Unlike traditional investing, where financial return is usually the primary objective, impact investing deliberately considers the effect an investment has on people and the planet. This could relate to climate, biodiversity, health, equal opportunities, or the way we produce and consume.

When is an investment an impact investment?

One important characteristic is intentionality. You invest consciously with the aim of contributing to a social or environmental solution. Measurability also plays a role: you try to understand what change is actually taking place and how the investment contributes to that change. To understand impact properly, it helps to distinguish between the impact of the company and your own impact as an investor.

Company impact: what changes because of the company or fund?

Company impact refers to the positive and negative effects that a company, organisation or fund has on people and the planet. Think of a company that makes renewable energy more accessible, reduces food waste or improves access to healthcare. This is not only about the product or service itself, but also about how the company operates. The central question is: what changes in the world as a result of this company’s activities?

Investor impact: what difference do you make as an investor?

Investor impact is about the contribution you make yourself as an investor. This can come from providing capital that is needed to start or grow a company. But it can also mean offering long-term capital, taking on more risk, using your voting rights, actively contributing your expertise or influencing a company as a shareholder. How much influence you have, and what form that influence takes, varies by investment and asset class.

And what is additionality?

This brings us to additionality: would the same positive change have happened without your capital, influence or involvement? Sometimes an investment enables something that would otherwise not happen. Sometimes capital helps a solution scale faster or grow further. And sometimes your contribution lies mainly in active ownership or influencing the direction of a company. Additionality therefore helps you critically assess your own contribution, alongside the impact created by the company itself.

Impact investing is one part of conscious investing

At PYM, we take a broader view through conscious investing: being aware of the influence your wealth has and making deliberate choices about how you use it. You can think of it as a toolbox containing different ways to invest more consciously. These include excluding certain investments, considering ESG factors, active ownership and stewardship, thematic investing, and impact investing. An ESG score on its own, for example, does not automatically mean that an investment creates positive impact. Nor does it tell you how much difference you make as an investor. Impact investing is one way of deliberately targeting positive impact within this broader approach.

Impact investing is a broad portfolio approach

Impact investing is not limited to one type of fund or investment. It can take place across different asset classes, from listed equities and bonds to private equity, venture capital, loans, funds and direct investments in companies. What differs is how impact is created and how much influence you can have as an investor. In a direct investment in an early-stage company, for example, your capital may be essential to enabling growth. With a listed company, your contribution is more likely to come through active ownership, voting, engagement and collaboration with other investors. There is therefore no single right way to invest for impact. The relevant question is always: What change do I want to help create, and what role can my capital play in making that happen?

Want to go deeper? We have put together a small, PYM-curated collection of articles, reports and practical guides to help you explore impact investing in more depth.