Impact investing is one of the six types of sustainable investing strategies that we discussed in our recent Thought Leadership publication, Sustainable Investing. As the name suggests, the idea behind this strategy is to select securities with the disclosed intention to generate and measure social and environmental benefits in addition to earning a financial return.
Investing in affordable housing, community and economic development, renewable energy, and land conservation/remediation are common areas of impact investing. And though still a relatively small segment of the market, asset flows into these strategies can help increase opportunities for new ones moving forward as well.
As investors start putting their money toward these areas, money managers may take note of the trend and begin offering strategies that focus on those types of projects. Given the fact that money managers can pool the resources of individual investors, they may be able to create momentum for new opportunities in that area by approaching developers and letting them know that funds are available for green projects. Developers, in turn, may be more willing to consider the projects if they know that funds are readily available. As the strategy grows, more investors may become aware of it, bringing more capital to the table, repeating the cycle.
This isn’t to say that the process is easy, fast, or guaranteed to be successful. However, some of the strategies mentioned above have started to gain more traction and may offer more opportunities for investors searching for sustainable investing strategies.