Socio-environmental issues, such as climate change and the inequalities gained prominence in the investment market, bringing up terms such as ESG and Impact InvestmentBut do you know the difference between them?
Understanding the differences between each type of capital and strategy allows the investor to evaluate the return and the impact expected, avoid pitfalls like the greenwashing or social washing, and determine which resources to use to finance each initiative.
But, after all, what is ESG?
ESG, acronym for Environmental, Social and Governance (Environmental, Social and Governance, in Portuguese), refers to the practice of reconciling the generation of economic value with the responsibility in environmental matters, social and governance corporate by companies. These criteria and good practices are used to determine whether a company is socially conscious, sustainable and well managed regardless of whether its core activity has a positive impact or not. Therefore, we can say that ESG It is an “umbrella” term, which brings together a set of points to be analyzed by investors who want to allocate resources to a specific company, without this necessarily having any positive impact on its main activity.
Impact Business
On the other hand, impact business are ventures that have the clear intention of address a socio-environmental problem through its main activity, which can be a product, service or form of operation. This means that they have a balanced vision between profitability and the good they cause. For this reason, this type of organization is committed to measure the impact it generates.
Traditional Investing vs. ESG Investing vs. Impact Investing
- Traditional Investment: only assesses the risk vs. return on capital relationship.
- ESG Investment: incorporates governance and socio-environmental risks/opportunities into risk vs. return analyses.
- Impact Investment: in addition to financial performance and governance, it assesses the socio-environmental impact generated.
What is Impact Investing?
They are investments carried out with the intention of generate positive and measurable social and/or environmental impact, together with a financial return. In other words, in addition to not focusing on profit at any cost, this type of investment is concerned with change that the invested organization causes in the world.
A very important aspect about this type of investment is that it must be measurable. That is, it must be based on indicators such as number of people benefited, hectares preserved, hectares reforested, etc.
In this sense, the main difference is that opting for impact investing It is a choice for a future where financial returns go hand in hand with the creation of significant social and environmental value. It is an approach that goes beyond avoiding harm, actively seeking to do good.
Why invest with impact?
To achieve fair socio-environmental development, established by Agenda 2030, it is not enough to continue with shallow resource allocation criteria. We need to unlock capital for organizations that, in fact, face complex social and environmental problems, with innovative solutions that seek impact first.
Furthermore, the Aspen Network of Development Entrepreneurs (ANDE) reported that the value of impact investments in Brazil reached R$ 18.7 billion in 2021, which demonstrates the growing desire of investors to promote positive impact business and, consequently, contributes to making the financial return increasingly competitive.
In this way, this type of investment is usually quite linked to transparency. Thus, when making an investment in a impact organization, you can know exactly how your money is being used and what improvements it is fostering.
Alignment with personal values and legacy
The impact investing reflects a deeper alignment with each investor's personal and ethical values, allowing their investments to not only generate financial returns, but also contribute to causes they believe in. Through this type of investment, it is possible to build a lasting legacy which generates significant benefits for society and the environment.
According to the research “High Net Worth Families in Brazil – Impact Investing and Philanthropy”, the main motivation for making impact investments is the “concern about establishing a family legacy”.
In practice, the motivation to generate positive socio-environmental transformations is the most important vector for investing with impact.
Impact Investing and the SDGs
You Sustainable Development Goals (SDGs), established by the UN, provide a clear and measurable framework for addressing global challenges such as poverty, inequality, climate change and environmental degradation. They are the central point in defining what is or is not an impact business.
Invest in organizations that contribute to SDGs ensures that your capital is being used to make a real and tangible difference, contributing to global goals to achieve fair socio-environmental development.
Invest with impact.
THE Sitawi Finanças do Bem has been operating for over 16 years with a approach 'Impact First‘'‘, prioritizing socio-environmental impact before financial return. With more than 140 transactions, we have already mobilized R$1,400,000, impacting 65 organizations and benefiting more than 20,000 people and protecting 4.1 million hectares in diverse areas such as health, education, agriculture and much more.
If your organization is looking to structure an impact investment operation with solid governance, rigorous criteria, and measurable impact, contact Sitawi and discover how we can build this together.
