Most investments tend to be for a singular purpose: to drive profits. Not a bad goal, to be sure, but a growing number of corporate, public, and private investors are interested in more than profits. Impact investing fulfills that need for a secondary purpose.
In this post, we’ll outline how impact investing is more than a “good feeling” for investors. Its impact on commerce, manufacturing, and the environment is far-reaching.
Understanding Impact Investing
Impact investing plays an important role in today’s world. The goal is to match specific financial goals with desired outcomes in the environment. Investors can direct capital towards projects and businesses that can bring about a positive impact on the environment.
Impact investing addresses conditions like poverty, climate change, and inequality around the world. Pollution, war, and disease are examples of factors causing the environment to deteriorate. Impact investing hopes to inspire actions that can help save the planet and ensure there will be a livable future.
Impact investing is different in this manner. Positive social and environmental change defines the goal. Think of targeted issues that include things like conservation, renewable energy projects, and farming methods that produce products that benefit the environment.
Those who are fortunate enough to make an impact investment know their investment will impact the world. They also invest with the hope of realizing a financial return. Investors can choose to invest in affordable housing, provide microfinancing to others, support education, fund social programs, provide capital for business startups, invest in wind and solar power, or invest in companies working to develop clean technologies that will reduce pollution and waste.
The Environmental Impact of Traditional Investments
It’s not hard to imagine how traditional investment practices may have missed the mark in protecting the environment in some cases. Quite often, the pursuit of profits has exploited much of the world’s natural resources and created pollution that has plagued part of the world’s water and soil.
For instance, there are some who deny the effects of climate change, but it’s difficult to argue the reality of record-breaking heat spells, polar ice caps melting, and the frequency of major tornadoes. As you can see, there’s a need for the world to shift towards investment practices that can sustain the planet’s health. Impact investing offers a solution to use financial resources in a much more humane way.
How Impact Investing Shapes the Environment
Investments in clean energy have grown due to a number of factors. These include economic growth, fuel prices, and concerns over energy security. Governmental policies also play a role. Investments in solar, wind, and hydroelectric power continue to reduce the negative impact of carbon emissions. Funding in these areas can hopefully encourage other investors and businesses to invest in similar projects. Impact investors readily support projects that are helping to preserve natural resources. Such projects include reforestation and restoring habitats. Biodiversity and the world’s delicate ecosystems receive a direct benefit.
Impact investors may also consider the importance of rebuilding forested land that wildfires or drought have destroyed. The sad thing is that time has diminished the workforce and infrastructure needed to sustain healthy forest lands. Today, companies and individuals are making efforts to plant billions of trees in numerous countries around the world. Just imagine being part of the effort to grow one trillion trees within the next decade.
Some impact investors choose to fund projects that support new farming techniques that help conserve water, reduce soil erosion, and protect the world’s natural habitats. As an example, organic farmers use natural methods for fertilization, managing weeds, and controlling pests. Some companies promote agroforestry efforts as a process that combines shrubs and trees with livestock to improve the quality of soils. Sustainable projects for forestry and agriculture are critical for a healthier planet.
Success Stories of Impact Investing in Environmental Conservation
Several well-known companies invest in environmental conservation. Disney made the list by eliminating greenhouse gas emissions from all its facilities. Hewlett-Packard has reduced plant emissions while cutting back on toxic substances it uses to produce cartridge products. Starbucks has gone green by reducing operating costs. These companies, and many like them, are leading the way.
For years, a number of leading American foundations have invested in agriculture with the vision of increasing the production of food and bringing an end to hunger. Agriculture itself became a major source of greenhouse gas emissions at one time. Now, the push is to fund more sustainable ways of producing food. As mentioned, agroforestry efforts include inter-planting trees with pastures or crops, better management of windbreaks and woodland areas, and planting shrubs and trees along streams. There are notable collaborations between nonprofits, impact investors, and government agencies as well. The results are impressive. Threatened species and ecosystems are being preserved.
Challenges and Opportunities in Impact Investing for the Environment
One of the biggest challenges that impact investing faces is a lack of awareness among those with the power to invest. Some investors, though savvy, may not be aware of the many opportunities there are to tackle environmental issues with a return on investment.
Those investors who do invest in environmental projects take a long-term approach. They know their efforts can bring about lasting change while they plan and monitor their projects carefully. They’re able to realize and achieve their vision and financial goals. These investors also know the value of collaborating and building partnerships with governments, nonprofits, and other businesses. After all, environmental challenges have global reach.
Impact investing is helping to save the planet. There are more environmental challenges facing the world than ever before. The more we can all direct major financial resources toward environmental causes the better. As an impact investor, you have an opportunity to make a difference the world can benefit from for years to come. What can be more important than protecting the only world we all share? You’ll be one of those investors creating a win-win for your company and the world.