Impact investing is a type of investment that seeks to maximize positive social and environmental impact. But, what is the real social impact of sustainable investing?
Briefly: Working at both the local and global scale provides financial capital for projects that…
- reduce poverty
- help build sustainable communities
- ensure clean water access and distribution
- protect forests from destruction
- provide renewable energy sources to power our future
In the United States, impact investing is not regulated by the federal government, as it falls outside of the scope of existing regulatory frameworks. It is most often an unincorporated non-profit with a focus on providing financing for investments in environmentally sustainable companies and projects. In some cases, impact investors utilize traditional investment strategies; however, more often than not their portfolios are managed by a specialist in social, environmental and/or community investing strategies.
One challenge for impact investors is that there are several types of investment. The private equity model is one of the most common ways to invest in impact investing. The purpose of this type of investment is to offer assistance to organizations who are committed to environmental sustainability and who provide “the means and opportunity for an investor [to] receive a rate of return in excess of their cost of capital”.
When it comes to private equity investments, funding can come from the public or private sector. For example, nonprofit organizations looking for financing can work with investors who have a solid reputation within the industry.
How Sustainable Investing Can Positively Alter the World We Live In
1. Elevate the Standard of Living
Social investing can encourage people to move into areas that can be beneficial to the economic development of a location. If a particular community lacks financial resources, it might be hard for that community to create new business opportunities and focus more on their quality of life. Projects that are funded through impact investing encourage living in an area by improving environmental factors and creating jobs.
The idea is to use funds for a sustainable and environmentally friendly economy. Organizations that specialize in impact investing can increase both the standard of living and the quantity of financial resources available to a community. These funds can be used to create jobs or improve living conditions for residents.
2. Increase Environmental Sustainability
Sustainable investing can be an effective way to promote environmental sustainability. Many times, corporations are required by society to make money to promote the protection of natural resources and the environment.
Impact investors help to create an environment that is safe for employees, the environment and workers. When the financing of these companies comes from impact investing, money can be directed towards reforestation or creating recycling programs.
3. Elevate Community Social Development
As previously stated, impact investing encourages individuals and organizations to take actions that enhance the community. It can encourage people to take actions in order to create sustainable communities. This may range from creating jobs or raising the standard of living in a community. These actions often help strengthen social development; however, they can also promote social equality and economic development.
4. Provide Job Opportunities
Impact investing can have a positive impact on social and economic development. The creation of jobs is one of the most important factors when it comes to sustainable development. Running a business that promotes the consumption of fossil fuels can cause harm to the environment. These jobs can be focused on conservation, renewable energy or other forms of environmentally friendly projects.
5. Preserve Local Resources
When people buy products made by companies that are committed to sustainability, they are helping to preserve natural resources and reduce their impact on the earth. These products can often be made from more sustainable materials such as recycled paper or yarn to produce textiles and other items. Even certain organizations use waste from a local manufacturing process to create consumer goods.
6. Reduce Global Warming
Impact investments can help individuals and companies to reduce their carbon footprints. Many people commit to energy efficient cars or renewable energy sources in order to reduce their dependency on nonrenewable energy sources like coal, oil or natural gas. When people buy sustainable products instead of brand name items, they can reduce the amount of waste that is produced by the consumer economy.
So, what is the social impact of sustainable investing? Let’s recap.
Social and environmental investing can help to create opportunities for individuals who live in rural areas. This may mean creating job opportunities within the community or by introducing promising entrepreneurs to international investors.
Impact investments are designed to protect the rights of people around the world. Sustainable investing can positively change the world by providing funds for those developers and organizations who actively look for sustainable ways to build.
For example, a “green” construction company would most likely utilize “sustainable and environmentally responsible construction practices and materials”. Therefore, as new buildings and commercial properties are developed, the impact investment made in these ventures could substantially benefit our planet.
Join Transformation Holdings in affecting social and environmental change.