The Emergence Of Impact Investing: Challenges And Opportunities In An Essay.

The Need for Innovative Financing for Social and Environmental Issues

Today's society is confronted with a number of important social and environmental concerns. Climate change, population growth, and inequality are just a few of the issues that have the potential for causing the human misery as well as the considerable financial losses that took place (Burke, Hsiang and Miguel 2015). A shortage of funds from both the public and private sectors is hampering efforts to address these issues (Phillips and Johnson, 2021). Consequently, new and imaginative ways are required. Impact Investing is a new kind of innovative finance that has emerged in response to this need. Social and environmental challenges have largely driven the development of this new type of investment. While pursuing financial gain, impact investing strives to have both a positive social and environmental effect (thus, the term "social impact"). It does so by using tactics similar to those used in the venture financial markets (GIIN, 2016). Despite the fact that the idea of investing for social effect is not new, the phrase "social impact investing" was established only in 2007. It is the rising attempt to establish a formal impact investment market that has altered (Hochstadter and Scheck, 2014). Impact investing has gained considerable interest among practitioners as well as service providers from the outset, with the earliest stages of the industry's growth being led by a small but influential group of supporters (Lawrence et al., 2013). As a result of the financial crisis and the subsequent need for new, more responsible methods of investing, impact investing has grown in popularity (Nicholls et al., 2010).

Investor interest or assets under management have risen dramatically since the phrase "impact investing" was coined in 2007 (Hand et al., 2020). Asset classes across the board have seen impact funds or strategies introduced, as well as significant advances in the development of tools and methodologies for measuring social and environmental effect' (Bass et al., 2020). The UN's Sustainable Development Objectives (SDGs) have spawned a slew of new equity alternative investments that concentrate on the "impact" of these goals (Phillips and Johnson, 2021).

As the impact investing business evolves and becomes more complicated, impact investors take a range of factors into account when allocating money, assessing their performances, and anticipating the investment return, like financial and impact goals, risk and liquidity, or resource capacity. In formulating investment policies, investors aim to balance these elements and deploy the smallest amount of money for the largest financial and impact results and thus maximize their efficiency of investment (Gilbert, Murphy and Zafiris, 2021). An important aspect in the management of portfolio performance and making decisions on impact investment is an insight into financial performance. Indeed, 70% of the investors in impact believe that impact investments are financially beneficial compared to other forms of investment, citing this as a rationale for impact investing. Moreover, almost nine of every ten investors find their portfolios to meet or beyond their expectations of financial performance. The range of funds labelled as "impact" funds, on the other hand, has a wide range of investing methodologies and outcomes. Investors are thus faced with the dilemma of determining the relative strengths and weaknesses of various investment funds in an intricate and diversified market in order to have an influence (De et al., 2021).

The Emergence of Impact Investing

Funding for projects to help the environment or deal with climate change is very limited. This is true for academics, experts, NGOs, and global organizations. It's widely accepted that preserving financial capital and implementing sustainable investing practises are two of the most important aspects of sustainable development. "The bridge that connects an unsustainable present with a prosperous future," as the saying goes, is an apt description of sustainable investment methods (Krosinsky and Robins, 2012). Many environmental initiatives may be funded now thanks to impact investing. "Impact investing," as specified by the World Economic Forum (2013), is an unique and emerging investment technique that actively focuses on delivering beneficial social and environmental consequences and returns on capital on a portfolio of assets. Investors in social and environmental initiatives utilise this strategy to get a little financial return while making a good social and environmental effect (Geobey et al., 2012). Sustainable development may be financed via environmental impact bonds (EIBs), which are part of an increasing trend of outcomes or pay-for-success approaches (Balboa, 2016).

Today's human living is confronted with serious social and environmental problems. Climate change, population expansion, poverty and inequality all-cause human suffering as well as significant economic losses. Due to the essence and scale of these problems, government funding and the contribution of international organizations such as the UN, which are limited in scope and resources, are insufficient to address them. Therefore, innovative forms of financing are required. Social and environmental challenges have fuelled the establishment of new innovative finance termed impact investing to meet this demand (Burke, Hsiang and Miguel, 2015).

To resolve the problem of climate change, impact investment can be relied upon. Investment in companies that are working to reduce CO2 emissions is a key component of climate impact investing. Investing in this way has the potential to fundamentally alter the environment. Impact investment has the potential to resolve the climate change issues and this can be seen in this paper.

The problem of climate change is not new. This has resulted in changes like global warming, which has been seen across the globe. In to cater to this problem, big investments are required, which are not readily available. Even if a big company wants to take steps in this regard, it would still require funds that take out a good share of profits for the company. This means that the company would not be readily available to make such investments. This problem needs to be addressed at the earliest, before the problem of climate change becomes such that it has no resolution. Impact investment provides the light at the end of the tunnel for this problem.

What are the most significant challenges and opportunities of the contribution of impact investing?

What are the main characteristics of impact investing?

Why do investors willingly accept lower projected financial returns in exchange for nonmonetary benefits from investing in assets that serve both social and financial goals?

Using an interpretivism philosophy and an inductive technique, this study intends to analyse many elements of investing circumstances, including asset class and portfolio investment, prospective hazards, and the gap between goal and real effect (Saunders, et al., 2012). The author will employ qualitative methodologies for data collecting in order to get a deeper understanding of the study issue. Research for this paper will be undertaken using an archival research technique, and in addition to the analytic analysis of academic papers, studies conducted by organisations like the Global Impact Investing Network (GIIN) and Entrepreneurial Development Bank (EDB) will be used.

Investor Interest and Assets Under Management

An important component of tackling the climate change challenge will be to give in-depth information on impact investing as an innovative kind of investment. Research from this project will be used to improve the sustainability of educational and financial organisations. As a result of this research, the author thinks that banks will be better able to identify developing markets that play an important role in delivering impact funds. For this climate change age, this research examines both the challenges and opportunities that impact investment presents. On the subject of impact investment and its role in promoting development, ideas for action are also discussed. Impact investment has gotten little study attention and there is a lack of literature on the subject. The research's most important contribution is to provide a deeper knowledge of this present issue and to highlight the challenges that impact investing faces in development.

It is the purpose of this chapter to examine and evaluate the relevant impact investing literature in detail. The first subchapter is concerned with the definition of impact investment, followed by a discussion of related ideas and words. The second section summarises the most important research. The goal is to offer a comprehensive overview of this relatively young field of study. Academic research on impact investing is currently few and dispersed since the phrase "impact investing" was created only in 2007. Due to the fact that most research has been conducted by practitioners, the evaluation of the literature includes some work done by practitioners as well (Clarkin and Cangioni, 2015).

Even if impact investing is a relatively new idea, the notion of leveraging capital for social reasons has been around for a long time (O'Donohoe et al. 2010). Incorporated within the social and environmental corporate social responsibility movements are the origins of impact investment. Societal and environmental responsibility has been existing for a few decades already, according to Höchstädter et al (2014)'s argument.

