Three ways impact investing can deliver the Sustainable Development Goals

With the growth of impact investing, Joseph Harshbarger of SeedTribe shares three ways this form of investment can deliver the Sustainable Development Goals

Impact investing is a recent phenomenon in the investment world that is expected to grow exponentially over the coming years. Impact investing is similar to socially responsible investment insofar as investment strategies focus on social and/or environmental concerns while still generating financial returns.

UBS estimates that in the past 5 years, funds allocated for sustainable impact have grown 5% in the UK, and will grow to 41% of investments in the next ten. The growing popularity of impact investing is creating more opportunities for investors to allocate funds towards businesses which address the Sustainable Development Goals (SDGs).

The United Nations’ Secretary-General, António Guterres, reaffirmed in his address to the  UN Private Sector Forum 2017 that private businesses must be involved to achieve the SDGs. He went on to say that investments totalling $3-5 trillion had to be made yearly to achieve the Goals by 2030. Impact investing allows investors to find new avenues for investment with the potential for great financial returns while also feeling good about the impact they’re creating. It can help deliver the SDGs in three ways:

Making a valuable difference and generating strong financial returns

There is a lot of money to be made by investing in the SDGs.

The Better Business Better World Report estimates that achieving the SDGs will create $12 trillion as a result of investment in specific markets and sectors.

Impact investing focuses on making positive impact instead of negative avoidance. For example, instead of  not investing in oil and gas, impact investors actively seek out businesses that generate positive impacts in a certain region or industry. Impact investing allows for investors to positively impact the world at large, while also potentially generating strong financial returns. These returns allow for more economic stability in businesses and organisations who strive to achieve one of the seventeen SDGs.

Moreover, by helping create businesses with an SDG-focus, impact investors inherently address SDG8 on decent work and economic growth.

Businesses are more economically sustainable

Social and environmental impact has long been the focus of the voluntary sector. Their funding is often insecure, limiting the impact they can have. The rise of impactful businesses and the investment they attract shows that it is indeed possible to create a commercial entity that is financially sustainable, while having a positive impact on the SDGs.

Impactful businesses strive for self-sustainability. The increased self-sustainability of these businesses allow for long-term plans on how to best generate impact. Although voluntary organisations plan for long-lasting impact, short-term funding does not always allow for this. Though the voluntary sector remains important in the achievement of the SDGs, impactful businesses prove that both the voluntary and private sectors can work together to generate positive social impact.

Solid business models with measurable Key Performance Indicators

It’s vital that impact businesses have solid business models through which investors may get a return on their investment. Understanding how impactful a business is requires measurable Key Performance Indicators (KPIs), which are important in addressing the question, “how impactful is this business?”

Any number of SDGs and specific indicators can be embedded into these KPIs. The ability to measure impact allows for investors, entrepreneurs and the public to see the positive impact the business is creating. Businesses are responsible to shareholders and boards of directors should they not perform well – helping to hold the business management to account for their decision-making and embedding ‘SDG thinking’ in to the organisation.

The huge potential for financial return is leading more and more investors to look at impactful business which has the potential to significantly contribute to the SDGs.

Joseph Harshbarger is Operations and Business Development Associate at SeedTribe.

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