The Emerging Strategy of Impact Investing

Investing has never been a static practice. As much as Wall Street tries to stick to certain traditions such as trading sessions and the ringing of the bell, investors are the ones who ultimately shape the market, and their changing strategies often create long-lasting trends. Impact investing is not necessarily a new trend, but it has been growing at a significant pace in recent years; this strategy consists of utilizing capital to invest in opportunities that may result in social, political, economic, or environmental impact. The tenet of maximizing capital gains is not absent from impact investing, but the desire of investors to be impactful is often stronger.

To a great extent, impact investing is very similar to ethical investing. Bill Gates, the billionaire co-founder of Microsoft, is one of the most ethical investors in recent history; through the work of the foundation he ran for many years along with his wife Melinda, Gates has achieved tremendous gains in public health and education among marginalized communities in Africa. You could argue that the Gates Foundation mostly endowed communities, but Gates and his wife do not see that way because they consider the well-being they facilitate to be the greatest return on investment at a global level.

To identify impact investing opportunities, you must start with research. Evaluating a detailed overview on Pitchbook is a good first step, particularly because you can stay on the website and gauge how impactful the company, investor, or funds can be according to their actions on the market. Pitchbook rolled out the methodology to tract impact investing entities a couple of years ago, and it has revealed quite a few interesting aspects of this activity. You can already filter search results by the Pitchbook parameter “seeks impact” in order to focus on specific investors and organizations that are being impactful.

A few pension funds have adopted impact investing strategies for reasons that are mostly known to their portfolio managers. If you think about it, pension funds already create an impact in terms of providing some level of financial security for their beneficiaries at retirement. In some cases, the executive boards at pension funds vote in favor of making their market activity more impactful; for example, they may choose to invest in the electric automaker Tesla Motors because they are interested in reducing carbon emissions from petroleum byproducts.

Along with impact investing, we are also seeing variants such as meme investing, which in early 2021 was clearly represented by the GameStop stock trading debacle, in which individual investors and day traders joined forces against fund managers who had shorted the stock. The skyrocketing price of GameStop was prompted by a Reddit forum in which the sentimental value of the company, which retails video games in physical media formats such as DVDs, was heralded despite numerous negative financial forecasts. Regulators on Wall Street had to step in and suspend trading of GameStop shares more than once, thus highlighting the impact that traders can have on the market.