Impact investing is the new theme in the investment world amid the growing need to impact the human race while also generating returns on solving environmental, social, and governance issues. While private entities have dominated the segment for the longest time, more so philanthropists, governments’ are becoming critical players seen as one of the trends in impact investing. The emergence of impact investing advisory firms is helping fuel government involvement in sustainable investing.
Faced with eternal issues ranging from political instability, poverty, and climate change, world powers and governments are increasingly acknowledging the need to do more to help enhance impact investing crucial to solving ESG issues.
The government’s role in impact investing is vast. As a regulator and legislator, governments are involved in the formulation of policies, among other things that encourage impact investing and make it possible to achieve the full benefits of impact investing services.
Impact investing statistics already show that governments are a key driver of sustainable investing and factors behind new trends in impact investing.
According to The Altruist League president Milos Maricic, “Governments are very important in terms of market-making and in terms of giving the market a bit of a boost to get things going and influencing impact investing strategies,”
Below are some of the roles governments are playing in fuelling impact investing?
The kind of policies that governments formulate can help accelerate impact investing or curtail it in the long run. Faced with unending societal issues, governments are increasingly passing laws and legislation aimed at encouraging and attracting people to invest in projects that can positively impact the human race on solving ESG issues and, in return, generate some exciting returns.
Some governments have passed legislation that accords tax breaks to projects that enhance green energy development to help combat carbon emission, thus protecting the environment. Others have passed laws that call for fair treatment of minorities as well as the underprivileged in society. Creating a friendly investment environment through legislation is proving to be a key driver of impact investing.
Governments worldwide are increasingly admitting they have a role to play in helping solve a good chunk of ESG issues. Likewise, governments are increasingly pumping billions of dollars into projects that generate revenue and help solve environmental and social issues.
“Governments are pillaring effect funding by constructing investable chances and pillaring projects and entities included in effect funding. Governments are becoming investment partners in impact investing projects on aligning different sets of resources, and facilitating opportunities to the public good,” Ekaterina Chernova The Altruist League Managing Partner.
In Developing countries, governments are developing affordable housing, which generates small income for local governments and helps solve the housing menace. With the help of impact investing, advisory group’s governments are also exploring massive renewable energy projects to meet society’s needs while keeping carbon emission low.
In Australia, for instance, the government has committed to investing $30 million in developing a robust social impact investing market in a bid to deliver a better outcome to those at risk of homelessness.
The way governments spend money can go a long way in influencing the impact investing market in ways very few could ever imagine. In this case, purchases should be one thing that goes a long way in impacting ESG aspects of societies.
For instance, ensuring government departments run on wind or solar energy bolsters investments in renewable energy and helps conserve the environment by curbing carbon emissions. Likewise, the government turning to local production that encourages recycling is an environmental impact investing trend and goes a long way in creating formal employment instead of relying on Imports.
According to impact investing consultants, tax breaks by the government on ESG focused investments go a long way in attracting the much-needed capital. Investors are always attracted by tax breaks that ensure they generate optimum returns from their returns.
Similarly, tax breaks on renewable energy projects, affordable housing, and green technologies are always sure to attract billions of dollars from investors worldwide.
In addition to attracting investments, tax breaks offer an ideal way of subsidizing impact investments that can potentially impact communities. Investors will always be drawn to public subsidies that have the potential to deliver particular outcomes.