When you take a look at investing, every investment has an impact on the community in which that community operates. By investing in a business, you’re lending your financial support to that business, so it can grow, create jobs, and benefit the neighborhoods in which it operates. Impact investing takes that one step further by allowing investors to target businesses that take action in improving the big three: environmental, social, and governance (ESG). Investors take action by avoiding companies that don’t act to affect one of these three concerns, or, more commonly, dedicate their capital to invest in companies that take an active interest in bettering one of these areas.
How Does Impact Investing Work?
Traditional investors research the financial history of a business and try to predict future performance by evaluating the most recent activity. If their research suggests the company will grow and continue to profit, they will buy stocks in the company. Impact investing works similarly, except that financial research isn’t the only consideration. In addition to determining if the business is likely to show profits, an impact investor will also look at the business’ social, environmental, or political activism. For example, an impact investor with an interest in promoting gender equality might only invest in companies that promote a larger percentage of women.
The Importance of Impact Investing
This type of specialized investing came about as a means of influencing how businesses operate on a day to day basis. As more people pursue impact investing, their dollars express their concerns for specific issues. By being more selective in choosing the stocks they buy, they can show business leaders that they want to see more concern for the environment and wildlife. It’s also a good way to promote greater workplace equality. Even though the government may not enact laws that force businesses to act for the betterment of our environment or society, impact investors can force those businesses to enact change.
While impact investing is a fairly new concept, it’s growing rapidly. Between 2013 and 2017, the practice grew by five times, which suggests investors of all ages took an interest in ESG stocks. That momentum indicates that this trend is likely to continue to gain support and may direct the activities of younger investors. In time, impact investing may carry more weight than a democratic vote in terms of forcing commercial organizations to change their harmful or outdated practices.
About The Author
Yuri Vanetik is an Entrepreneur, Private Investor, Coalition Builder, and Philanthropist in Orange County, California. He is the Managing Partner of Vanetik International, LLC, a management consulting firm which offers advisory services and strategic planning to businesses and industries. He is also the Managing Partner of Dominion Asset Management, a technology-driven opportunity real estate fund that invests in undervalued real estate throughout the United States. Yuri Vanetik brings over 20 years of professional experience in a variety of roles, and has been featured in notable publications, including the Wall Street Journal, California Business Journal, and Forbes.