What characterizes impact investing?

Impact investing is characterized by the intention to generate measurable social and environmental benefits alongside financial returns. This dual focus distinguishes it from traditional investing, which often emphasizes maximizing financial returns only. In impact investing, investors seek opportunities that not only promise profitability but also contribute positively to societal issues such as poverty alleviation, education, healthcare, and environmental sustainability.

By prioritizing both financial performance and social/environmental impact, impact investing aligns with the growing awareness that businesses can foster positive change. It represents a more holistic approach to investment, one that acknowledges the interconnectedness of financial, social, and environmental outcomes, thus encouraging sustainable development.

This understanding of impact investing reveals the limitations of other options. For instance, a focus solely on financial returns undermines the core principle of impact investing, which is to balance profit with purpose. Ignoring social outcomes disallows the essential goal of effecting positive change, and prioritizing short-term gains often conflicts with the long-term objectives that impact investors strive for, which typically involve sustainable growth and lasting benefits.