3 key reasons impact investing is soaring in popularity
Everything we do at GrowthFunders has an overarching element of impact. Not only do we want to make a difference both as a company and as individuals, but we want to give others the ability to do so.
It's something we've talked about regularly. It's not always been in a direct way, but take a look through any selection of posts on our blog and you'll invariably read content on topics such as:
- The tax reliefs available under the Enterprise Investment Scheme
- Tackling the housing crisis with property investing
- Encouraging more women to get involved in investing
These topics all have their individual focusses, but they're all undoubtedly about making an impact. With EIS you're backing the next generation of British businesses, which could directly relate to everything from job creation through to an improvement in the economy. Whilst with property you're part of an opportunity that's building homes. This entire process has a positive effect on job creation, local supply chains and regional improvements without even taking into account the fact you're helping to develop much needed homes.
And it seems like we're talking more and more about such topics. But it's not just us either - the term 'impact investing' has been used to some extent for well over a decade, but it's only in the last couple of years where its usage has really started to soar.
There are a whole host of reasons why this is likely to be the case, but in my eyes they can be summarised into three separate areas.
1. There's more awareness of the issues we need to change
We've all heard of global warming. Everyone knows we need to recycle more. It's common knowledge that there's a big push for greater usage of renewable energies.
Unless we're talking to young children, I'd argue these types of issues are ones that are now ingrained in us. They've been spoken about for years that if you asked a group of people 'how they could make a difference', you could take an educated guess that the majority would talk about global warming, recycling or renewable energy.
And as important as they are, they're only a small minority of topics that need a focus. They may have once - even in recent times - been those that dominated the headlines, but that's no longer the case.
Today we're digesting information on such a vast level it's inevitable that we hear about so much more than we once did. Social media gives us almost instant access to news - official or not - about topics that happen both right next to us and on the other side of the world.
Intelligence Fusion are a company that showcase just how much this is actually the case. They provide updates to incidents that happen right around the world, often before the main news companies pick up on them. The information is generally gleaned from social media, before being investigated further by a human analyst - but the raw data comes from social channels. And this data is only increasing in its volume.
We can only take this as a positive in every respect, but as individuals, it makes us more aware of what's happening that needs our attention. As mentioned, topics such as global warming and renewable energy are key and need us to react, but now we hear about them on a much more specific level.
In his recent article, Luca talked about some younger entrepreneurs who are making an impact and changing the world, and in it talks about Rainier Mallol. Rainier founded AIME, a company that is focused on using information and technology to predict deadly outbreaks before they actually happen.
A few years ago it would have been difficult for Rainier to gain the awareness his company has done today, and similarly, whilst the topic and problem has always been there, the awareness of it and the solutions simply wasn't. Today, a quick search on Google and social media and it's brought right to the forefront of our attention.
2. A greater desire to make a difference
Having a greater level of awareness of the issues that we can focus on to make an impact is without doubt a key part of why impact investing has soared in popularity. But one of the others is a direct result of this awareness - and that's that when we know more about a topic, it increases our desire to make a difference.
This isn't something new. A perfect example is Children In Need, the charity that provides support to disadvantaged children and young people in the UK. Hosting an annual event that sees millions of pounds raised, it gets a considerable amount of coverage and it seems the whole of the country gets behind the cause. As soon as the event finishes though, its popularity diminishes until the same time next year.
But what most people don't realise is you can donate to the Children In Need charity right throughout the year. It's simply that donations increase substantially when the charity gets its considerable coverage once a year.
And the exact same process is happening with impact investing because of the awareness of impact-based topics, something that's particularly apparent with younger generations, arguably because they've grown up with this huge amount of information to digest.
In the latest World Economic Forum Global Shapers Survey, 30,000 individuals under 30 years old from over 180 countries were asked a range of questions, and one of the most notable findings was nearly 50% saw climate change and its subsequent destruction of the environment as the most critical issue that needs addressing.
Similarly, the Deloitte Millennial Survey 2018 produced some interesting findings, but were summarised as Millennials "yearn for leaders whose decisions might benefit the world—and their careers" whilst Goldman Sachs found Millennials view health and well-being, from fitness through to the food they eat, as more of a key part of their lives that has been seen in previous generations.
These are only a few examples of what Millennials are looking for, but they all show a) how the generation as a whole wants to make more of an impact than arguably any other and b) how the abundance and availability of impact-based issues can completely shape, and be embraced by, a generation.
We know more than ever that our actions can have a detrimental effect on the ozone layer or the rainforests. We know animals are facing extinction because of us as humans and we're aware that the housing crisis doesn't just mean people can't get on the property ladder, but that the wider repercussions are huge.
And as shown in the Children In Need example, the more awareness there is of a topic, the more there is a desire to do something positive about it.
3. Easier routes to investing
Not too long ago, investing was seen as an option for those who already possessed a certain level of wealth. You would have money and wanted to make more of it, which you could aim to do so by buying shares in a company or purchasing a property.
Today, it's possible for almost everyone to become an investor. The routes and opportunities have opened up hugely, both in terms of accessibility to more traditional ways of investing and newer ways to get involved.
Look at online equity crowdfunding or co-investment platforms as an example. The actual principle of crowdfunding and co-investment - numerous people coming together to invest into a single opportunity - has been around for years, but online platforms that allow you to do so easily are relatively new.
Brilliant for new and experienced investors alike, it's the former who can find particular benefit in them. The reason behind this is simple - you could invest into one of our investment opportunities from as little as £100 and do so alongside a number of sophisticated and/or institutional investors. The low minimum investment amount can be appealing, whilst knowing sophisticated and institutional investors will have done their own in-depth due diligence can help reassure you that it can be a worthwhile investment. This doesn't remove the need for you to do your own due diligence, but it can definitely help reinforce your own findings.
By looking at these routes, it's now possible to quickly and easily invest in startups and property in a variety of ways. From being active, hands-on investors through to passive, indirect investors, it's all entirely possible today, giving you the option to build up a diverse portfolio of investments in a manner that simply wasn't possible even just a few short years ago.
Becoming an impact investor
Everyone can make a difference. We can all have an impact on the world around us; on the lives of our friends, family and colleagues, or people who are on the other side of the world.
It's becoming increasingly clear that whilst targeting a financial return with your investments was once the only focus for investors, this is anything but the case today. More and more investors want to see their investments have an impact - societal, economical or otherwise - and are driven to seeking out such investment opportunities.
And with the availability of, and accessibility to, such investment opportunities, there is very little reason why we can't all be impact investors.