Practical Applications of Impact Investing 2.0—Not Just for Do-Gooders Anymore

Abstract

Practical Applications Summary In Impact Investing 2.0—Not Just for Do-Gooders Anymore, from the 2020 ESG special issue of The Journal of Investing, Diana Lieberman of DL Investment Consulting reviews the meaning and development of impact investing, including its two discrete evolutionary paths: philanthropy and investment. She describes how new investment prospects emerge from impact-oriented trends, in which “the drivers of the impact are integrated into creating the above-market return.” She calls this “impact investing 2.0.” Lieberman outlines spectrums comprising a range of return and impact objectives. Combined, the spectrums illustrate the traditional thinking about impact investing, which assumes an inevitable trade-off between the two objectives, and the new thinking about impact investing, to generate above-market returns through investment in the impact objective itself. Shrewd investors are realizing that incorporating ethical and environmental, social, and governance (ESG) concerns into investment analyses can enhance returns, she notes—even as other investors fail to understand that social and economic shifts have future implications, and that creating a more sustainable world has intrinsic investment merit. This creates investment potential for those who grasp such profundities, and for investors who selectively incorporate impact elements into their due diligence and investment monitoring. TOPICS: ESG investing, portfolio theory, portfolio construction