What are the 5 advantages of Impact Finance compared to traditional finance

Impact Finance, also known as impact investing, differs from traditional finance by focusing on measurable social and environmental objectives, in addition to financial returns.

Here are five major advantages of Impact Finance compared to traditional finance:

Creation of measurable social and environmental value

Unlike traditional finance, which mainly aims at maximizing profits, impact finance also seeks profit while explicitly integrating social and environmental objectives into its investment strategies. Funded projects must demonstrate a measurable impact, such as reducing carbon emissions, improving access to education, or creating sustainable jobs.

Alignment with the Sustainable Development Goals (SDGs)

Impact finance is often designed to contribute to the SDGs defined by the United Nations, such as eradicating poverty, ensuring access to clean energy, or fighting inequalities. This strategic alignment addresses pressing global challenges, making it particularly relevant for investors concerned about their role in sustainable development.

Reduction of long-term risks

By taking into account environmental, social, and governance (ESG) criteria, impact finance limits investors’ exposure to non-financial risks, such as climate disasters, social conflicts, or future strict regulations. This contributes to increased resilience of investment portfolios over the long term.

Strengthening transparency and accountability

Impact finance relies on the measurement and communication of its results in terms of impact. This encourages businesses and funded projects to adopt more transparent and responsible practices, by providing regular accountability for their performance, which is often less required in traditional finance.

Increased attractiveness for new generations of investors

Younger generations, particularly millennials and Generation Z, are increasingly prioritizing investments that reflect their social and environmental values. Impact finance meets these expectations, thereby attracting an inflow of new capital, while traditional finance may appear disconnected from these emerging priorities.

In the end, impact finance stands out for its ability to reconcile financial performance, measurable impact, and contribution to societal challenges, while meeting the growing expectations of modern investors.

Discover more practical details in the heart of the AGILE White Paper of the Geneva Foundation for the Future.

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