Impactful investments are those that are tailor-made to create social and environmental benefits while still generating financial value. They are meant to create lasting change, which is why they are often called “sustainable investments.” This trend is becoming increasingly popular among leading fund managers of private equity funds, development finance institutions and foundations, whose investment activities are directed towards development projects that improve the welfare of the community.
Sustainable and impactful investments are usually inclined towards the achievement of the Sustainable Development Goals (SDGs), which were created to develop global social welfare and general living conditions around the world. Specifically, they target improved food security, gender equality, education, affordable and clean energy, and by extension, climate action and environmental conservation. The goals also advocate for the entrenchment of industry, innovation and infrastructural development. If achieved, the result would be sustainable cities and communities.
One of the earliest forms of impactful investing was in the U.S. in the 1700’s, where any ventures in slavery, war, liquor or tobacco products, and gambling activities were frowned upon by the society. Activists campaigned against such investments, deeming them “sin contracts”. Impact investments grew further after the Chernobyl nuclear disaster in 1986 when environmental degradation and climate change were major concerns. Ultimately, the inaugural U.S. Sustainable Investment Forum was held in 1984. In 2006, even more gravitas was added to the practice of sustainable and impact investing when the United Nations Principles for Responsible Investment were released, leading to top fund and asset managers with a combined assets under management worth forty-five trillion dollars pledge to adhere to it.
In Africa, the bulk of social impact and sustainable investments are found in Sub-Saharan Africa with the aim of dealing with current social problems. However, the demand for investment is much more than the current investable opportunities. This is probably because the concept of sustainable and impactful development is still new in the continent, which means there is great potential as far as impactful investing is concerned.
How can you tell if your investments have a positive impact? For one, if the project gives you returns but also has some benefits for the society or the environment, you are on the right track. Secondly, many of them are long term. Remember, making an impact takes time and depends on the stability of return and capital reimbursement. Lastly, impact investing usually accepts returns over a diverse range, across numerous sectors, across a range of returns, from below market returns to risk-adjusted market-level returns. If you are thinking about making an investment, why not kill two birds with one stone and make yours impactful?
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