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For decades, investing was often framed around a single metric: financial return. Traditional investors sought the highest possible profit, usually without much consideration for the environmental, social, or governance (ESG) consequences. But over the last 15 years, a new model has been steadily gaining traction—impact investing, which aims to deliver both financial returns and measurable positive change in society or the environment.
So how does impact investing differ from traditional investing, and why does it matter for the future of business and communities?
The Key Differences
Where traditional investing often measures success in quarterly profits or stock price increases, impact investing measures success in two dimensions: financial health and societal benefit. The time horizon tends to be longer, because systemic change doesn’t happen overnight. The definition of risk is also broader—impact investors may accept different risk-return profiles if it means generating long-term benefits for communities or the planet.
Why Impact Investing Is Growing
Several factors are fueling the rise of impact investing. A generational shift is underway, as younger investors—Millennials and Gen Z—are much more likely to align money with their values. At the same time, global challenges like climate change, inequality, and public health crises demand solutions that go beyond philanthropy.
Importantly, research now shows that impact investments can perform as well as, or even better than, traditional investments. This has encouraged large institutions—pension funds, endowments, and governments—to integrate impact and ESG criteria into their portfolios.