Market insight - Impact Investing: Making Good with Your Investments

Socially responsible investments (SRI) or ethical investment consists of any investment strategy which seeks to consider both financial returns and social good. While some investors simply avoid businesses involved in alcohol, tobacco, fast food, gambling, pornography, weapons or fossil fuel production, others integrate more complex data analysis on ESG (Environment, Social justice, and corporate Governance) criteria in their investment process. On top of that, an innovative form of investment is emerging: impact investing. These are investments made into companies or through mutual funds with the intention of generating a social or environmental impact alongside financial returns. This can be done using various assets classes such as listed equities, fixed income, microfinance and private equity. Impact investing differs from ESG investing which tends to focus on analyzing internal company processes, while impact investing is concerned with companies’ external environmental and social impacts for our planet. Thus, some companies could have a very good ESG rating without having a positive impact. Investors should be cognizant of the impact that their investments have, which may be positive or negative and will have long-term effects on addressing some of the world’s greatest challenges. Therefore, investors should consider building portfolios which are aligned with their own core values and objectives. 

The United Nations Sustainable Development Goals (SDG) are now used within the financial industry as a framework for impact investing and to evaluate social impacts. On 25 September 2015, 193 countries of the UN General Assembly adopted the 2030 Development Agenda titled "Transforming our world: the 2030 Agenda for Sustainable Development". The 17 Sustainable Development Goals target basic needs (no poverty, zero hunger, good health and well-being, clean water and sanitation), climate change (affordable and clean energy, climate action), natural resources (responsible consumption and production, life on land and below water), human life quality (education, gender equality, inequality reduction, decent work and economic growth, industry innovation and infrastructure, sustainable cities and communities) and better governance (peace, justice and strong institutions, partnerships for these goals).

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