Sustainable and ethical investing has long been an investment theme but impact investing takes the concept to the next level.
To understand impact investing, it is first important to distinguish between another popular investment strategy growing in popularity, ESG investing.
Environmental, Social and Governance (ESG) investment strategies consist mainly applying a simple form of filter to companies involved industries such as tobacco, defence or alcohol which are deemed to be unethical.
ESG also relates heavily to the way a company is managed and the practises they employ.
Impact Investing takes this a step forward with investments that are designed to actively make a positive impact, as opposed to avoiding unethical practises.
An important element of impact investing is having a measurable impact created by the investment.
There are numerous ways to measure the positive impact of an investment which we will cover in more detail through further guides, but they largely involve measuring units of positive impact created as a direct consequence of the investment.
For example, the value of fossil fuels replaced by a solar panel facility.