What Is Impact Investing and Why Younger Generations Are Driving It

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Millennials and Generation Z have approach things very differently than previous generations, such as choosing careers that have meaning and impact, which is why they are the driving force behind “impact investing.”

How the spending habits of Millennials and Generation Z are impacting the future

Where Millennials and Generation Z put their money has already been attributed to having an effect on particular industries such as diamonds, shopping malls, and the housing market, Entrepreneur reports. Now, the same is likely to happen with where these two generations invest their money.

Millennials and Generation Z have been hyper-focused on meaning and positivity in their lives. They try to take actions that have a positive impact.

Therefore, it is hardly surprising that they would lead a game-changing way of investing known as impact investing.

What is impact investing?

Simply put, impact investing is an investment strategy that prioritizes making investments in businesses that have a positive impact on society or the world as a whole. Likewise, because it is investing, it also seeks positive returns.

According to the GIIN (the global impact investing network), impact investments are: “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”

What are the best sectors for impact investing?

Impact investing seeks to tackle the most problematic sectors of the world. This includes renewable energy, sustainable agriculture, housing, healthcare, education, conservation, and micro-finance.

Developing an “impact investment” mindset

A proper mindset is necessary for an impact investor, According to the GIIN. There are four central tenets to impact investing, which are:

  1. Intentionality: A desire to have a positive impact socially or environmentally.
  2. Investment with return expectations: Anticipating the generation of, at the very least, every turn of one’s capital, or a positive financial yield.
  3. Range of return expectations and asset classes: Investments can be made across asset classes such as cash equivalents, fixed income, venture capital, private equity, and more. Returns can range from below-market (a.k.a. concessionary) to risk-adjusted market rate.
  4. Impact measurement: Determining that the efforts to have an impact are working, and being able to demonstrate social and environmental performance and progress.

The popularity of impact investing among Millennials and Gen Z

Between 2014 in 2017 impact investing increased by a factor of ten, CNBC reported.

More than half of Millennial investors (52%) considered social responsibility to be an important criterion when selecting investments, one study found. In the same study, only 42 percent of Generation X and 30 percent of the Greatest Generation (World War II era) felt the same.