Factors to look for before impact investing
Impact investing is carried out with the motive of generating positive social, environmental impact, besides gaining monetary surplus. Although at the core of impact investment is the need to drive change in the environment and society, the monetary aspect cannot be completely ruled out or sidelined, after all, at the end of the day, money drives businesses and is crucial for any initiative to sustain and thrive.
Therefore, it is extremely important for impact investors to do thorough research before they decide to invest in an impact organization. It is crucial to ensure that the capital is parked in promising projects, capable of achieving both. In this blog, we will list down guidelines that impact investors must keep in mind before deciding to park their capital in an initiative.
Thumb rules of impact investing
While some of the things are obvious and are carried out almost always by impact investors before making a commitment, there are others that may skip the mind. From a background check on the impact organization to assessing its social standing, a lot needs to be done before you, as an impact investor, decide to bet on an impact initiative. Take a look at the following points:
Vet, vet, vet!
Thoroughly vet the organization you are about to invest in. You must have reliable data confirming that the project or the initiative has made significant progress or achieved some impact in the areas that they deal in. You may get some preliminary data on company websites or in their annual reports.
Beware of greenwashing
You may have credible data on the impact organization but beware of any possible greenwashing attempts by the company. Is the company, while trying to achieve its objectives, leading to some adverse impact on some other aspects of society or environment? You would like to be doubly sure of that before parking your funds, screen the organization for potential negative influence as well.
Testing the waters is necessary. You may have a number of options to invest in but be sure not to make a random selection. Compare each organization or initiative against the risk involved and their social investing value. As the saying goes, do not put all your eggs in one basket, especially if you are starting off as an impact investor, be sure to diversify your investment portfolio, weigh your choices against the potential risk involved and make an informed decision.
Look ahead, way ahead!
Success comes to those who are able to plan ahead. Besides, investing in projects that are committed to solving some of the most pressing contemporary global issues, it is important to foresee the potential future crises and bet on those who are armed to tackle those problems well in advance. Simply put, this is how your investment will remain relevant.
Invest in a manager
Just as a wealth manager takes care of our earnings and expenditure and keeps a track of our financial health, similarly, an investment manager can help impact investors decide where to make their next contribution. From an in-depth knowledge about the market and key players to the credibility of various impact organizations, these professionals can really go a long way in ensuring that your capital reaps maximum fruit – both in terms of creating an impact and procuring profits.
Before we wrap up, let’s quickly take a look at best practices for impact investing that you can make a note of. These are stated by the Global Impact Investing Network (GIIN).
- Establish social and environmental objectives and communicate the same to relevant stakeholders.
- Set performance metrics/targets
- Monitor and manage the performance of investees against targets
- Reporting on social and environmental performance to relevant stakeholders is a must.
You can learn more about impact measurement and management with Artemis Impact. Sign up for our newsletter to be the first ones to know more about the latest on impact management.
Artemis Impact is a network of corporate, donors & non-profits. With our corporate enterprise solution, we aim to empower companies to build human-centered impact stories and create sustainable impact with their CSR programs & core business.