Socially Responsible Investment (SRI): An investing method known as socially responsible investment (SRI) evaluates not just the financial rewards from an investment, but also the influence of that investment on environmental, ethical, and social change. Potential investors may have a tough time figuring out where to place their hard-earned cash. These investors take into account aspects like diversification, dividends, return on investment (ROI), inflation and taxes when deciding on an investment portfolio. These days, SRIs are taking their efforts to a whole new level. Additionally, they take into account whether or not a given investment has a favorable influence on the environment (Wagemans, Koppen, and Mol, 2013).

Environmental, Social, and Governance (ESG) Investing: For socially aware investors, ESG standard is a set of criteria for a company's activities that they apply to screen investments. A company's performance as a steward of the environment is taken into account by environmental standards. When evaluating an organization based on social criteria, we look at how it treats its workers, vendors, consumers, and the communities in which it works. Governance includes management, executive remuneration, audits, internal controls, and the rights of shareholders (Hill, 2020).

Factors Impact Investors Consider When Allocating Money

Impact Investing (II): II is a type of investment strategy that aims to achieve social and environmental goals in addition to financial gains. Impact investment has the potential to provide a wide variety of assets and outcomes. Investing money may be utilized for social and environmental good through II (Barber, Morse, and Yasuda, 2021).

During the second part of the twentieth century, modern talks concerning corporate social responsibility (CSR) began to take place. The debates emerged as a consequence of increasing public awareness of the impact of economic activity on society. As a result of Milton Friedman's (1970) assertion that the primary function of the company is to maximise profits for the firm and also for increasing the shareholder value while adhering to legal and ethical standards, there has been a lot of debate on the necessity of CSR (Carroll 1999). Several initiatives, including ethical consumption, business ethics, CSR, socially responsible investment (SRI), and environmental, social, and governance (ESG) investing, have emerged in recent decades to pave the way for impact investing (Hochstadter et al., 2014).

There was a beginning to this trend in the early 2000s when investments were used to promote social change. While the terms "social finance" and "impact investing" are sometimes used interchangeably, social finance differs from II in that it covers both grants and investments. Research has described II as a subset of social finance (Moore, Westley and Nicholls, 2012). The worldwide expansion of social finance, followed by the introduction of impact investing in 2007, occurred in a rather organic manner. Public spending decreased as a result of the financial and economic downturn, but the need for social support and services increased in many nations. Concurrently, the general public's consciousness of environmental problems grew. In addition to creating new possibilities for the social sector and its companies, the economic downturn has resulted in a drop in charitable contributions, which has prompted social entrepreneurs and charities to hunt for other sources of income (Clearly So, 2011). There has been an overall increase for the number of investors wanting to invest in mission-driven enterprises in an effort to increase the overall worth of their assets (Harji and Hebb, 2010).

The goal to generate a social effect, as well as the measurability of the impact generated, are critical components of impact investment. When compared to the conventional investment, impact investing is distinguished by its proactive pursuit of social effect. A large variety of options is included, rather than a narrow range of possibilities tied to specific "demographics or areas, sectors and impact objectives, asset classes as well as the financial instruments." Any asset class or financial instrument may be used as a basis for impact investment, although recent years have seen the focus shift to venture capital, private equity and debt. Additionally, quasi-equity and assurances are employed in this procedure to a certain extent. A financial return on investment is a fundamental entitlement for investors everywhere. The sought-after return may be divided into two categories: return on capital and above-market rate. It is possible to make investments in both established and developing economies (Bugg-Levine and Emerson, 2011).

Balancing Financial and Impact Goals in Investment Policies

II, according to some authors, is more of an investment strategy than a specific asset class, as indicated by the wide range of impact investment options accessible, which cover everything from stock to debt (Brandstatter and Lehner, 2015). While SRI seeks to minimise environmental, social, and government impacts (commonly referred to as ESG factors), impact investing strives to have a positive and quantifiable impact in addition to financial benefit. II must first demonstrate that they are able to move financial resources to initiatives that benefit the community and the environment even while making a profit (Geobey et al., 2012). As a means of supporting sustainable energy investments, IIs have the potential to be game-changers, particularly in the fields of climate change mitigation and land restoration. They serve as an intermediary.

Authorities can use a wide range of instruments for Impact Investing, such as Social Impact Bonds (SIBs), to develop unique investment strategies and enable public partnerships to address specific social issues, such as those relating to education and healthcare, among others (Chiappini, 2017). A unique form of pursuing social programmes and spending public funds, as well as a radicalization of the broader phenomena of (social) impact investment, might be viewed by some to be the case with SIBs (Chiapello, 2015). These new tools allow governments to identify promising investment regions, design a favourable regulatory framework, and set up appropriate incentives, such as tax breaks, to attract capital investment (Chiappini 2017). SIBs, according to Care and Ferraro (2019), are becoming a financial tool as well as a paradigm of social policy interventions that agreed to cut government expenditures while ensuring the efficiency of social services through private sector participation. SIBs have the potential to function as both a financial product and a model for bettering social services, according to some analysts (Berndt and Wirth, 2018).

According to the convention, "climate finance" is defined by UNFCCC as "local, national, or transnational money through public, private, as well as alternative sources of finance that helps boost adaptation and mitigation activities to combat climate change." Although the public sector or civil society contributes significantly to climate financing, the private sector, particularly in particular impact investors, also plays a critical role. Social and environmental impact is an important consideration for many effect investors. Many investors are investing their money into climate solutions, which, based on the asset class and fund selection, may generate greater returns than the market rate. When it comes to reducing the funding gap, institutional investors may play an important role (UNCC, 2021). Stakeholders from a variety of backgrounds have contributed to the evolution of climate funding. People can do a lot to combat global warming, which is a major issue. Several frameworks and norms have made it simpler for individuals to invest in climate solutions as a group:

UNFCCC – The UNFCCC came into force in 1994. Indeed, the purpose of the organization founded by developed nations was to stabilize GHG emissions at a point that would preclude harmful human-induced interaction with the climate system. The UNFCCC has proposed a new round of climate change funding. The UNFCCC states that "industrialised countries commit to promoting climate change approaches to addressing countries by financial assistance for climate change action—above and over whatever financial aid they now offer to these countries." The Global Environment Facility administers a grant and loan mechanism created by the Convention on Biological Diversity (GEF) (UNFCCC, 2022).”

Environmental Impact Bonds and Pay-for-Success Approaches

Kyoto Protocol – The Kyoto Protocol is a "international agreement tied to the UNFCCC, binding its Parties by adopting globally enforced carbon reduction objectives," and so falls under the purview of the UNFCCC. Additionally, the Adaptation Fund, established in accordance with the Kyoto Protocol, intends to "allow the design and deployment of technologies that may greatly boost reductions in emissions" (Grunewald and Martinez-Zarzoso, 2016)."

