…and it’s lack of values in developed societies have led to protests worldwide, including the protests outside St Paul’s Cathedral.
Dissatisfaction over economic inequality and behavior of banks and other financial firms has inspired protests spread across the world. It has led others to examine alternatives to business as usual for our financial system, from peer-to-peer lending for savings and loans . This includes a new form of investing for the good of others – impact investing—putting your money to work in line with your values—dynamising the tremendous potential that comes with melding of philanthropy with investment banking.
The present world capitalist system is built on two fundamental beliefs: that the only purpose of investing is to make money and that the only way to solve social and environmental challenges is to donate money to charities or wait for government to act.
This is a lost opportunity, since it is possible to blend of economic, social, and financial components which, when taken together, give us the total returns we seek in our investing, in our philanthropy and in our lives.
Many people and institutions are rejecting the outdated capitalist viewpoint . There are an increasing number of investors interested in the pursuit of both financial and social/environmental returns together and philanthropists who use market-based techniques to pursue a charitable goal. Our laws and regulations, methods for measuring value, investment structures, and even language do not meet the needs of this growing group of investors.
Impact investors are helping to close the education gap in the slums of India with loans to affordable private schools, enabling coffee farmers in Central America to increase their incomes sustainably by financing their participation in more lucrative export markets, and enabling families in New Jersey to stay in their homes by financing community-based nonprofits to buy up and restructure distressed mortgages.
Very rich individuals and families have been best positioned because they have greater control and choice about what to do with their money. Most of us cannot make impact investments ourselves but instead rely on institutional investors who manage our deposits or our retirement funds and they are typically slower to embrace innovation like this.
For now, we cannot say impact investing generates a better level of financial performance. Recent research that examined financial return expectations among more than 1,000 impact investments showed clearly that some impact investors are willing to accept a lower financial return.
In a wider perspective impact investing not only rejects traditional views of capitalism but is also rejecting traditional views on charitable giving. For it is retaining the control of the monies and only parting with rewards for social or charitable projects when the charity or social project achieves performance standards established by the impact investor.
If you have any queries on this article or would like to discuss any financial or tax planning advise please one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.