What is impact investing?

This definition has been formulated by the Global Impact Investing Network (the GIIN), a New York-based worldwide network of over 230 diverse organisations in the impact investing marketplace, founded in 2008. Triodos IM is a co-founding member of the GIIN.

The GIIN has further defined the practice of impact investing by the following core characteristics: 

• Intentionality: an investor’s intention to have a positive impact through investments is essential
• Investments with return expectations: impact investments are expected to general a financial return on capital or, at minimum, a return of capital 
• Range of return expectations and asset classes: impact investments target financial returns that range from below market to risk-adjusted market rate, and can be made across asset classes
• Impact measurement: the investor is committed to measure and report the social and environmental performance and progress of underlying investments

Embracing impact investing as a formal practice

Triodos IM has embraced the term impact investing since it was introduced. We believe a clear designation of this style of investing, not only formalises the whole practice, but also strengthens what we had been doing for over 25 years. The practice of making money work for positive change is, of course, much older, using different names. But by embracing what we were doing – investing in renewable energy, financial inclusion and sustainable food and agriculture, to name a few - under this one term, we felt it would help clarify to the market exactly what our intentions and activities were. And it would also support faster growth of the sector.

More than just financial return

The past few years have seen the rise of impact investing [link to article: How big is the impact investing industry?] as a reaction against the one-dimensional search for the highest return through – sometimes highly complex or solely arbitrage – investment propositions. Impact investing seeks to add value to society. For the impact investor, value creation for society and financial return are equally important. 

There is no such thing as a neutral investment

The rise of impact investing is also instrumental in making investors realise that there is no such thing as a neutral investment; that every transaction has an impact, positive or negative. In our view, all investments must start with the question ‘what is the impact on communities, on climate and our society?’ We see this increasing awareness lead to more capital being directed to investments that contribute positively to many of today’s global challenges, from climate change and the ever-increasing gap between the haves and have-nots, to depletion of our fertile soils and loss of biodiversity.

The new normal

Apart from impact investing offering investable solutions to addressing today’s global challenges, its rise serves another very important purpose: changing the way we look at investing. Bringing us back to the very core of investing, which we believe is to serve the real needs in society, the real economy.

By making impact investing the new normal, we can spur systemic change in the global financial markets. Because how we invest defines the world we want to live in. 

Recommended reading: 
Roadmap for the Future of Impact Investing: Reshaping Financial Markets