Paris Agreement – "Landmark debates to tackle climate change, support or enhance the actions and investments" required for a "sustainable low-carbon future" were held in 2015 by the Parties to the UNFCCC. In accordance with the Convention, such an arrangement for the first time ties all countries together in a single cause to battle climate change and deal with its effects. It also provides increased assistance to poor countries in order to help them do so.  Climate change's effects and assuring that financial flows are aligned with low-GHG emissions or climate-resilient routes should also be a part of the plan (Peake and Ekins, 2017)."

The 21st session of the Conference of Parties (COP) to the UNFCCC announced the beginning of a new era for climate financing, policy, and markets. Global action plans were formed as part of the Paris Agreement inked in December to ensure that the rise in the overall temperature of the Earth no more than 2 degrees Celsius over preindustrial levels. There are many types of climate finance available, including funding provided by national, regional, as well as international bodies to support climate change prevention and adaptation projects and programmes. Support methods and financial assistance for mitigating and adapting to climate change, including growing human capital, conducting research and developing new technologies, are all part of this strategy (GIIN, 2019).

UN Sustainable Development Goals (SDGs) – When it comes to the 2030 Agenda for SD, it is based on the SDGs that were produced in 2015 and signed by 193 UN Member States. The 2030 Agenda is based on the SDGs. After decades of government and international effort, they urge for partnership between the commercial, public and non-profit sectors to achieve social, environmental and economic growth in many areas (Pizzi et al., 2020).

"Energy and Climate Change" by the European Environmental Agency in 2017 found that 2/3 of GHG emissions were linked to the burning of fossil fuels for daily use, and the GIIN's Evaluating Impact Performance Study contains findings that electricity consumption accounts for approximately 25% of GHG emissions. A first step in mitigating climate change or fulfilling the Paris Climate Agreement's goals is to embrace sustainable energy sources and reduce total energy use. Reducing one's carbon footprint demands collaboration between companies that can effectively design goods that can absorb climate financing obligations (GIIN, 2019).

It has been a long time since the GIIN has been involved in initiatives aimed at empowering investors to make impact investments in a range of climate-related ventures. According to the GIIN, today more now than ever, impact investors must play a role in tackling the crisis of global climate change. In order for the world to move away from carbon, impact investors must do something. This could be through blended finance solutions and other strategies that focus on climate change, like investments through sustainable forestry, clean energy access, as well as climate adaptation and mitigation to mention a few. Impact capital cannot underperform because the risks are too great (GIIN, 2019).

Impact Investing as a Solution to Climate Change

Going ahead, the GIIN is preparing a multi-year programme with the goal of using its power and network in order to constructively address the climate catastrophe. The GIIN wants to broaden its portfolio of climate-related activities to include:

• The GIIN's Climate Investing Track aims to mobilize capital for climate investments in emerging markets (The GIIN, 2022).
• Launch of Sustainable Forestry IRIS+ theme, including 5 Core Metrics Sets (GIIN, 2022).
• Data collection for Evaluating Impact Performance: Agriculture Investments(GIIN, 2019).
• Launch of Navigating Impact project Climate Mitigation theme
• Launch of Evaluating Impact Performance: Agriculture Investments.

By adopting Carbon Fund, GIIN intends to become a carbon-neutral corporation and conduct a carbon footprint analysis in the next years. In addition, climate change is a global issue, which necessitates a global effort to tackle the hazards posed by climate change. As part of its global outreach efforts, the GIIN is actively connecting with key stakeholders in the United States as well as throughout the world. In Sub-Saharan Africa, the GIIN is doing research on climate funding in this region, which will be crucial (The GIIN, 2022).

It is possible that dualities might operate in favour in surprisingly beneficial ways. Considering the case of private equity (PE) firms, which are entrusted with achieving better financial performance by raising the value of the businesses in their portfolio. Today, in this age of combating climate change, ESG (environmental, social, and corporate governance) criteria have been developed, which socially aware investors expect corporations and investment firms to utilise in their decision-making? If they don't, investors will be able to take their money and invest it elsewhere. It has been noticed that private equity businesses may certainly prosper while also doing good for the environment. Research has found little indication that climate-oriented private equity funds must forfeit financial performance in order to invest in firms that fulfil ESG requirements (Kearney, 2021).

Moreover, these discoveries come at an essential stage, as countries struggle to implement the Paris Agreement's principles and objectives. The investment sector is rapidly adopting ESG criteria to better connect personal and business values with financial returns, and this is becoming a popular method of doing so. Many reasons have contributed to their sudden ascent, including heightened awareness about the dangers of climate change and an increased emphasis on ethical business conduct since the global financial crisis, as well as more high-profile media coverage. PE businesses approach ESG issues in a variety of ways. Some companies may not track the climate effect of their investments at all, but others use it as a marketing or fundraising tool to raise money. Those that have made it a centrepiece of their operating strategy are another breed altogether. There hasn't been a mechanism to assess the effect of climate-focused investment in private equity on financial performance, regardless of the strategy used (Banacloche et al., 2020).

 

Figure 1

The research began by identifying three types of private equity investors (see figure 1). Each was evaluated based on how much consideration is given to climate effect in their investing reasoning:

— Frontrunners— have a major emphasis on ESG issues, and especially on slowing climate change

— Advocates— express a more broad, but yet strong, environmental, social, and governance emphasis

— Agnostics— have no ESG emphasis, including climate impact investing (Kearney, 2021).

In the next step, the researcher searched the European private equity market to find general partners (GPs) who meet the criteria and for whom there was sufficient information on their portfolio firms to conduct the climate impact study. According to the findings of the investigation, 38 portfolio businesses operated by eight European private equity firms were identified (Kearney, 2021).

Each portfolio firm in the sample was subjected to the X-Degree Compatibility (XDC) Model, which was created by right. based on science and applied to each business in the data. This model assesses the climate effect of an economic entity, determining whether it has a positive or negative influence. In order to calculate the intensity of global warming until 2050, the whole market must function at a level of economic emission intensity (EEI) equal to or greater than that of the entity under consideration (Vujovi? et al., 2018). When financial, economic, and emission data are used, the findings are presented on a scale in degrees Celsius, according to the model. The Baseline XDC reflects a company's real climate effect, while the Target XDC represents an industry segment-specific emission limit in compliance with the Paris Agreement's climate targets. The Baseline XDC and the Target XDC are the same things. An organization's baseline performance as well as its desired value is measured by the XDC Gap, which reveals whether or not those variables are in line. Researchers utilised the XDCs of an equally weighted portfolio of the individual firms as a proxy for the climate effect of a specific PE portfolio in order to estimate its climate impact (Kearney, 2021).

