The idea isn’t new but its appeal is growing rapidly.
Impact investing seeks to do more than increase the value of an investor’s portfolio: it aims to make society at large, or even life on the planet, better as a result. In the US, impact investments now amount to $12 trillion, around one-quarter of the total funds managed by professionals. This amount grew by nearly 40% over the period since 2016 and the trend is similar globally.
What is going on here? We examine the views of Jed Emerson, who recently published a book entitled, The Purpose of Capital—Elements of Impact, Financial Flow, and Natural Being. The book considers the purpose of wealth and what we should do with it. Interestingly, the e-book version is available for free, although if you want a traditional format, you’re welcome to part with some of your wealth to acquire it.
Emerson examines whether impact investing is truly a new form of financial activity, or simply the old ways and means dressed up for show. Even charitable organizations, seemingly natural customers for impact investing, often shy away. Emerson feels that concerns are justified, given the traditional tendency of investment to turn into a pure wealth-reproducing exercise, with little regard for societal consequences.
The time has come for deep change, Emerson argues. Authentic impact investing does more than merely reproduce wealth: it adds a new agenda to the financial world and provides a “deeper understanding of how capital may be used to serve the needs of humanity and planet,” he says.
Investors should still be interested in their financial wellbeing, but the term’s definition must change. It makes little sense to invest in order to better your children’s future, if you’re supporting industries that pollute the air or taint the water they drink. Impact investment should encourage investors to broaden their horizons and center their conception of personal welfare within some broader community.
For more information, please read:
Understanding the ‘Why’ of Impact Investing | Wealth Management