Tuesday 8 January 2019 8:24 am

The impact investing trend is here to stay

From recycling waste to reducing plastic consumption to going vegan for the month of January, more and more people today are conscious of the impact they have on the planet.

This outlook has extended to investing, as a new generation of finance customers start to raise questions about exactly where their money is being directed.

The growing attention towards companies that promote sustainability and good business practices isn’t just a trend – it’s a structural and permanent shift in behaviour.

Impact investment, whereby investments are made into companies to generate positive social and environmental change, is a rapidly growing market.

There is an emerging demand among a new generation of investors who wish to support funds that are closely aligned to their own personal values and beliefs.

Unlike previous generations, who prioritised making substantial returns over making an impact, the millennial investor maintains that having a positive effect on the world is of equal value to making money.

And it doesn’t have to be either-or. One of the key misconceptions about impact investment is that it requires customers sacrifice some return on their investments. However, investing in sustainable companies still promises exciting potential return opportunities, while having a positive environmental or social impact at the same time.

From clean energy and water funds to social impact funds which offer investment in companies addressing issues such as gender inequality, there are a range of opportunities when it comes to sustainable investment.

Take CSL, an Australian biotech company specialising in vaccinations and curing serious and rare diseases, or Xylem, a leading global water technology company committed to developing innovative solutions to the world’s water challenges.

The good news doesn’t stop there. As demand for impact funds increases, businesses with a purpose other than just pure profit are set to benefit from this shift in behaviour.

That’s a self-perpetuating trend: as more people start to invest with impact, growing consumer demand ensures that these businesses perform well, and as impact investment becomes the norm, investors become more aware of corporate responsibility and business integrity reports.

There is an increasing desire to hold companies responsible for their actions. By putting pressure on businesses to be more transparent, impact investment has the potential to shape how companies are run.

This will, in turn, catalyse broader changes in society and create a positive ripple effect, with more conscious consumers supporting business which do better.

All this is happening against the backdrop of another trend: a digitally-native generation that is becoming more inclined to invest as technology expedites the process.

Thanks to mobile technology, investing has never been so accessible to such a wide audience. App-based platforms facilitate the process for first-time investors, making it easier for people to make money, irrespective of their financial experience.

They also have far greater choice and control over their money: by driving investment into positive, for-profit enterprises, these new investors have the opportunity to earn money while supporting a more positive and prosperous future.

Impact investment offers the next generation the chance to align their investments with what they truly believe in. By offering investments into businesses that are profitable, growing, and making impact, people are gaining more control over their investment footprint.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.