Climate-friendly PE portfolios

 

Figure 2

It became clear that frontrunners and advocates emit around the same amounts of emissions per economic output, earning a Baseline XDC of nearly 2.5°C when we examined how much CO2 e3 PE portfolios produce. If the general market had functioned at the same EEI as the frontrunner and advocate portfolios, climate change would have been 2.5 degrees Celsius by 2050. Agnostic predictions would result in an XDC Baseline of 4.1°C, in contrast. It is much more than simply a matter of saying that climate objectives should be included in investment decisions. It does, in fact, result in portfolios with reduced emissions. To put this in perspective, implementing the XDC Model to the Solactive Europe 600 results in global warming of 3.7 degrees Celsius by 2050. 4 While restricted data availability made it impossible to compile a large enough sample of PE-owned enterprises to achieve complete comparison, our sample results imply that PE firms perform on a par with, if not on a higher level than, publicly traded companies, according to our findings. Even with a Baseline XDC of 3.0°C (based on an evenly weighted portfolio of all businesses in the sample), they tend to be much lower than the average of European public enterprises in this regard (Kearney, 2021).

Making use of expert resources is crucial to effectively engaging in impact investing, and accessing these resources is often cited as one of the crucial hurdles faced when considering impact investment. In order to be successful in impact investing, it is critical to developing competence along the process, from gaining an understanding of the area to designing, implementing, and managing an investment portfolio that includes impact investments. An awareness of how to work with many stakeholders from the public, commercial, and governmental sectors is required when making investments in environmental issues. First and foremost, an honest review of both in-house capabilities and the competences of existing investment and philanthropic advisers is necessary in order to establish the suitability of already existing funds (Ormiston et al., 2015). To identify and manage impact investments, it may be necessary to bring in experts from outside of the organization, such as consultants or finance or program workers. Potential impact investors need to be open-minded about expanding their resources via education, potential board seats and collaboration with new consultants or intermediary organisations. When it comes to resources and infrastructure, this openness may be essential to go all the way to complete transformation. Investors must determine whether they want to rely on third-party intermediaries, build their own expertise, or utilise a combination of both ways. Face the Obstacles and Succeed; however, in spite of these reservations and aversions, a growing number of early adopters are embracing the potential presented by impact investing (Morgan, 2013).

True impact investors can never allow a fossil fuel corporation to brag about its community participation while disregarding its enormous carbon emissions. Despite this, it is still much too typical for impact investors to concentrate only on the positive results of their investments. It's time to rectify the double standard in this situation. Efforts to refine definitions of terminology commonly used in the responsible investing area are linked with this need. Over the last five years, there has been an infusion of funds labelled "impact," with no consensus on how this badge differentiates from related product phrases such as sustainable, responsible, and green, as well as environmental, social, and governance (ESG) (Bendell, 2019).

It will take time to reach an agreement on language that clearly distinguishes between "values alignment" (wherein my assets widely reflect my principles) and "impact creation" (in which my assets were implemented to solve a major global problem). It will also take time to agree on a checklist upon which new financial products might be classified. Nonetheless, one thing is certain: whatever the definition of impact investing is, the search for a "positive net effect" must be a component of it (Bendell, 2019). Every human action has both favourable and unfavourable effects on the environment. We cannot be certain that we are reaching our planned net social and environmental advantages unless we measure and manage the negative together with the good. We also cannot take remedial action until we measure or manage the negatives along with the positives.

The environmental, social, and governance (ESG) sphere is one step forward in this regard. Even though it is primarily concerned with long-term financial success rather than deep-level effect, it usually takes into account both opportunities and risks. Consequently, how could investors who claim to be concerned about consequences other than those that directly influence financial performance to explain looking beyond unfavourable outcomes? Positive net impact acknowledges and compensates for the unavoidable negative consequences of any investment while also measuring the total benefit. Good intentions are the starting point for impact investment, but they must not be the ultimate result. The flood of funding is expected to continue, and we all have a responsibility to ensure that money is used with rigour and honesty in order to achieve both good effects and financial success (Bendell, 2019).

The SDGs are seen as a possible conceptual framework enabling social impact assessment, management, and reporting by stakeholders in the financial services sector. The SDGs play a part in the investment process as well; certain impact investing funds, as described below, employ SDGs to assess their success. Even though SDGs are necessary, most companies don't include them in their impact reporting. A multi-stakeholder Business Action Group has also been created by the United Nations Global Compact and the Global Reporting Initiative (GRI, 2022) with the purpose of supporting corporate performance reporting that is likewise aligned with the SDGs.

It has been shown that impact investing has been the most efficient sustainable and responsible investment (SRI) method to accomplish the SDGs, as it is the quickest and is related to significant events like the UNCCC (Eurosif, 2017). With the purpose of creating demonstrable social and/or environmental implications and a financial return, investment in social and/or environmental effect are undertaken. What separates these new financing sources from the concept of SRI is the proactive purpose with which they attempt to achieve a social goal in addition to a financial return. Overall, this approach is based on screening procedures that may prevent investments in companies with negative or insufficient environmental, social, or governance repercussions, as previously stated. On the other hand, the companies that benefit from SRI investments have a "traditional" core business that is different from the environmental and social improvement that drives impact investing. Impact investing is a kind of investment that sits between the so-called "financial first" approaches and charitable giving in terms of its impact (impact only). This makes impact investing unique in that it is based on the achievement of social impact objectives, is organised around impact measurement techniques, and is made sustainable by tying return on investment to impact goals accomplished (Aiccon, 2018).

The literature concerning impact investing tends to concentrate on funding social initiatives (such as cheap housing, aged care, and educational opportunities); nevertheless, investors are particularly willing to produce an environmental effect (GIIN, 2017), via investments in a variety of sectors, such as clean technology, green construction, land acquisition, biodiversity preservation, or sustainable forestry, – i.e., goods/services that "improve the world's position"– has been noted by market analysts as increasing demand for products and services that have positive effects rather than simply limiting harm   In order to address this need, impact investing might make a significant contribution by supporting these goods without sacrificing return on investment (ROI) (GIIN, 2017). Returns on socially responsible investments are equivalent to those of standard investments (Revelli and Vivani, 2015), however, other research show that they may be higher (Chan and Walter, 2014). The EU has been attempting to put regulations in place to encourage responsible and sustainable investments for a long time. The European Commission's strategy on capital markets is a step in the right way since it emphasises the need for "well-informed investment choices" in helping to meet the 2030 targets established by EU climate and energy policy including EU obligations to SDGs. In particular, the strategy recognises green bonds as a financial tool that may be used to direct funds toward environmentally friendly initiatives. Furthermore, the G8 established the Social Impact Investment Taskforce in 2013, which has now evolved into the Global Social Impact Investment Steering Group (SII, 2015), which includes representatives from 13 nations as well as the European Union. In an effort to increase the number of individuals interested in impact investing, this group promotes a common vision of it, facilitates information sharing, and encourages legislative changes in national markets.

