Impact Investing: What You Need to Know for Your Business

bizfluent article image

Including companies and mutual funds that focus on sustainability in your portfolio is not a new idea, and it's certainly not a phase. Impact investing through private equity funds is commonplace now too. Impact investing is not only here to stay, it’s growing a lot. As business owners, this is not something we can afford to ignore.

Impact Investing Definition

If you’re an investor and feel strongly about environmental and social issues, impact investing is putting your money where your mouth is. The idea of impact investing is to invest in companies that can produce measurable results using renewable energy, conserving natural resources, or providing health care and education. These are just a few examples.

Impact investments aren’t donations by any stretch. Along with the feel-good, staying-true-to-your-values aspect of impact investing, investors expect their stakes in these companies to perform well and produce returns like any other investment.

Impact investing can be done by buying stock in a biotech company that’s working on curing a disease, for example. It can also be done by buying into impact investing mutual funds and impact investing private equity funds. These funds are made up of investments in companies that operate in socially responsible ways.

Impact Investing Numbers

Overall, impact investments perform well in addition to meeting investors' expectations for positive environmental or social impacts. A Global Impact Investing Network survey of slightly more than 500 impact investors indicated the following:

  • 14 - 16% said that their investments outperformed their expectations.
  • 77 - 82% said that their investments met their expectations.
  • 2 - 9% said that their investments underperformed.

Impact investing is a big deal. It’s estimated that worldwide, nearly 40% of investors invest sustainably, and they are not just environmentally aware millennials and Generation Xers. A Morningstar survey indicated that 72% of all investors are at least moderately interested in impact investing.

Implications for Small Businesses

Environmental and social issues are at the fore for a lot of people, not just investors. Some are dedicated to improving things as quickly as they can. They’re the people who become activists and take jobs and volunteer for the causes that mean the most to them.

The majority of people don’t have that degree of dedication, but it’s not because they don’t care. They may not have the time for volunteer work or be in a position to take a cut in pay to work for a nonprofit cause. Nevertheless, they still want to do something. They're the 66 % of consumers (73% of millennials) worldwide who are willing to spend more for products that are sustainable.

As business owners, we need to pay attention to these statistics and trends. If your business is small, the implications are immediate. Use recyclable boxes in your pizzeria, stock bamboo toilet paper in your convenience store and advertise that you do. Make sure “recyclable” is in a font size almost as big as your restaurant's name on that pizza box and post a sign in the window that says, “We carry sustainable products.”

Implications for Growing Businesses

Beyond the immediate and practical level, if going public someday is your goal, start building sustainable practices into your business now. Make it part of your mission statement and include it in every strategic planning meeting. It will matter to the majority of potential investors.

Even if sustainability is built into your business, like wind turbine manufacturers and all-natural cosmetics vendors, you should regularly assess how you’re doing. It’s not just about your products. It’s also about whether your processes, packaging and community service are supportive of environmental concerns.

Having a sustainability faux pas made public will not only be embarrassing, it will affect the value of your company’s stock and therefore your company.

Being Environmentally Conscious

Being environmentally conscious has become part of everyday life for most of us. Although we have a long way to go, it’s rare to see trash accumulating along highways anymore. Cities that were known for having horrible air quality have made great strides. Recycling at home has become so routine that we don’t think about it anymore; we just do it.

If your business is in California, you’re probably already on top of this because it’s the law, but if it’s anywhere else and you’ve not yet incorporated sustainability practices into your business, start now and make sure your customers know about it.