Impact investing 101

what is impact investing?

Impact investing is a type of investing that aims to not only generate financial returns but to have specific beneficial social or environmental outcomes. 

It’s all about honing-in on the big problems we face, such as climate change, and identifying the companies that are developing solutions to those problems.

The good news? When they do well, these companies not only help solve the issues, but they stand to make outsized financial returns. 

Right now, impact investing is a fast-growing branch of investing. At CIRCA5000, we believe it’s the future of investing itself.

what it isn't

Impact investing is often lumped in with SRI investing (ethical or socially responsible investing) and ESG investing (environmental, social, and governance investing). It isn’t either of those things. 

Ethical or SRI investing just screens out businesses that people want to avoid, such as tobacco and arms companies, for example. 

ESG investing attempts to incorporate environmental, social, and governance risk factors into the decision making process behind each investment. This form of investing doesn’t look at the whole picture as to whether the company is good for the world or not, though. It just looks at whether the company is exposed to each of those three areas in a way that could pose a risk to the company’s future operations, and consequently hurt its stock price performance. That’s why ESG portfolios still include oil companies and other companies you’d expect them to avoid.

Impact investing is different. It actively attempts to identify companies addressing the most pressing issues we face instead of simply avoiding the worst companies. We hope that in the future, all investors will take this stance – and impact investing will just be known as investing.

This article is provided for information only and does not constitute financial advice. If you require financial advice please approach an independent financial advisor authorised by the FCA. CIRCA5000 does not provide financial advice and is an execution only platform.

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