A new report by the EU’s Science for Environment Policy service provides suggestions on how to encourage even more ‘impact investment’, in particular green investment.
This comes as a result of Responsible investors are increasingly seeking demonstrable environmental and social impacts for their investment, not just financial return.
The report brings together the latest research into impact investment, a small but rapidly growing sector which shows great promise in channelling private investment into green projects, including renewable energy, nature conservation and sustainable forestry initiatives. It can also help governments meet their goals, such as the UN’s Sustainable Development Goals, and benefit green-minded businesses which want to make a difference as well as a profit.
Measuring impact is key
Like many other socially responsible investment strategies, impact investment seeks to achieve positive social or environmental impacts, but it is marked by an intention to generate measurable benefits, such as cuts in CO2 and pollution. However, herein lies one of the sector’s greatest challenges: how to measure impact.
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The wide range of tools available for measure the impact of investment are typically resource-intensive for investees, and can make it hard for investors to compare investments. Further threatening to undermine investor trust – and the flow of money – are the interrelated issues of ‘greenwashing’ and transparency.
Thus, to help tip impact investment from a niche sector over into the financial mainstream, research suggests that more efficient, standardised approaches to impact measurement are needed, with transparent methods and data.
Greater liquidity is needed
Impact investment also needs to remove the barrier of illiquidity in order to grow as a sector. This refers to potential difficulties faced by investors in selling on their investments. As impact investment is in early stages of market development, investors may be required to accept a lower level of liquidity than normal.
Research highlighted in the report recommends expanding the range of options for trading, which move away from standard models of financial exchange – namely stock exchanges.
Reaching full potential
Together with the continually growing momentum and interest in impact investment, the proposed developments outlined in the Environmental Impact Investment report could help this promising sector to reach its full potential in contributing to a greener society and economy.