Impact Investing: What It Is and Why It’s Important

impact investment

The face of business is changing. Companies are expected to not only provide an excellent product and customer service, but to take responsibility for their impact on the world, including environmental and social influence.

Through regulatory practices like Extended Producer Responsibility, corporations are being held financially responsible for how their business affects the planet and the people on it. Customers also expect the companies that they support to be more proactive when it comes to sustainability and social responsibility, and they are even willing to pay more for products that are ethically sourced. It’s clear that corporations and businesses must adapt to this mindset in order to remain relevant. 

Impact investing offers one way for companies to contribute to global sustainability and social goals while making money. Here’s a quick rundown of what that looks like.

What is impact investing?

impact investing

Impact investing is simply when a company or individual makes an investment that’s intended to make positive social and environmental changes while still garnering a financial return. The goal of impact investments, like all investments, is to yield a profit, but the investment has the additional goal of contributing to a positive outcome.

In order to be considered an impact investment, it must have intention. The Global Impact Investing Network (GIIN) published the Core Characteristics of Impact Investing to help better define what impact investing is. It ensures that financial investments that are meant to make an impact actually do as promised and that companies making such investments aren’t participating in greenwashing, whether intentional or not.

In short, the core characteristics of an impact investment are:

  • Intentionality: The investment must be made with “an intentional desire to contribute to measurable social or environmental benefit.”
  • Intelligently designed: It must use data to create an investment design that makes a provable difference.
  • Manage impact performance: The investments must be professionally managed toward the intended goal.
  • Contribute to the growth of the industry: Learnings, goals, and growth must be shared within the industry in order to encourage further development.

 

Essentially, impact investment cannot simply entail throwing money at a problem. It must be done in a way that’s provable and that has room to develop.

How does impact investing come back to you and your company?

impact investment

Besides the impact of the investment itself, in order to be a true investment, the money must come back to you. But, how exactly does it work?

It can work a few different ways.

  • Most commonly, companies and individuals will place a standard investment in a company that’s doing impactful work. As the company and their stocks grow, you will see a standard return on your investment.
  • Fund projects to offset your environmental footprint. In this approach, the investment doesn’t come back to you in traditional ways but rather through improving company image and improving customer loyalty. Companies must always be aware when participating in offsetting projects; offsetting is only beneficial as a way to take responsibility for your environmental footprint now while strategizing how to implement sustainability strategies. It should not be used as a way to excuse continued unsustainable practices.
  • Provide loans to socially or environmentally responsible ventures.

 

These approaches work; the GIIN surveyed impact investors, and 68% said that their investments met their expectations while 20% said that they exceeded their expectations. 

Beyond making a positive difference in the world, impact investing shows your customers that you truly care about your company’s impact in the world. It illustrates that you are taking additional action beyond your own company’s sustainability and impact. 

Examples of impact investing

impact investing

It can be difficult to visualize impact investing. Many view it as a charitable donation or funding an environmental project. However, impact investing is, indeed, an investment, and those who participate in impact investing expect a return.

Here are some examples of what impact investing can look like.

GrowthFunders invested in a low environmental impact real estate project in County Durham, UK, where there’s a housing crisis. It built modular homes in an area with high demand for housing. Modular homes cultivate less waste than typical construction methods, and they are able to be built faster than traditional homes. In this case, investing in modular homes provided much-needed homes as soon as possible. Additionally, the project created around 50 jobs in addition to multiple apprenticeships.  

Craft3 is a company that provides loans or other financing to individuals and entities that are doing socially or environmentally responsible work. These may include non-profits, NGOs, or charitable organizations, but it also includes individuals looking to upgrade their homes to be more energy efficient and other such personal projects.

GE’s Ecomagination program invested money into more energy research in order to create more energy efficient machines. The goal was to build cleaner, greener products and to solve resource problems related to the products that they offer. After 10 years, they saw over US $200 billion in revenue from the venture, proving that impact investing can result in massive yields while making a huge positive difference.

The social and sustainable impact of partnering with TONTOTON

parnership

Looking to make a positive impact in a way that will also help your company grow? TONTOTON may offer that solution.

Our corporate partners are able to take responsibility for their plastic production and use through the purchase of certified plastic credits. This allows our corporate partners to show their customers that they are taking action to help reduce their environmental footprint while they develop further sustainability strategies. We always encourage our partners to practice additionality and to push themselves to do more when it comes to plastic waste. This is something that the environment and customers love to see.

The projects that are funded through plastic credits are both socially and environmentally positive. In Vietnam and Cambodia, we work in vulnerable communities to offer income opportunities to community members that simultaneously clear the communities of building plastic waste. We’ve monetized a type of plastic waste that has historically been ignored—non-recyclable plastic—creating additional income to waste pickers or any individual who wants to work with us.

We also provide personal protective equipment, training, and access to healthcare to those who work with us. Waste picking has its hazards, but proper training and equipment mitigates those risks. Those who have worked with us have been able to better support their families, provide better education to their children, and enjoy cleaner, safer communities.

So far, we’ve removed literally tons of plastic waste from communities that are most impacted by the plastic pollution problem. Plastic waste harbors disease-carrying bacteria and emits toxic chemicals, so this problem isn’t just an environmental issue but a health issue as well.

Looking to make an impactful investment that will benefit the planet and your company? Partner with TONTOTON today.