Impact Investing: making a difference while making money

“It is rarely the application of government programs that create true, lasting change in the world. It is the entrepreneurs working out of garages in Silicon Valley and shacks with dirt floors in India that end up changing the world for the better.” ~ James Sorenson

For decades investors were happy to make money. How and where money was being put to work was rarely investigated. As long as shares were doing well and worthwhile dividends paid, one could settle back comfortably, perhaps with a glass of champagne, and bask in a sense of achievement. It was good – and it was good enough.

However, in the last decade or so, there’s a new mood out on the block. And it is questioning everything from where money is invested to company ethics, corporate social responsibility, standards and social benefits; it’s the give-back philosophy rather than the take-all mentality. Investors across the board, but particularly younger contributors, are looking to impact real change.

What is Impact Investing?

When the intention is to make money, and at the same time ensure positive social change or environmental benefit, that is impact investing. It’s a way of making a difference in a world where there are many issues that need to be addressed, while making a profit at the same time. It’s the ultimate win-win investment strategy.

These investments provide funding in areas where there are challenges such as sustainable agriculture in poorer areas, renewable energy projects, conservation of both flora and fauna, finance for small businesses, and other vital areas such as education, housing and healthcare.

The beauty of impact investing is that it can be done by anyone. And it genuinely has the potential to create a different and better world. Impact investing drives initiative, motivation, invention and the dynamics of a more conscience-driven living. A key aspect is that the investment demands report and measurement of effect. Transparency, accountability and progress must be reflected. That is as fundamental as profit.

The power of impact investing is enormous. If all investments followed this philosophy, it is quite possible that most problems of the planet could be solved. We could eradicate poverty and hunger, provide greater food security without harming the environment, tackle climate change, bring healthcare to the very poor, achieve greater equality, and fund research into many areas of science and technology geared to improving the human condition in every sphere.

The mark of the millennial

Millennials stand to inherit a massive transfer of wealth from their baby boomer parents or grandparents – an estimated 40 trillion. They therefore stand on the cusp of a new investor generation that will carry the markets forward. But they want something more than their parents did – and they demand it from their financial advisors: portfolios that are profit-savvy but will impact social change at serious, measureable levels. And finding solutions for problems is paying dividends.

  • Impact investors see themselves as effectively bringing about real social change, a measurable difference for our planet that will improve the experience of future generations – while still reaching the goals of good investment and encouraging entrepreneurial talent.
  • Impact investing is positive as against the negative approach of withholding money from certain spheres because of personal conflict of values. Impact investors don’t withdraw to make a point, they drive forward to make a change.
  • On average, social impact funds display lower volatility than comparable non-impact funds.
  • Companies prefer social impact investments in areas such as social development, health and environmental causes rather than simply providing grants. This proves to be a far more satisfactory way to meet corporate social responsibility while also measuring concrete results and producing returns.
  • Today’s investment firms must keep abreast of socially-conscious investing to remain relevant and competitive.
  • Impact investing creates a real sense of community across all kinds of social divides, uniting people with a sense of purpose as they embrace universal challenges.
  • There’s no longer competition between values and profits. With impact investing you can have both. There’s significant ‘feel good’ value. Driving sustainable social change generates enormous satisfaction. Feelings are paramount for this kind of investor – doing good while doing well. Well, that can’t be beat.

The future of impact investing in South Africa

Many future-focused investors and fund managers are blending the benefits of commercial and social viability as they align Corporate Social Investment (CSI) and BBBEE capital with social impact, while still providing value for shareholders and the broader community. The popularity and power of this new outlook is phenomenal and stands to provide significant value for the continent as a whole. Currently, South Africa presents the largest market in Africa for providing impact capital into Southern Africa.

The sector is experiencing strong growth: where once a loan or one-off donation would be made to a worthy cause, millions are now made available for a variety of ongoing projects in Africa across spheres such as health, solar, education, and the pharmaceutical industry. As impact investing grows, it proves daily that it works. Simply put, we do have both the capability and financial instruments to contribute to a better life for people and the planet.

Possibilities for change are real and intriguing

At Foster Wealth we appreciate that providing social value while building wealth is a mindset that is fast changing the way the investment world works. Personal portfolios are often no longer about individual financial circumstance, but how you would like to ensure wider beneficial purpose. To do this effectively, to ensure constructive social return as much as profit, you need the savvy insight of professional advisors who not only understand the new mood, but also know where your money will truly make a difference. Talk to people who not only understand the language of money, but where and with whom remarkable changes are being made possible every day.

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