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As we see glaciers melting, temperatures rising, and our ozone layer diminishing, global warming has certainly made its presence known to society. When we watch or read the news, we see a myriad of social issues that are found ubiquitously around the world. We want generations to come to take in our planet’s majestic beauty the same way we can today and to live in a world that constantly improves. I would even argue that it’s our responsibility to ensure that this desire becomes a reality. Businesses and individuals are continuing to pay closer and closer attention to the world we live in. Evolving from this consideration, the concept of impact investing developed in the financial world. The goal of impact investors constitutes social and environmental change along with strong financial returns. The beauty of it is that we can make money off of our investment that supports a good cause.
One way this new idea is surfacing into our lives, which may not be well known, is through the Global Impact Investing Network (GIIN), which is a non-profit organization, established in 2008 by the Rockefeller Foundation, dedicated to promoting the “scale and effectiveness of impact investing.”1 To start off, GIIN has five key initiatives that light its fire. The first initiative takes the form of an outreach program, in which GIIN educates people by providing examples of impact investing, keeping up on industry progress, passing along market information, and providing important information to all, including current and potential impact investors as well as the general public.1 This program is also involved in industry events, speaking at public affairs, social media, and research in order to encourage people to be aware of, and engage in, impact investing. One important aspect of this outreach program is its online impact investing resource center, which provides news clippings, resources, links, and GIIN publications, including a newsletter about current impact investors and their motivations, goals, strategies, and deals.
Another initiative is its network membership for organizations who have an interest in impact investing.1 Members of this network are part of a global community that receives valuable resources, information, and tools, and also meets at events and conventions. GIIN’s third initiative is called ImpactBase, which is an online global directory of impact investment vehicles.1 This directory provides an online database and search tool for sharing and finding information on impact investing vehicles and reducing search costs. ImpactBase also makes it much easier for financiers to form profiles or find impact investment vehicles that match their objectives.
Impact Reporting and Investment Standards (or IRIS) is GIIN’s fourth initiative and provides a set of metrics that can be used to describe an organization’s social, environmental, and financial performance.1 GIIN works on developing and refining IRIS, increasing accessibility of IRIS, promoting IRIS use, and lastly, encouraging voluntary contribution of self-reported and anonymous IRIS performance data to provide additional market intelligence. Utilizing these main components, IRIS keeps track of how investors define, measure and track their performances. In addition, it addresses major barriers to the impact investing industry, such as a lack of transparency, credibility and consistency in these aspects of organizations’ performance. This consistency allows investors to easily and accurately evaluate and compare portfolios to improve their businesses and social performance.
Finally, the fifth and final initiative is the GIIN Investor’s Council, which is an exclusive leadership group for active large-scale investors so that they can learn more about and strengthen their assets and abilities.1 It can also be broken down into smaller groups based on geographic region and location or distinct financial platforms, such as inclusive finance or small enterprises. According to GIIN, important characteristics of impact investing include intentionality of social and environmental impact, expectations that the investment will generate, at the very least, a financial return of capital, a range of return expectations and asset classes, and impact measurement, which involves monitoring and reporting the social and environmental performance and progress of the underlying investments. These aspects are crucial in order to convince stakeholders to engage in this type of fairly new investing.
To the average investor, deciding what to invest in poses a challenge. Businesses fear that they’ll lose money, that people will be fired or lose their jobs, and that other investments may be more worth their time and energy due to higher, more promising, and more familiar returns. People may not be willing to risk what they are making, what they have saved, or their futures on something they might have to relinquish. There is also an adversarial relationship between businesses and social issues that sometimes comes into play. One problem is many current impact investors possess additional capital that they can and are willing to risk; however, average investors aren’t nearly as eager because frankly they can’t afford to be.
When you ask people if they know about impact investing, most of the time no one knows what you’re talking about. To current and potential stakeholders, impact investing essentially seems to simply mean risky business. This type of investing spells out risk due to its lack of recognition, lack of capital, lack of support by banks, and lack of establishment, as well as its inherently innovative nature, which always means taking a leap of faith. , organizations like GIIN provide the knowledge of why impact investing would be a great addition to an investor’s portfolio and the information necessary in order to venture into this uncharted territory. The great part about GIIN is that this organization makes sustainable investing an exciting opportunity and informs people that impact investing could be one of the best ways to not only gain growing financial rewards, but also to make a difference.
Here are some reasons why impact investing may flourish. Sustainability, environmental awareness and “going green,” and societal change all continue to grow in reputation and encompass a global movement that is taking place all over the world, even in countries that struggle to improve their own situations. Demographics are changing, and people of all ages and races are starting to pay more attention to the world and our environment, especially younger generations. GIIN’s records demonstrate how impact investing allows stocks to yield real returns and people to have a personal (and not just financial) stake in their investments, which is very self-rewarding.1 These kinds of investment vehicles diversify stock portfolios, give people more options of what to invest in, and may even hedge some risk. If enough people jump on the bandwagon, the investment’s value will rise as more investors come to know and believe in their investment vehicles. Like current stakeholders, I believe that this type of investing may have a promising future; however, I also think that it can only be achieved through awareness, support, and funding.
GIIN, which passionately strives to achieve such awareness and support, implies that impact investing affects how minimally or exponentially we can change the situation we are currently in, financially and on an environmental or global level. The difference between how much wealth our stocks can accumulate and how much of a difference the world could make due to these types of investment vehicles currently remains ambiguous. As possible and palpable as it may seem, impact investing supporters will still need capital, recognition, and a long-term, reliable track record on their side in order to truly convince potential impact investors around the world of the benefits and to help impact investing evolve into the next investment trend.
References:1. "Global Impact Investing Network." Global Impact Investing Network. Global Impact Investing Network (GIIN), 2015. Web. 13 Mar. 2015. <http://www.thegiin.org/cgi-bin/iowa/home/index.html>.