What is Social Impact Investing? – Everything you need to know

In today’s ever-changing world, a new investing concept catches various investors’ attention, i.e., social impact investing. It’s a growing field that allows investors to invest in social companies, organizations, and projects with a positive social & environmental impact and financial returns. It gives investors higher returns as well as contributions to environmental growth. Nowadays, investors are making investments based on their values, leading to social impact investing. 

So if you’re searching for a new investment option where you can get higher returns along with social growth, then social impact investing can be a good option. At SustVest, we make sure that you make investments that align with your values.

In this article, we’ve done an in-depth analysis and deep dive into social impact investing, its benefits, how it works, its potential impact, and why you should consider it.

Overview

Social impact investing is a great investment option that allows investors to invest in social companies, organizations, and projects that positively impact the environment along with financial returns. In this field, investors can make investments that align with their values and get higher financial and social returns. 

It’s a better investment option than traditional investing, where investors only get financial returns, but social impact investing gives financial and social returns that overall help economic growth. Nowadays, various young investors are showing their interest in social investing and contributing to getting higher returns with long-term profitability and betterment of society. 

This investing has lower risks and higher returns potential, allowing investors to invest safely in various sustainable areas such as education, health, renewable energy, microfinance, and diversified portfolio. 

Characteristics of Social Impact Investing

Some of the main characteristics of this investing that investors consider while making investments are:

1. Intentionality

When it comes to social impact investing, intention plays a crucial role for Investors to make their investments based on their intentions, whether it’s only getting financial returns or contributing to environmental growth and development. Investors should clear their intentions before making any investment and identify the impact of their investments, whether it’s financial or social returns. It helps investors invest based on their values and ensure a positive impact.

2. ROI Expectations

Investors can expect higher ROI in terms of both financial as well as social returns. Investors should have clear expectations of their returns, whether it’s financial or social. This helps them make investments in the right areas that match their values and derive the desired impact easier. 

3. Impact Measurement

Investors should track their overall impact on their investments and measure how their investments can impact them financially and socially. By evaluating the effectiveness of the investment, investors can make informed decisions and invest in areas that build long-term profitability and environmental growth.  

4. Evidence and Reporting

Evidence and reporting help investors to identify the real insights of the company or organization and evaluate whether they can give desired results, such as social impact and financial returns. This evidence and reports help them to make informed decisions and ensure lower risks by analyzing the data.

Check out our blog on Sustainable Investing 101: The Key Differences Between Impact Investing, ESG, and SRI here to understand sustainable investing in detail.

What are the Benefits of Social Impact Investing?

This Investing comes with various benefits for investors, such as:

1. Higher Returns

For investors, getting higher returns is the primary objective, and social impact investing provides attractive financial and social returns. Various social companies and organizations are making a significant impact on the environment and getting higher financial returns. The biggest reason to consider social investing is that it’s a field of sustainable investment options so the demand will grow continuously along with financial returns. So investors can identify and invest in these social companies, which can give higher returns with long-term profitability. 

2. Diversified Portfolio

Diversification is a most important strategy that every investor considers while investing because it allows them to lower the risks and invest in different areas where the demand will increase and get higher returns. There is a wide range of sectors available, including renewable energy, agriculture, healthcare, education, and microfinance are the best options to consider for getting financial and social returns. Such diversification in different areas allows investors to lower risks, build strong portfolios, and increase the chances of better returns. 

3. Invest along with the Values

Another significant benefit of investing in social impact, i.e. investors can invest in those companies that align with their values. It gives investors a sense of purpose and motivation to make investments that solve a big cause and drive higher returns with great satisfaction. Investing in values can enhance the overall financial and social returns for a better future.

4. Risk Mitigation

Investors always seek ways to mitigate their risks and get higher returns. This is where social impact investing comes as a better investment option where investors can mitigate their risks by investing in those companies following the ethical practices to environmental, social, and governance (ESG) risks and working on making a positive social impact and having higher demand. By considering ESG factors based on sustainable companies, investors can reduce the risks and increase their returns with long-term profitability. 

5. Positive Social and Environmental Impact

The overall reason for coming up with the idea of social investing is to make a positive social and environmental impact along with economic growth. There are various social companies and organizations which are working on global challenges such as climate change, poverty, healthcare, and much more. Investing in these companies can have a positive social and environmental impact and ensure more sustainable and long-term high returns.

Check out our blog on What is the Best Investment Plan In India In 2023 here.

Who Invests in Social Impact Investing?

There are various individual investors and institutions which make investments in social impact. Here are some of the individuals and entities such as:

• Individual Investors
• Banks 
• Financial Institutions
• NGOs
• Fund Managers
• Private Foundations
• Religious Institutions
• Corporates
• Hedge Funds
• Pension Funds
• Insurance Companies

It’s a great investment option for all those investors who want to invest with their values and get financial and social returns. 

How Does Social Impact Investing Work?

It is a great investment option that allows investors to invest in social companies, organizations, and projects working towards positive social and environmental impact along with financial returns. So investors will get personal and social growth with their investments. 

The best part of this investment is that investors can choose the company that aligns with their values and mission, giving a more impactful investment as a contribution to economic growth. 

To make the right social impact investment, investors assess the potential impact of each investment, the company’s mission and vision, the social challenge they’re solving, the track record of social performance, and scalability. 

These factors are mainly considered to make investments that align with the values and give positive financial and social returns. 

FAQ: Social Impact Investing

Q.1 What are the benefits of social impact investing?

The biggest benefit of social impact investing is to get financial as well as social returns with long-term profitability.

Q.2 What do you need to know about social impact investing?

This investing means investing in environmental growth and development along with financial returns. So that investors can invest based on their values and bring results.

Conclusion

Social Impact Investing is a great investment option for investors who want to contribute to social growth and high financial returns. Also, it allows investors to make investments based on their intentions and values. However, this type of investment option required a deep understanding of the growing market, analyzing data and top companies for higher returns that seemed challenging and required expert guidance.

So if you plan to invest in this field, get in touch with SustVest and start your investment journey in social impact investing to get higher financial and social returns along with your values.