Why it’s Important to Expose the Next Generation of Economists to Impact Investing
15 years ago, financial firms would have turned their back on the idea of mixing investments with philanthropic efforts. While finance is known for profit and charity for social impact, these two disciplines have since been integrated into one sector known as impact investing. Impact investments are those with the intention to create positive, yet measurable social and environmental impact, while also generating a financial return.
‘Doing good while doing well,’ however grammatically incorrect, is meant to describe the triple bottom line of impact investing: the people, the planet, and the profit. McKinsey, a global management consulting firm, used this phrase to describe how “social responsibility and sustainable profit go hand in hand, now more than ever,” which leads to the most current sustainability implementation within financial firms: Environmental, Social, and Governance (ESG) frameworks. ESG has taken over Wall Street through annual Sustainability Reports. Within these accounting and operations reports, companies can highlight how they have achieved their fiduciary obligations through specific socially responsible investments to community impact-based companies and net-zero renewable solutions.
Traditionally, investors only concentrated on risk vs. return; — a matter of yield in terms of financial advancement or loss, and nothing more than that. Investors put money into companies, no matter the industry, with the intent of a high return on investment. Now, however, a couple of firms in the United States have begun to channel capital into projects addressing renewable energy production, sustainable agriculture, and carbon emissions capturing. It has become more about risk vs. return vs. profit. The Global Impact Investing Network (GIIN) has since been created as a platform to track these investments and find companies who have pledged to restructure their investment spending criteria. Although impact investing doesn’t always assure greater or even equal, returns in comparison to “regular” investing, young investors should continue to provide innovative methods to size up the risk and break into the sector. After all, investments will continue to drive returns, but what’s stopping them from also benefiting the planet at large?
With sustainable finance classes already being constructed for undergraduate business students, and a growing future in ESG investing, now is the perfect time for teenagers to open the door to the world of impact investing. Already, ESG assets are valued at around $41 trillion and are supposed to grow to $50 trillion by 2025. (LINK) Tons of high schools around the United States have also already started microfinance clubs as smaller forms of impact investing. These clubs teach students how to help entrepreneurs in developing countries generate sustainable revenue streams, allowing teens to make financial investments that will come back even but also make a social impact. Whether you are in high school or college, or if you work at a financial firm, it is not too late to plant your feet in the impact investing area. Additionally, laws in many European countries have been passed regarding ESG considerations in investing. This is something that I, as well as many other teens and professionals, look forward to hopefully one day seeing happen in the United States.
Let’s come together and fix our planet, while also making a little profit in the process.
