Most people who invest their money do so to make a profit, but what if it was also possible to make a positive impact on the world around us while getting a good return on our money?
The concept of ethical investing is not new. Many firms have ethical funds where the emphasis is on avoiding certain types of industry or companies, perhaps in the arms industry, where it may be felt there could be moral issues with the business. These funds may avoid potential negative impacts, but a new type of investment is taking that strategy one step further and creating investments with the potential to have a positive impact on our world.
Recently, some not-for-profit organisations have been partnering with investment banks and money managers to produce a new type of investment product that provides an opportunity for investors to get involved in what is now being called ‘impact investing.’ This is a type of socially responsible investment where the goal is to invest in entities or funds across the globe that have the potential to bring positive social changes while also providing investors with a healthy financial return.
Prestige Wealth Solutions is helping clients understand the new approach and how to benefit from the strategy. Impact investing builds on the work of investment companies that have for some time been offering mutual funds with a focus on socially and environmentally aware companies. The impact investor goes further and invests in bonds or other investment instruments that directly invest in socially oriented projects.
An example of an impact investment could be the microfinance loan. Here, investors help those with limited access to finance and traditional forms of investment to start a company or expand an enterprise. Such loans carry some risks, but this risk can be spread over different projects and the returns on microfinance loans have already proven competitive. Indeed, some of these investments have provided higher returns than traditional markets and they have been especially effective while wider markets have experienced downturns.
Impact investing goes mainstream
The phenomenon of impact investing is on the increase. It may have started as a vehicle for high net worth individuals to invest with a clearer conscious, but it is now expanding into the wider retail investment market. Large investment institutions are also beginning to expand their impact investment portfolio and the market is becoming far easier to invest in.
A complex market
There is little doubt that we live in an age where the general population is becoming far more aware of the environmental impact of their lives and consumption decisions, and the rise of impact investing may be one outcome of this greater awareness of the world around us. This is creating a new market for investors but it also brings complexity and uncertainty. At PWS in Dubai, we are assisting clients who are considering this type of investment. As always, knowledge is vital and making informed decisions will deliver better returns.