(First published February 20, 2024 to LinkedIn.)

Impact investment is one of the best opportunities facing today’s investors. As opportunity, it promises access to new markets, innovation and competitiveness, portfolio diversification, and government incentives. As strategy, it’s something every future-oriented investor should pursue. It provides a path to forge into what is really needed, and to finally live “doing good while doing well.” It also leads the way to the attraction and retention of top talent. It addresses long-term challenges. In sum, impact investment leads investors to the triple bottom line. Impact investment is not a feel-good surrendering alpha philosophy, but an intentional investment methodology designed to align impact and alpha.

Opportunities

Market opportunities – Many impact investment options are found in one of two new market opportunities. The first is in disadvantaged areas or among disadvantaged groups with demonstrated profitable business growth potential that can lead to long-term economic development. The second is in new solutions designed to solve social problems, mitigate environmental impact, and lead through innovative new products and services.

Innovation and competitiveness – Impact investment takes the investor beyond traditional investment boundaries to unique opportunities. These opportunities are known to support innovation and innovators that lead to market-place competitiveness.

Portfolio diversification – The diverse nature of impact investment opportunities ensures that investors can diversify their portfolios beyond what they have traditionally committed to in the past. As a unique investment opportunity, impact investment leaders do the qualifying work to determine the impact investment potential to provide innovation, competitiveness, and financial gain.

Government incentives – Because the US government recognizes the value of impact investing, it offers many incentives, among them are tax incentives, loan guarantees, and public-private partnerships (PPPs).  Impact investment is also closely associated with environmental, social, and governmental best practices.

Strategy

Attraction and retention of top talent – A large majority of today’s employees have widely said that they want to work for companies that make a positive impact. They also want to be challenged, developed, supported in their work-life balance efforts, and rewarded for jobs well done. Impact investment within a company itself makes a difference as it views employees as valuable to its own mission and as stakeholders in the social impact it seeks to make. Recent research reports describe this. Forbes highlighted in 2023 the continuing desire by employees to work for employers that make a positive impact.

“In a survey of 2,000 employees in the U.S., 76% of respondents indicated that they want to work for a company that is trying to have a positive impact on the world…The research, commissioned by former Unilever CEO Paul Polman, also found that more than half of employees said that they would consider resigning from their job if the values demonstrated by their employer did not align with their own.” (Forbes, 2023)

Additionally, employees’ senses of happiness are positively linked with higher levels of productivity. “According to a study by the Queen’s School of Business and Gallup, disengaged workers logged 37 per cent higher absenteeism, 49 per cent more accidents and 60 per cent more errors and defects than engaged employees. According to the Canada Human Resources Centre, unhappy workers cost the North American business economy over $350 billion per year in lost productivity.” (Forbes, 2022)

Triple bottom line investing – In sum, impact investment leads to the triple bottom line. The triple bottom line means that investors, the companies invested in, and the economy win. In a complicated business climate with so many unknowns, impact investment provides a measurable return on investment beyond profit margins. At the very least, companies should explore it for opportunities and as strategy.  Impact investment is good for business.

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The views expressed in this article are those of the author.