Methodology in research refers to the process of identifying, selecting, and putting into practice study designs that are most likely to provide reliable and accurate findings. This investigation must involve an examination of the rationale for the selection of certain processes as well as the rejection of other alternatives. The researcher will be able to more readily identify appropriate and dependable data-gathering procedures with the assistance of this section.

Through the use of varied literature, the relationship between impact investing and climate change would be explored. Using the secondary sources would allow for the published reports and publications to be analysed, which reflect on the interconnectivity of the two concepts, as well as, the challenges and opportunities that are put forth through this interconnectivity.

There are many ways to collect the data needed for the analysis. Many scientific components are applied to appropriately solve the research problem. The study requires descriptive, casual, and exploratory research designs. Descriptive research design gathers and describes components of research questions. Descriptive research helps to examine data and get a better understanding of the study issue. It is possible for researchers to observe human behaviour in the field while doing the descriptive study. The combination of the two offers a thorough understanding of the situation under investigation (Sun and Lipsitz, 2018). Each piece of information is distinct and thorough.

The exploratory research technique also helps the researcher comprehend the challenges better and broaden their conceptual perspectives. Explanatory research design is also used to tackle the challenge of research with no prior studies. This study avoided using explanatory or exploratory research methods, believing that a descriptive approach would better explain research issues and fulfil the study's aims (Newman and Gough, 2020). A desk-based examination was also possible owing to the availability of relevant publications; hence, explanatory research was avoided. Research questions were answered, and the inquiry was brought to an end by offering a thorough grasp of the difficulties it had highlighted.

For research, methodologies are chosen based on their applicability to a certain problem. Many methods can be used depending on the scope of the evaluation. There are several methods of doing research. To begin, we provide our hypotheses and acknowledgements, and we intend to do so at the study's completion. No hypothesis is needed to evaluate the inductive approach, and no hypothesis is required to begin the subject study. The inductive and deductive approach is not mutually exclusive. It emphasises the necessity for a well-structured study and a hypothesis. To address an issue that hasn't been well studied in the past or for which there aren't any existing studies, this approach is often used. It is possible to accomplish the study's objectives without resorting to highly organised processes in this situation (Pallavi, 2020). Deductive research employing hypothesis generation was not required since the researcher relied on previous relevant studies. As a result, both inductive and conceptual research may be used.

Various methods are utilized to collect data from a variety of sources. It effectively communicates the significance of the study's findings. Primary and secondary data gathering are the two most basic and crucial data collecting methods. The confederation depends greatly on members submitting up-to-date and accurate data. Primary data collection techniques include surveys, interviews, questionnaires, experiments, and focus groups.  The secondary approach, on the other hand, helps aggregate current and older research to explore research ideas. This technique gives researchers several possibilities for gathering information.

This study will be a desk-based study employing secondary research. No additional effort or expense is required for secondary data collecting. Google scholar, corporate reports, and other websites that give details on companies engaged in mergers and acquisitions, as well as the different techniques they've followed to secure the intended outcomes in terms of share price and growth, were used to gather secondary data for this study. Finally, these strategies will help the study acquire appropriate data and provide deep insights into the research topic.

Research strategies are ways to find and gather data. The researcher may use a number of procedures or equipment to get correct findings. Effective research techniques help collect precise data, which helps provide results while addressing the research problem (Snyder, 2019).

The researcher used a case study technique to obtain information from relevant or effective publications after defining the research subject. The use of secondary data collection is successful and useful in this investigation. This approach may be used to find, collect, and analyse data. This will aid in a complete and successful study subject analysis (Budianto, 2020). The research strategy adopted for this work is Qualitative Research, wherein the given literature is critically scrutinized.  

The study design, data collection method, and research strategy all impact the data analysis process. The study's data and information might well be analysed in several ways. This research includes statistical, descriptive, qualitative, textual, predictive, diagnostic, and content analysis methodologies. Content analysis was employed in this study's research design, although different approaches to the case study technique were applied to investigate the research problem in greater depth. Books, articles, speeches, and interviews are all examples of content analysis that may be used in research (Sheriff, 2021). When it comes to understanding the influence of mergers and acquisitions on telecommunications industry share price and profitability, researchers employed this method. Content analysis may be used to identify the presence of specific words, themes, or concepts in a given dataset of qualitative data. The key words relied in this study were impact investing, climate change, GIIN, risks and opportunities impact investment, emerging trend impact investment, climate financing.

Since this was a secondary research, no data analysis tools were used. 

Secondary analysis refers to using existing research data to answer a question other than the original study's topic. However, new technologies have made the ethical considerations surrounding the secondary use of research data more significant (Varpio et.al, 2020). Making data simpler to collect, store, and share. Simultaneously, new concerns about data privacy and security have emerged. Most concerns about secondary data usage centre on potential damage to persons and compensation for their consent. The number of identifying information in secondary data varies. An ethics board's full evaluation is not required if the data is devoid of personal information or is sufficiently coded to restrict researcher access. A simple board confirmation will do (Sheriff, 2021). The board will thoroughly examine the proposal too if the data includes or may contain participant identity information. To answer the research question, the researcher must identify information, explain why it is needed, and secure it. If the foregoing conditions are met, the researcher may obtain a waiver of approval.

In the course of our study, we discovered certain repeating themes and knowledge gaps, as well as areas in which more research may help to bridge the gap between the academic and practitioner bases of knowledge on the topic of impact investing in the climate change era. As this was a secondary research, so we were not able to communicate with the impact investors, relevant stakeholders pertinent to this research area. The view of Impact Investors or that of the organisation in which such investments are made could not be collected. This present the future opportunity for different scholars for undertaking research in this area

Climate change is a big issue of the 21st century. It is almost deemed as one of the hottest topics of discussion, as time and again, one or the other aspect associated with it becomes a newsworthy argument. The impact of climate change does not have to be restated anymore in the text as people have been able to witness it themselves, and can easily see the same in their surroundings. A lot has changed because of climate change, which has led to considerable efforts being put in this regard so as to cater to this issue. There have been state-level and global level interventions, programs and initiatives towards reducing the negative impact of climate change. This is not easy and not possible without global efforts. The reason is simple if one nation keeps on polluting, the efforts of the other nations would fall flat. The need is to work together to ensure that this issue is addressed in a practical manner, rather than becoming an issue discussed in books. The efforts that are required to deal with climate change require a considerable amount of resources and commitment. Unless both these things are available, the issue would never be resolved. In the context of commitment, efforts have been made in form of the Paris Agreement and the like. In the context of resources, human efforts, as well as a monetary contribution, are required. This is where the role of impact investing comes into play.

