Impact Investing refers to investment in companies that have a positive impact on the environment and society, alongside the pursuit of financial profit. It is a term formed from the combination of ‘Social Impact,’ meaning social ripples and influence, and ‘Finance Investing’ in the financial market. While conventional investment primarily focused on economic performance, impact investing differs in that it invests over the long term in funds or companies that contribute to solving social issues while premised on economic returns.
In the 1990s, Jed Emerson (Vice President of Impact Assets and Senior Fellow at the Heidelberg University Centre for Social Investment) proposed the blended value approach, arguing that a foundation’s donations and capital should be invested not as mere means of maximizing financial returns but in fields aligned with the purposes and values it pursues. In the 2000s, as attempts to measure the non-financial performance of companies gained momentum, concepts such as pollution prevention, corporate social responsibility, and the triple bottom line (economic profit, environmental sustainability, and social responsibility) emerged. Amid these trends, the term ‘impact investing’ appeared around 2007, with the intentional creation of tangible and intangible assets and the measurement of social and environmental performance as rigorously as financial performance establishing themselves as core elements. Domestically, in early 2013, the Seoul Metropolitan Government created an impact investment fund of KRW 100 billion, and in April of the same year, SIEN (Social Impact Evaluation Network), an impact investment institution, was launched.
[Impact Investing Ⓟ ESG.ONL/ESG Today]
Before the concept of impact investing was established, the social responsibility activities or philanthropy of companies in the past generally focused on reducing negative impacts. Individual investors have applied ESG integrated investment strategies, which reflect ESG factors in the investment decision-making process, and negative screening, which excludes companies that fall short of ESG standards from investment targets, as their primary ESG investment strategies. However, as questions have been raised about whether such methods and strategies are truly investments aimed at improving corporate ESG, interest in impact investing is growing. Since the primary goal of impact investing is to draw out measurable positive effects, it can be said to be the most active form of ESG investment strategy.
Having experienced climate change and the pandemic, public awareness of environmental and social issues has heightened, and ESG is now a concept unfamiliar neither to investors nor companies. This shift in awareness has driven demand across ESG investing overall and is also influencing the growth of the impact investing market. The global impact investing scale reached approximately USD 400 billion in 2022 and is projected to grow at an annual rate of about 17.8% through 2027.
Impact investing is an investment approach that seeks to resolve environmental and social issues through the power of capital. As it is grounded in the capital market, there exists a demand for profitability, but at the same time, in that it pursues values, it pursues a benevolent goal.
by Editor O