Core Characteristics of Impact Investing (2024)

FAQs

Core Characteristics of Impact Investing? ›

Intentionality Impact investing is marked by an intentional desire to contribute to measurable social or environmental benefit. Impact investors aim to solve problems and address opportunities.

A hallmark of impact investing is the commitment of the investor to measure and report the social and/or environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field.

Environmental, Social, and Governance (ESG)

The integration of ESG factors is used to enhance traditional financial analysis by identifying potential risks and opportunities beyond technical valuations. While there is an overlay of social consciousness, the main objective of ESG valuation remains financial performance.

Impact is a change in an outcome caused by an organization. An impact can be positive or negative, intended or unintended. An outcome is the level of well-being experienced by a group of people, or the condition of the natural environment, as a result of an event or action.

In summary, a good investment involves a blend of factors encompassing returns, risk management, liquidity, stability, alignment with goals, transparency, quality management, growth potential, cost-efficiency, ESG considerations, and adaptability to market changes.

To help with this conversation, I like to frame fund expenses in terms of what I call the Four C's of Investment Costs: Capacity, Craftsmanship, Complexity, and Contribution.

The Core is the safest and most solid of the four investment strategies. In addition, its predicted return is the lowest of the three strategies—roughly 6–10% or less. Core investments aim to find Class A, income-producing real estate in big cities. It has long-term leases from tenants with excellent credit.

So why do we invest anyway? Now there's an obvious question, right? It's right up there with “Why do we go on diets?” But try finding obvious answers.

Impact investing is defined as the deployment of funds into investments that generate a measurable and beneficial social or environmental impact alongside a financial return on investment. An innovative way of boosting the private sector's contribution to sustainable development can be achieved with impact investing.

Amount: Aim to save at least 15% of pre-tax income each year toward retirement. Account: Take advantage of 401(k)s, 403(b)s, HSAs, and IRAs for tax-deferred or tax-free growth potential. Asset mix: Investors with a longer investment horizon should have a significant, broadly diversified exposure to stocks.

What are the 5 dimensions of impact investing? ›

The GIIN has outlined a framework for evaluating the ESG impact of investments, known as the five dimensions of impact. These dimensions provide investors with a comprehensive view of the potential effects their investments can have. They are: What, Who, How Much, Contribution, and Risk.

For example, Gartner recommends 5 main impact areas to examine: Financial, Reputation, Regulatory and social, Production output, and Environmental.

What are the Five Dimensions of Impact? The Impact Management Project (IMP) created the Five Dimensions of Impact. They are a framework that helps organizations assess and share their impact. They include What, Who, How Much, Contribution, and Risk.

Characteristics of impact investing

These four characteristics are (1) Intentionality, (2) Evidence and Impact data in Investment Design, (3) Manage Impact Performance, and (4) Contribute to the growth of the industry.

No matter what the commercials say, there are only three basic categories of investment: ownership, lending, and cash equivalents. They are products that are purchased with the expectation that they will produce income, or profit, or both.

Four of them, the price-to-book (P/B) ratio, the price-to-earnings (P/E) ratio, the price-to-earnings growth (PEG) ratio, and the dividend yield, are fundamental measures used in investment analysis and stock valuation.