There is a degree of ambiguity surrounding the notion of impact investing at this time. It is difficult to distinguish between impact investing and other types of investment because of the lack of clear definitional boundaries and the overlapping usage of terms (Höchstädter et al., 2014). However, in order to properly scope and size the market, it is critical to creating a consistent nomenclature that can be used by policymakers, practitioners, and researchers alike to communicate effectively (OECD, 2015). As a result of this ambiguity, it is important to specify what impact investment means in this research. One common definition of II includes the expectation of both a financial return as well as a non-financial effect. Sustainable investments are defined as "investments done with the goal of having an environmental or social impact in addition to a financial return," as per GIIN (GIIN, 2016). Impact investing, according to Hebb (2013), involves making an investment with the goal of both making money now and having a positive impact on society or the environment in the future.

When it comes to impact investing, investments are made with the goal of producing beneficial and verifiable social and environmental consequences while also earning a financial return. From a purely terminological standpoint, the term "impact investing" does not give any explanation as to the substance of what a "positive effect" is expected to entail in practice. Social impact investing and environmental impact investing have been advocated as a means of drawing attention to the investment's potential advantages beyond its financial return (Salamon, 2014). Impact investing is commonly mistaken for other sorts of investments, including double- and triple-bottom-line investments, according to a past study (Rizzello et al., 2016).

II in the context of climate change shows the commitment of the world to spend money on saving the environment, by funding the initiatives of climate change. This essentially means that the solution to climate change is no longer restricted to the halls of government or being developed in laboratories. Now, the solution to climate change is found in the stock market and boardrooms. Everyone is now interested in investing in such measures that can help in averting climate disasters. Climate change essentially presents a big opportunity and even a challenge and it is up to the markets to help in transitioning to a green economy. With the instances of massive wildfires reflecting the impact of climate change across the globe, the world has been pressured to find a quick solution. In this, the role of investors of all sizes and types takes significance. The commitments toward UNSDGs and Paris Agreement by the government are just their level of commitment. It remains the job of the investors to invest in this regard so that their management practices reflect commitment toward the environment, social and governance measures.

One of the common factors running across other conventions, accords, and frameworks is the urge for more investments in climate-related solutions. It is the responsibility of both public institutions as well as private investors to mobilise money, and many throughout the globe have been pushed to act but are already integrating their portfolios with the frameworks outlined.

As reported by the GIIN in its 2019 Annual Impact Investor Survey, 50 per cent of investors asked stated they "considered contributing to a global agenda, like the UNs' SDGs or the Paris Climate Agreement, a very significant driver for making impact investments." It is because of these frameworks or agreements that the GIIN found that 51% of respondents indicated they chose to engage in impact investing because of their "Goal of contributing to progress against global objectives" (such as the SDGs or the Paris Climate Agreement). Consequently, it is becoming increasingly apparent that investors are also integrating their portfolios with these structures. Some 40% of impact investors say they track the ef?cacy of all their investments in terms of SDGs, whereas 20% say they only track a part of their investments in terms of the SDGs. The remaining 15 per cent want to do so in the near future." Having said that, there is still much more work to be done in order to raise additional capital and mobilise additional funding for climate solutions (GIIN, 2019).

Climate financing involves a wide range of financial organizations, and both public and private money is needed to address the scale of environmental issues that threaten humanity and the planet. Impact Climate action investments are being made by investors from many walks of life, including pension funds or hedge funds:

• Banks and other private financial institutions.
• Private wealth advisors and family offices
• Public agencies and international development organizations.
• Institutional asset owners, including pension funds, insurance companies, and sovereign wealth funds
• Foundations
• Development Finance Institutions (GIIN, 2019).

The social and environmental aims of impact investors are consistent with the Sustainable Development Goals, as shown by their actions. Following that, all industry participants—across asset classes, target returns, locations, and investment sectors—must take deliberate steps toward attaining the SDGs. Including the objectives in fundraising, product creation, and throughout the investment period, impact investors may make significant contributions to the accomplishment of these global goals by 2030 by integrating them throughout the investing cycle.

Here, reference can be made to the private equity investors. The approach should be to be aware of the fact that the problem of climate change does impact the targets of the company, as well as, its portfolio in the long run. By making such commitments, the company can remain profitable and can grow. It goes without saying that climate regulations are bound to be more intensified and this requires the investors to start their commitment toward climate from this very day. The companies that face a higher cost of emission have to integrate climate change in their present-day assets evaluation procedure. Research has shown that the role of private equity firms is crucial in the ESG principles. In absolute terms, the portfolio can become climate-friendly by holding on to some industries. Irrespective of underlying sectors, any PE portfolio beyond this can be shortlisted and managed in such a manner, which helps in attaining the sector-specific climate goals. Through these findings, the private equity firms can use the climate oriented approach and deal cycle in their value-creation activities, target search and due diligence (Kearney, 2021).

The SDGs of the United Nations are a lofty and international call to action aimed at eliminating poverty, protecting the environment, and ensuring that all people enjoy peace and prosperity. The SDGs also give huge opportunities for investors to contribute to the global agenda by allocating growing amounts of cash to high-impact initiatives that address these vital social concerns. In 2016, the GIIN examined how impact investors involved mapping their current portfolios and impact issues to the SDGs in order to illustrate how their impact investments were linked with the global goals. More than half of impact investors confirmed measuring part or all of their impact performance against the Sustainable Development Objectives (SDGs) last year, demonstrating the potential for impact investing to stimulate progress toward achieving in this century.  To make a major contribution to the accomplishment of these objectives by 2030, impact investors should generate new investors and focus on addressing the serious social and environmental issues that have arisen. A small number of impact investors have started to develop products, raise cash, and start making investments with a specific focus on progress toward the SDGs. This group of investors goes beyond just aligning and retrospectively mapping effect to the Sustainable Development Objectives (SDGs). They proactively target and include the goals throughout the investment cycle, therefore elevating them to the centre of attention. Of the three levels of guidance offered by the SDGs – goals, objectives, and indicators – impact investors have adopted all three for use in their work, which is particularly noteworthy (GIIN, 2019).

Through the UN SDGs being brought forth in 2016, a proper framework and language were provided to the world for dealing with the social and environmental challenges. The current goal is to limit global warming to a set limit of 1.5°C and this has to be above pre-industrial levels. This limit is below the threshold of 2°C set out under the 2015 Paris Agreement. Yet, this goal is still pending attainment. Based on the global warming climate risk situations, these small points do matter. Taking into account the population growth and increased energy demand, the projections make it clear that there is big cooperation, coordination and engagement required to keep the UN SDGs on track. As per the estimates of the UN, there is a need for $2.5 trillion per year just to fill the UN SDG financing gap of just the developing nations. This gap can be closed only through an urgent mobilization of funds so as to ensure the transition to low-carbon and to make the world climate-resilient. There is a need of pushing the start-ups and companies in a manner that they deliver the right kind of services, products and technologies so as to increase the changes (Credit Suisse, 2022).

