Impact investing a ‘more powerful’ change driver than ESG reporting

impact investing

Impact investing can deliver better solutions to climate change than ESG compliance and reporting, new research claims.

Impact investing can offer quicker more innovative solutions to global challenges such as environmental degradation and renewable energy compared to ESG compliance and reporting, which is more focused on describing the status quo, subject to risk from confusing metrics and to claims of ‘green-washing’.

That’s according to research by legal and advisory practice Taylor Vinters that highlights how Impact Investing could accelerate solutions to environmental sustainability and drive economic growth.

Impact ventures and ESG monitoring are different but complementary in their ambitions to create a sustainable future. But key difference is that impact ventures are founded on clearly defined, high levels of intentionality while ESG monitoring is rooted in compliance and reporting.

The impact element of business models has real intrinsic value. Participants in the research identified intentionality of impact as an essential indicator of sustainable value. Impact has become a long-term indicator of worth, and the impact element of businesses should be considered an asset with financial value. This has led to the new ‘impact first, investment first’ model in which impact and finance is in a lock-step relationship.

There are significant financial return opportunities from highly intentional impact ventures that address major challenges such as global warming, energy supply and inequality within societies. Research participants highlighted that the $5 trillion a year investment the International Energy Agency says is needed to achieve net zero emissions by 2050 is unaffordable for governments, and that the majority of finance will have to come from the private sector.

Impact investing has already attracted heavyweight American private equity investors including Apollo, KKR, Bain and TPG entering with funds targeting positive social and environmental impact, and angel investors and VCs are also seeing impact as an important driver of commercial potential.

“If we accelerate innovation in the impact investment ecosystem, we will accelerate innovation across the whole of business,” said Taylor Vinters ceo Matt Meyer. “It would create extraordinary dividends by enabling growth and urgently needed solutions to the economic, energy, environmental and social challenges.

“Unlocking the potential of impact investment could not be more timely in terms of the need to address the major climate change challenges we face. There is a real opportunity to make a significantly positive difference through commitment to the investment channel of the future.”

Networks within the impact investing sector are vital to market innovation as they will help educate and ensure impact assessment and due diligence in investment practice. Networks and organisations named in the research include VentureESG, Diversity ESG, GINN’s Gender Lens Investing Hub, Responsible Investment Network – Universities (RINU), the Impact Investing Institute and Big Society Capital.

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