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Getting to Know Impact Investment that is Trending Worldwide

Queconomics – The trend of impact investment occurs because investors get a lot of benefits from this investment model. This investment is an investment approach with the aim of reducing the negative effects of business activities that may occur on the environment and society.

Because this investment brings positive environmental and social impacts, many consider this a charitable activity. However, this investment with environmental and social impacts is actually oriented towards a balance of natural, social and financial benefits.

Thus, it cannot be said that this investment is purely a charitable activity. With this investment, the environmental, society and corporate parties will both benefit.

Impact investing has a fairly high success rate. The majority of investors who use impact investment strategy admit that their investments even exceed their expectations.

The term impact investing began to be used since 2007, but its implementation has been started since then. This investment is carried out by carrying out corporate social responsibility.

The company must have a commitment to run it, both to the surrounding community and to the natural environment before the company is further involved with its funding.

The forms of commitment that companies can make can vary, ranging from reforestation, helping local communities or alleviating poverty and funding research on renewable energy.

In this investment, investors will usually ask the company to have a high responsibility to the community and the sustainability of the surrounding nature. Investors will put forward special requirements before they invest their money in the company.

Who do Impact Investment

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Initially, impact investing actors were investment institutions that distributed managed funds. Call it hedge funds, banks, pension funds to private foundations are often channelled in this scheme.

As the impact investing model has developed, now individual investors can do it too. Through microfinance institutions that finance MSMEs in developing countries, individual investors can contribute to the impact of change through their investments.

In its implementation, impact investing has several forms of capital and investment vehicles. In general, this investment offers benefits that are in line with environmental and social awareness.

Usually, the education, health, agriculture and renewable energy industries are the choices for investment with this scheme. Generally, impact investment distribution is carried out in developing countries and targets vulnerable groups such as MSMEs and women entrepreneurs.

However, there are also many large companies that are CSR-oriented and have a good commitment to local communities and the environment that are eligible for this investment scheme.

The Approaches Used in Impact Investment

Two common approaches to impact investing are environmental, social and governance and social responsibility approach.

The social environment and governance approach applies standards that confirm the company’s social awareness and applies ethical criteria in its operations. The criteria used by this investment aim to select potential investment recipients.

The criteria applied include the company’s awareness of three aspects; environmental, social and governance. Investors will consider how the company protects the environment, ensures the welfare of employees, the surrounding community, to leadership factors.

Usually so rigid that it is impossible for any company to pass in all aspects. Thus, investors need to make further considerations about which aspects are most important to them.

The social responsibility approach is an improvement from the previous approach. The criteria emphasized in choosing an investment destination company are in the form of more applicable ethical guidelines.

The motives can be varied and personal such as individual values, religion, political affiliation and so on. Analysis in the social responsibility approach assesses the positive and negative sides of the company’s situation based on ethical guidelines.

As the popularity of CSR skyrocketed, this approach grew in popularity. Investors can still be profit-oriented with the funds invested. However, investors can build social awareness of the company by implementing this impact investment.

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