The sustainable and impact investing of the present-day contains a range of strategies that start with excluding companies and sectors that are controversial, from the entire investment universe. The positive strategies associated with the integration of ESG measures cover the selection of companies that do well in these criteria. The objective remains towards making use of the insights on the material of these risks, as well as, the opportunities in a manner that these work in a combination of financial research so as to allow for making better-informed investment decisions. Through the use of a sustainable investment strategy, the investment portfolios can be safeguarded against the risks of climate change, to likes of legal, regulatory and reputational. Where the companies are able to integrate the practices of ESG in their operations and strategies, they tend to become more attractive to investors and less vulnerable to these risks. In the context of the returns, the newness of the sustainable investing sector demonstrates the absence of standardized indices and metrics. There has, however, been an increasing body of research that shows a positive correlation between financial performance and corporate sustainability performance. This is true for all the asset classes in emerging and developed markets. The Meta study undertaken by the University of Hamburg has deemed the most expensive research to date that covered an examination of 2200 separate studies. In more than 90% of these studies, it was shown that there was an absence of a negative correlation between corporate financial performance and ESG factors. In the majority of these studies, a beneficial impact was detected. For a sector, the development of metrics of artificial intelligence-enabled did do well as these delivered health returns, even when these did not outperform (Credit Suisse, 2022).  

The 'Fit for 55' climate policy released by the EU earlier this month demonstrates just how comprehensive and extraordinary the effort will be to combat climate change. According to the project's goal of a 33% decrease in yearly carbon emissions in comparison to 1990, the strategy is aiming to reduce emissions by 55%.

There are still significant challenges to be overcome in order to keep global warming from becoming a serious threat to the future of human civilization. If we don't make significant progress in protecting the environment on which we all rely, it will be almost hard to reduce poverty, inequality, or enhance healthcare and education.

Among consumers, voters, legislators, regulators, and some CEOs, there is a broad consensus for action. Two-thirds of world GDP is covered by net-zero objectives at the national level, owing to agreements from China, the United States, Japan, as well as South Korea. A total of 61 per cent of global emissions and 56 per cent of the world's population are covered within this region.

 

Figure 3

As a result of this unprecedented problem, a strong investment opportunity exists — contributing financing to enterprises that can help the world achieve net-zero carbon emissions by 2050. These are firms that are dedicated to supplying the necessary goods and services that businesses need in order to meet their emissions objectives. We think that as their markets continue to grow at a high pace, such environmental solutions firms will perform better over the long run.

Corporate net zero aspirations are becoming more sophisticated, creating a rising seam of opportunity for these businesses. Just over a fifth of the Forbes Global 2000, or 417 firms, with annual revenues of around $14 trillion, have committed to achieving net zero emissions, with the majority of them doing so by 2050.

 

Figure 4

Companies hoping to achieve net zero emissions objectives will need to take a comprehensive 'lifecycle' strategy, which will include addressing upstream emissions (from suppliers) along with downstream emissions, which captures the all-important emission levels from a product's 'use phase.' In addition, organisations like the United Nations' "Race to Zero" have highlighted that such "Scope 3" emissions are indeed an essential rather than the desired component of business net zero objectives, which is a positive step forward. According to a study conducted by the University of Oxford as well as the Energy and Climate Intelligence Unit, almost a quarter of the sales of firms in the Forbes Global 2000 who seem to have a net zero aim already include this lot of transparency.

According to this assessment, this is already starting to send strong signals across value chains, giving possibilities for those organisations who have the required technology to lower the climate complexity of supply chains approaching net zero. In addition, many of these possibilities exist in fields that have made less development than others, such as energy and the automobile industry.

This is going to take some time. The decarbonization of the supply chain is gaining momentum, although it is still uncommon and presents significant challenges. A firm can determine the GHG emissions from its own activities with a high degree of accuracy, but obtaining an estimate of Scope 3 emissions is very difficult, particularly for enterprises with hundreds or even tens of thousands of goods and suppliers.

Many emission-reduction techniques are both costly and difficult to implement for businesses that operate in highly commoditized markets with thin margins and limited prospects for differentiation.

Despite this, we are beginning to see a constant stream of possibilities appear in our direction. There are niches of the market where a slight rise in raw material costs is reasonable, like when a fast-moving customer products business may exchange carbon-intensive materials with less carbon-intensive substitutes. Ingredients businesses in the chemical sector may be able to capitalise on this by increasing their margins significantly if they have a differentiating product that will aid in the transformation to net zero energy production.

An innovative Norwegian business is developing synthetic vanilla flavouring using renewable wood-based ingredients as a replacement for the petroleum-based vanilla artificial sweeteners that are currently used in the food and beverage sector. When compared to the oil-based constituent, the wood-based product delivers a carbon reduction of around 90 per cent throughout the course of its life cycle. The growth rate of this category is considerably over 10% per year, contrasted to the growth rate of oil-based synthetic vanilla, which is 1 per cent per year.

In a conclusion, achieving net zero carbon goals will need the implementation of environmental solutions, as well as we will demand more solutions that are distributed across a wider range of industries. Companies that manufacture or have exposure to these goods and services would have a higher prominence as a result of the haste with which climate mitigation strategies are being implemented. The potential, we feel, is long-term in nature, and they are not restricted to high-profile solutions like electric cars or renewable energy sources.

Environmental solutions including a broader range of possible exposures, including industries and sectors that are now underserved, are expected to emerge in the future. A robust stock-picking environment is also expected to continue to increase over the long run because of the increasing depth and breadth of the opportunity set.

To undertake the present discussion, reference can be made to expert interviews conducted by Ormistona et al. (2015) with impact investors. Damage investments that are indisputably "financial-first" are preferred by institutional investors, who favor investments that aim to maximize financial returns while minimizing environmental impact (Freireich and Fulton, 2009). Economic rates of return are critical to fulfilling fiduciary duties, so risk-reward trade-offs are not compromised. With the adoption of well-established due-diligence procedures, this strategy ensures investors meet their fiduciary obligations. Furthermore, when looking at impact investing through this lens, it is no longer seen as an extension of a company's CSR or philanthropic initiatives, but rather as a profit-generating strategy that may be applied. The risk-reward component of II is not compromised by institutional investors, but the market's development is at a stage where investors must be more versatile than usual in terms of deal size, investment horizons, cashflow, as well as other factors due to the early stage of the market's growth (Ormistona et al. 2015).

Surprisingly, these findings run counter to previous research on financing intermediaries, which shows that both environmental and financial benefits should be considered equally. Investment opportunities that necessitate a trade-off between monetary returns and environmental impacts are not accepted by institutions, despite the fact that investors in this study placed high importance on social impact. Institutional investors must adhere to stricter fiduciary standards than financial intermediaries, which provide them more latitude in considering social implications when making investment decisions (Clark et al., 2014).

