Double bottom line investing, also referred to as “impact investing” or “socially responsible investing,” refers to a type of investment strategy that seeks both financial returns and social or environmental impact. This approach aims to create a positive impact on society or the environment while also generating profits for investors.
Unlike traditional investment approaches that focus solely on financial returns, double bottom line investors consider social and environmental factors in their investment decisions. This could include investing in companies that are working to solve social or environmental issues, such as those focused on renewable energy or sustainable agriculture. By investing in companies with a strong commitment to social and environmental responsibility, double bottom line investors aim to create a positive impact on society while still generating financial returns.
There are various investment asset classes that can be considered for impact investing, depending on the specific social or environmental goals that an investor wants to achieve. Some examples of asset classes that can be used for impact investing include:
- Public equities: Investing in publicly traded stocks of companies that have a strong commitment to sustainability and social responsibility.
- Private equity: Investing in privately held companies that are focused on addressing social or environmental issues, such as renewable energy or clean water.
- Bonds: Investing in fixed income securities issued by companies or governments that are focused on addressing social or environmental issues.
- Real estate: Investing in real estate projects that are designed to have a positive impact on the environment or community, such as affordable housing or green buildings.
- Microfinance: Investing in microfinance institutions or funds that provide financial services to low-income individuals or communities.
- Impact funds: Investing in mutual funds or exchange-traded funds (ETFs) that are focused on impact investing, and typically invest in a variety of asset classes.
What’s the risk?
Impact investing can involve a higher degree of risk than traditional investing, and investors should carefully evaluate the potential financial and social returns before making any investment decisions. Many impact investments are made in emerging or untested markets, where the regulatory environment and business practices may not be well-established. This can increase the risk of investing in such markets as they may not have a proven track record of success. Some impact investments may not be liquid, meaning they cannot be easily bought or sold on the open market. This can limit an investor’s ability to sell their investment and can increase the risk of not being able to recover their initial investment.
Impact investments are typically made with the goal of achieving social or environmental impact, in addition to financial returns. However, achieving such impact may take time and resources, and there is no guarantee that the desired outcomes will be achieved. This can increase the risk of an investment not meeting its intended impact objectives. Impact investing is a relatively new field, and many impact investment strategies have limited track records of success. This can make it difficult for investors to assess the performance of potential impact investments, and can increase the risk of investing in an unproven strategy.
Aligning personal goals with investment goals
When considering impact investing, you should align your personal goals with your investment goals. Start by identifying personal values and priorities that align with social or environmental impact. For example, you may prioritize sustainability, social justice, or community development. Once personal values and priorities have been identified, set specific impact goals that align with those values. This could include goals such as reducing carbon emissions, supporting fair labor practices, or improving access to education.
Once impact goals have been set, determine investment goals that align with those impacts. For example, you may seek to invest in renewable energy companies, fair trade businesses, or education-focused organizations. Evaluate potential impact investments to determine if they align with your personal and impact goals, and to assess the potential risks and rewards of each investment opportunity. Once impact investments have been made, monitor their performance and impact on an ongoing basis. Adjust investments as needed to ensure they continue to align with your personal and impact goals.
By aligning personal and impact goals with investment goals, you can make meaningful contributions to social and environmental causes while still achieving your financial objectives!