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What Is Social Impact Investing and How Does It Benefit Society?

Social Impact Investing - Find out what is social impact investing and how it benefits society here on this article. Visit Kotak Life to know more on Life Insurance

  • Mar 15, 2021

There has been a considerable shift towards fair work practices, green initiatives, and equal wages in the last couple of years. Companies are more conscious of maintaining an ethical and equal workplace culture than ever before. As a result of this investors, too, are now adopting social investing in their financial plans. The focus is no longer only limited to high returns but also the effect of money on social initiatives that can benefit society as a whole.

Here are some things to know about social impact investing and how it benefits society:

What is social impact investing?

Traditional investing only caters to financial goals, whereas social impact investing refers to investments that cover social, environmental, and financial returns. Social impact investing is a concept that concentrates on investing in sustainable businesses like renewable energy, conservation, etc. This way, the money is invested in gaining returns and promotes fair and ethical work practices at the same time. This contributes to the betterment of society and the planet at large.

Among the list of investors that are currently making social impact investments are:

1. Non-government organizations (NGOs)

2. Individual investors

3. Insurance companies

4. Religious organizations

5. Banks

6. Family-run businesses

7. Private institutions

What are the benefits of social impact investing?

Social impact investing can have many benefits, such as:

1. It helps investors be a part of social change: The idea that governments alone are responsible for bringing change in the world is now slowly being rejected. More and more people and businesses are taking up social and environmental initiatives that can make the world a better place for all. Social impact investing allows investors to invest in businesses that are crusading causes like climate control, workplace abuse, poverty, healthcare, energy conservation, etc. This way, they get to be an instrumental part of reforms.

2. It offers a stable balance of risk and reward: Social impact investing can be less volatile than other investments. This is because they are far less reactive to market fluctuations than other kinds of investments. By investing in social impact instruments, investors can maintain a diversified portfolio that not only reduces their risk but also benefits sustainable businesses.

3. It provides investors with a sense of moral satisfaction: The fight between money and morals is an age-old battle. However, social impact investing balances this out by providing investors with the right opportunities. They can earn money and build their wealth while also contributing to society by being on the bandwagon of change.

4. It gives high returns: Social impact investing is gaining momentum, and so are its returns. With a high demand for environmentally friendly goods and services, equal wages, clean energy, etc., the future of the world lies in social impact investing. Sustainable businesses are becoming popular by the day and are expected to show capital growth in the years to come. This translates to better returns for investors too.

How to make social impact investments?

Here are some things to note:

1. Set the right goals: Social impact investing is not reduced to earning profits only. It also encompasses making a positive social change in society.

2. Look for the right opportunities: Businesses that promote and follow transparency, sustainability, equality, etc. are at the forefront of social impact investing. It is crucial to identify these companies.

To sum it up

Social impact investing is undoubtedly the future. Even though it may require some extensive research from the investors’ end as there are not as many social investing opportunities right now, the returns are as fulfilling and rewarding as traditional investments.

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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- A Consumer Education Initiative series by Kotak Life

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