What is Impact Investing?
Investments made into companies, organisations, vehicles and funds with the intent of generating both a financial return and a positive social or environmental impact. For an investment to qualify, the positive social or environmental impact has to be conscious, defined and measured. The requirement for a financial gain seeks to eliminate the dilemma for investors torn between the desire to contribute to projects that deliver positive social, economic and environmental benefits, and the ones that generate a positive return on their investment.
At the heart of impact investing lies the desire to make a positive impact by infusing capital to address some of the world’s most critical challenges in projects ranging from affordable housing to sustainable agriculture, healthcare, renewable energy, microfinance, education and conservation, among others. The primary objective of impact investing is to efficiently deal with environmental and social issues using innovative solutions or technologies, while also generating a positive ROI.
Initially, impact investing was only directed towards developing countries where the need for financial investment was acute to achieve a thriving, just and sustainable human presence on this planet. “All countries in the world have stark and persistent inequalities, which in many cases have grown in recent decades,” said Nikulás Hannigan, Chair of the Commission’s 56th session, in his closing speech. “Inequality threatens long-term social and economic development and harms not just those who are excluded, but also has the potential to undermine the fabric of the society.”
Read more about our current Impact Investment Picks - Teysha Technologies and Nextgen Nano
Impact investing sought to provide a consumer base of the poorest 3 billion people with access to technology and resources that were environmentally sustainable and socially just. However, it has expanded its scope over the years to cover developed nations owing to the inability of the governments in developed countries to tackle social inequalities and climate change.
Why is Green Technology Important?
Green Technology is a collective term for all environmentally-friendly technologies that do not disturb or destroy the environment and natural resources. One important thing to remember is that it's scope extends beyond existing technologies, to include those that are currently in various stages of development.
As Laurence Blandford, international director for the Centre for Clean Air Policy in Washington, puts it, "A lot of the innovations that are going to happen are things we don't know about yet. They are in the minds of scientists and engineers. My message would be to look for those technologies that have the potential to be transformational in the future."
The degradation of the world’s natural resources and the human damage caused to the environment are rapidly outstripping the planet’s ability to absorb the damage. The rate of deterioration has reached an alarming level, and radical action is needed to combat the increasing rate of environmental damage to water sources, land, biodiversity and marine life, a detailed environmental study by the UN has found.
Human overconsumption, overexploitation, pollution and build-up of greenhouse gases from burning fossil fuels and the destruction of areas that store massive amounts of carbon like the world’s rainforests are harming people and ecosystems around the globe, resulting in biodiversity loss, habitat destruction, the extinction of wildlife and ecological collapse.
Global carbon output continues to rise with emissions of greenhouse gases.
Worldwide, water pollution leads to the death of 100,000 sea mammals and 1 million seabirds annually. Environmental degradation is responsible for killing an estimated 315,000 people every year and the age-old monster of pollution feeds on the lives of over 9 million people yearly.
Scientists warn that anything more than a 2°C rise in global temperatures can lead to catastrophic problems in the form of more flooding, more drought, more disease, more famine and more war, creating millions of refugees and causing the destruction of the entire ecosystem and various species.
The primary lure of Green Tech lies in reducing the risks posed by environmental damage and conserving natural resources. It ensures clean and renewable sources of energy like wind, wave, tidal and solar energy are used to prevent complete exhaustion of other non-renewable sources and minimize the amount of greenhouse gases reaching the upper atmosphere.
Climate change is exacerbated by the emissions of greenhouse gases from agriculture, including the leaching of nitrous oxide – a powerful greenhouse gas – from run-off emissions and incorrectly stored animal manure. Green Tech seeks to harness the potential of solar energy, fuel cells, wind energy and geothermal energy to curb global warming by bringing down emissions of greenhouse gases like nitrogen and carbon dioxide by eliminating the use of fossil fuel inputs for energy creation.
Green Tech seeks to develop biodegradable products, encourages recycling and promotes the development of sustainable buildings.
Who Invests in Green Tech?
Socially responsible individuals, increasingly cautious of their role in making the world a better place to live, are making positive contributions towards investment in sustainable growth pathways that are supposed to both alleviate poverty and preserve the environment. The investment community worldwide is translating their desire into meaningful action by enabling sustainable development that delivers positive results.
And non-conventional energy generation is one of the most well-known industries in the field of impact investing, having evolved from an illiquid or early-stage impact market to a mainstream market in the last decade or so.
Learn about the tax advantages of investing in EIS approved Green Technology companies
It is expected that more capital will flow towards impact investments in the future, benefiting the renewable energy sector. According to a 2017 survey published by The Global Impact Investing Network (GIIN), 208 of the respondents invested a total of £89.79 bn in impact investments. Energy made up 16% of the total assets under management. Around 40% of the respondents believed that investment in the energy sector was likely to increase. The compound annual growth rate (CAGR) forecast in renewable energy between 2014 and 2019 is expected to be 10.3%, with a total market size expected to reach £612.79 bn The renewable energy sector offers enormous opportunities and the primary objective of impact investing is to make the transition towards renewable energy smoother as well as profitable for the investors.
Ilayda Taze is the CEO of London-based TrendScout. A young entrepreneur with a degree in finance, Ilayda writes extensively on impact investing and the need for the development of an environmentally sustainable future.