In various aspects of life, the world is experiencing a huge focus on social and environmental concerns: a focus that only continues to grow. So it’s unsurprising that the same is true in the world of investing, where social impact investing is very much taking centre stage.
Here, we explain what social impact investing is all about, and why it is proving so popular amongst investors.
What is social impact investing?
Social impact investment is different to ethical investment. While the latter is all about avoiding negative impact (such as investing in the weapons trade), the former involves investors actively looking to create a positive social or environmental impact.
However noble its aims, social impact investment is still, as the name suggests, a form of investing – which means that funds can go down as well as up. In addition to establishing the level of risk they are willing to take, an investor has a further decision to make: how happy they are with the positive social or environmental impact of the funds that they consider. While some believe that adding this extra factor into the decision-making process means compromising on returns (investing in charities, for example), others are of the opinion that there is no reason why, say, a business set up in a poor community should not see regular business returns.
Why is social impact investment growing?
A survey reveals that 22% of UK investors – and 35% of investors aged 35 and under – are planning on turning to impact investment in the near future. Big Society Capital figures also show that the amount of money in social impact investments has increased from £830m in 2011 to £5.1bn in 2019. But why is this happening?
Big Society Capital believes that COVID-19 is partly responsible. Interim CEO, Stephen Muers, says, “The impact of COVID-19…will be a key driver in shifting investors’ focus from a purely financial return to one that delivers a social impact too. I expect social impact investment to play an increasingly important role as an engine of the economic recovery”.
At a recent SOCAP Virtual session, panellists discussed how current “intersecting crises” – such as COVID-19, BLM and climate change – give impact investing the potential to transform the economic system into one that is far more equitable. The question, they say, is whether impact investors are truly willing to make this happen.
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