Impact investing is here to stay. According to the Global Impact Investing Network (GIIN), the global market for this modality already overcome 1 trillion dollars until 2022. This shows that more and more investors and entrepreneurs are seeking to align their values with financial returns.
However, despite the rise over the years, many people are still unaware of this investment format and there are doubts about the differences between traditional and impact investing. Therefore, we present below the main characteristics of each type.
Traditional investment X impact investment
Investment is, in general, the application of resources to generate future earnings. The traditional form essentially assesses the relationship risk x return of the invested capital. That is, in this mode the profit it is the only intention.
On the other hand, impact investing does not focus on profit at all costs. In addition to evaluating the financial performance, O risk and the governance of investee organizations, also evaluates the socioenvironmental impact generated by them.
But that doesn't mean impact investors don't make a profit. Quite the contrary, this market has been presenting increasingly competitive financial return linked to the concern of contribute to the future of the planet and a more sustainable economy.
Another difference that should be taken into account in this comparison is the fact that, in impact investing, you know exactly which business your money goes to and how it will be used. On the other hand, in several types of traditional investments, you lend an amount to the government, a bank or company to use it without specifying what it is promoting.
In the investments of sitawi platform, for example, you can also have a clear measurement of results from your investment and understand how your money is helping to change the world. know more about the reasons for investing in impact.
But, despite the differences, there is a common point between these modalities: the risks. It is important to bear in mind that there is no investment without risk and a very important step to start investing is to know them. Do you already know the most common ones?
Investment risks
- Business Model Risk: the business model presented by the entrepreneur in obtaining the investment evolves over time, according to several factors, such as changes in market dynamics, dependence on third parties, such as conditions and prices of suppliers.
- Management Risk: existing in companies of any size, it is more significant in nascent businesses. This risk becomes more sensitive when there is a change of team, replacement of leadership and the need to hire market executives.
- liquidity risk: every investment made has an exit expectation, in order to liquidate the position and minimize the net present value of future flows.
- market risk: the market in which the business operates may have variations that affect the performance of the portfolio, such as the concentration of revenues in a few customers, market growth beyond expectations, determinations by regulatory bodies, new competitors, among others.
Now that you've started your knowledge in this universe, how about deepening it? Download now our free e-book and learn all about impact investing.
Interested in this type of investment? Join Sitawi's Collective Lending Platform and invest in impact on the Amazon with fixed profitability. invest now.
