fink. The investment banking firm UBS is also on board, raising more than $621 million for impact investing in various organisations till now and committed to investing at least $5 billion of private client assets to Sustainable Development Goal-related impact investing.

Impact investing’s popularity is only expected to grow as more individuals realise that it is feasible to make a profit while also benefiting society and the environment. However, yes, the portion of the market which intends to contribute a significant impact and which are actively driven in the contribution process is relatively less as well as restricted to the private market. The market has faced a few challenges and change in investor’s sentiments during the covid times but it is for sure that setting down deep roots and to develop dramatically over the course of the following decade. Impact investing is more than just a trend now.

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