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How to ensure impact investments land smoothly in your portfolio

If I told you that you could make money and change the world for the better, what would you say?

I would assume “Let’s do it!” would be more likely than “No thanks!”. Impact investments - which are made into companies, organisations and funds with the intention of generating social and environmental impact alongside a financial return1 – seem to deliver on this promise.

So what are we waiting for? Shouldn’t all our money go into impact investments straight away? This sounds like a pretty logical strategy at first glance, at least for those of us who care about others and the future of our planet. However, as investors, we always should ensure that our emotions are not getting into the way of smart decision making.

While the purpose of impact investments is twofold rather than purely financial, we should nevertheless avoid emotional decisions, and use the same rational and sound logic in our analysis of these investments. This is particularly true if you have responsibility for investing other people’s money. You might advise a client, look after the community’s money, or take responsibility for investing your employees’ superannuation savings. And whatever the legal requirements might be, at least morally you owe it to your community, beneficiaries or members to make sure that you approach every investment with due care.

However, impact investments are a relatively new phenomenon, and therefore meaningful performance data and research on impact investments is scarce. So, where to from here? If you already have a strong investment process and good governance framework, you may want to think about how you can integrate impact investments into your traditional investment decision-making.

This is where our recent research paper may come in handy.

It discusses how you can categorise impact investments among other, more traditional investments, and suggests methodologies to evaluate and measure impact.

For example, a community organisation may debate whether it should own social housing, lend money to a social housing company or give a simple grant to a microfinance organisation. They all may have similar objectives in terms of impact, but how do you evaluate which approach is the best for the community?

Our modelling framework in the research paper could help you in your evaluation process.

If you are an institutional investor grappling with some of these questions, please feel free to request your copy of the paper from us through the form provided on our website.

We will also give you further updates on our approach to impact investments on Linkedin and our website soon


1 https://thegiin.org/impact-investing/
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