Basics to Understand the World of Impact Investing

We see how in recent years the world of impact investing continues to grow more and more, many people say it is the future that comes to save the present! Everyday, there are more and more courses and trainings around the subject, it is talked about in the DAVOS forum and in all kinds of notable publications in the economic space. But in reality, it is sometimes difficult to understand what impact investing is. 

Tesla with its electric cars, vaccines against COVID, Goldman-Sachs saying that they generate impact through investment in telecommunications...

Impact investing seems like a very open concept and in order to facilitate a better understanding of the concept itself, we would like to introduce you a selection of keywords. Therefore, because we want to help you make an impact, we have prepared a glossary that will help you and ease the way to create a better tomorrow.

Impact Investment Terminology

Like all terminology, each of these words has its advantages and disadvantages. Creating a consensus around the meaning of a word means that we can speak a common language, facilitating the understanding of impact investing and attracting new participants or investors.

• Impact: impact refers to the social or environmental effects generated by an investment. Impact is defined by the context of the stakeholders, enterprises and populations they address.
• Impact investment: Impact investing refers to investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return". Impact investments provide capital to address social and/or environmental issues.
• Social Investment: Usage of capital for generating financial returns, but with the primary purpose of generating social impact.
• Impact measurement: the process of quantitatively and qualitatively evaluating the impacts of an organization; the activities taken to evaluate and report on the financial and social change generated by an investment. 
• Impact measurement and management: includes identifying and considering the positive and negative effects one's business actions have on people and the planet, and then figuring out ways to mitigate the negative and maximize the positive in alignment with one's goals.
• Sustainable business: enterprise that has minimal negative impact or potentially a positive effect on the global or local environment, community, society, or economy—a business that strives to meet the triple bottom line.
• Societal impact: the effect on people and communities that happens as a result of an action or inaction, an activity, project, programme or policy.
• Sustainable Development Goals (SDG): a collection of 17 interlinked global goals designed to be a "blueprint to achieve a better and more sustainable future for all". The SDGs were set in 2015 by the United Nations General Assembly and are intended to be achieved by the year 2030.
• Environmental, Social, and Corporate Governance (ESG): refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies.
• Return on investment (RoI): is a ratio between net income and investment. A high ROI means the investment's gains compare favourably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments.
• Social Return on Investment (SROI): is a framework for measuring and accounting for this much broader concept of value; it seeks to reduce inequality and environmental degradation and improve wellbeing by incorporating social, environmental and economic costs and benefits. SROI is about value, rather than money.
• Social enterprises: companies that are both financially sustainable and concerned about creating a  social and/or environmental impact.
• Sustainable metrics: measures of sustainability, and attempt to quantify beyond the generic concept. Though there are disagreements among those from different disciplines, these disciplines and international organizations have each offered measures or indicators of how to measure the concept.
• Sustainable investing: Directs investment capital to companies that seek to combat climate change, environmental destruction, while promoting corporate responsibility.
• Socially Responsible Investment (SRI): An investment strategy that seeks to consider both financial returns and social good.​

Author
Partners @i2 SustainIT ​

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