The important issue is not whether enterprises have quantifiable good or negative environmental repercussions, but rather whether the investor who consciously targets particular positive environmental returns may attain better financial returns while also achieving greater measurable environmental benefits than is the case. Do efforts to have an effect necessitate a reduction in financial rewards, to put it another way? Is it possible, on the other hand, for an investor looking to support a particular environmental benefit to utilising the instruments of II to produce greater impact per dollar than pure philanthropy while protecting capital more effectively than a grant? A common argument among impact investors is that by integrating the goal of financial gain with the achievement of environmental goals, one may beat both the market and good causes by acting independently in certain conditions. Researchers used this strategy to study the impact of mergers and acquisitions on the telecoms industry's share price and earnings. In the case of qualitative data, content analysis may be performed to identify specific words, themes, or concepts that appear in the dataset (Trelstad, 2016).

The research examines three key areas that play a significant influence on impact investment's aims and practises to obtain an idea of where the sector could go over the next decade for protecting the climate. A little more than a decade ago, the GIIN and JPMorgan and the Rockefeller Foundation presented a paper suggesting that impact investing had been an emerging asset class with assets under management of $400 billion to $1 trillion by 2020. Both the authors of the report and many who read it thought this prognosis was too optimistic at the time (Lamy and O’Donohoe, 2021).

There was no basis for such suspicion. According to GIIN, the market is expected to administer $715 billion in assets by 2020. An even more optimistic estimate of $2.1 trillion was offered by the International Finance Corporation (IFC). We were curious about the trajectory of impact investment in the decade from 2020 to 2030, given the industry's explosive expansion over the prior decade (IFC, 2019).

The best way to address this question is to take a look at a few key patterns. There are a number of reasons for this, one of which is that governments throughout the globe were already grappling with major issues such as the global climate catastrophe, income disparity, gender inequity, and race-based injustice. To meet the Sustainable Development Goals (SDGs) by 2030, we'll need to raise an additional $2.5 trillion annually. Because of this, countries have had to transfer resources and borrow more money in order to prepare for the COVID-19 pandemic's potential hazards, including a worsening of global disparities. As a result, the SDGs have become even more difficult to accomplish. Along with helping to finance SDGs, private impact investment will indeed be critical in finding answers to challenges traditionally associated with the public sector as it grapples with unprecedented and new crises (WEF, 2020).

For the last decade, most of the impact investment was mainly concentrated on the "mitigation" of climate change. Mitigation programmes accounted for 93% of all climate money in 2017 and 2018. Renewable energy sources received the majority of climate funds in the same two years, accounting for 58% of the total. When it comes to investing in climate change and "net-zero" carbon emissions, there are a growing number of possibilities for investors. There are two types of investments: those aimed at mitigating and adapting to climate change and those aimed at capturing carbon emissions (Levin et al., 2019).

Resilience and adaptation:  Adaptation and resistance to climate change are becoming more prevalent in the goods and services offered by companies in smart cities with circular industries. Sustainable water utilisation may be achieved in a wide range of sectors from tannery and paper to steel, for example, by the wastewater treatment company Roserve in India. Wastewater treatment and recycling providers are almost non-existent in Africa, where the firm is extending its operations (Roserve, 2022).

Apart from the revenue generated by Roserve's climate change resilience products or services, other companies are also changing their operations to reduce their potential exposure to pricey climate change risks, earning extra benefits in the process. The coast of Pakistan is being fortified against rising sea levels by a 50MW wind farm being built by a renewable energy business. Zephyr engaged in a programme to save and restore the area's mangrove plants, which act as natural flood defence. Fishermen's incomes will rise as a result of the investment, which will stabilise the soil and attract more fish or other wildlife that depend on trees. The project will also lower the cost of maintaining the infrastructure (Roserve, 2022).

There's a huge funding gap between what's needed to combat climate change and what's now available. More than $300 billion is required each year, yet only $30 million is available. Increasing demands for action on climate change are expected to widen this investment universe in the next 10 years (CPI, 2019).

Sequestration of carbon dioxide:  Net-zero GHG emissions by 2050 are becoming a more common goal for large institutional investors. Possibilities for carbon sequestration would become more appealing as the Net-Zero Asset Owner Alliance's objective grows in popularity. In this respect, the forestry industry stands out. It has the potential to cut carbon outputs rather than merely prevent them, but it must work in conjunction with other efforts to decrease emissions instead of replacing them. It is also responsible for providing a living for more than one billion people all over the world. As a result, investors have responded favourably to the pitch: Global institutional investment in forestry has climbed from $10 to $15 billion during the early 2000s, as per the Principles for Responsible Investment (PRI) (UNPRI, 2019).

The deforestation problem in Kenya, for instance, is being addressed by Komaza by using a technique it terms "micro-forestry." The firm helps tens of thousands of smallholder farmers plant trees on formerly unproductive land for commercial markets to sell as lumber, producing long-term revenue and environmental advantages. Coastal habitats may trap up to 20 times as much carbon as forests do in the seas (Komaza, 2022).

Increasing numbers of traditional asset managers have begun to include impact investing in their portfolios as a result of advances in effective assessment and management over the previous decade. A healthy dose of scepticism about "impact washing" or claiming an investment's benefit when it isn't deserved, has risen as a result of the heightened focus. More listed investment vehicles and better monitoring and standardisation are required to allay investor concerns about the integrity of impact investing during the next decade.

Capital markets tools that may help institutional investors meet their liquidity demands are being developed. New green bond issuances announced by Germany and the United Kingdom have helped push the market above $1 trillion. Investors' increased desire for impact in publicly traded securities is being leveraged by new bonds tied to social goals, including the $1 billion offering from the Ford Foundation. To fund the SDGs, it is possible to establish collateralized loan obligations (CLOs), securitizations of development financing risk (SDRs), and special purpose acquisition vehicles (SPACs), all of which are better suited to the size of institutional investors.

The financial architecture of the instruments is increasingly being linked to results in these offerings. There will be more arrangements with impact incentives, like loans or bonds, which modify terms according to how much they help the attainment of sustainable objectives. Investors will be drawn to these structures in the future because of their simplicity and accountability, as well as their capacity to achieve both impacts and return goals.

It is clear that impact investment has enormous potential in the next decade, but achieving success in this industry will remain difficult. With increased rigour and depth of verification methods, impact investors will confront even greater responsibility for generating financial rewards alongside improvements on social and environmental challenges. In the long run, taking a chance is more rewarding than not taking a chance. Over the next decade, there is an enormous opportunity for advancement in the areas of inclusivity and sustainability. We can only hope that, just as the bold predictions from 2010 proved correct, impact investing will continue to make considerable progress in the fight against climate change in the next decade.

To put it in a concise manner, sustainable investing can be deemed smart investing. With the continuous evolution of the market, public and government view of corporate behaviour, the nature of finance change everything, particularly when coupled with the ESG criteria becoming an increasing part of performance assessment. There has been a rise in sustainable and impact investing, which shows that there is a growing conviction regarding changing the world so as to make it more responsible and to make the investment an opportunity. The most substantial growth in this regard is the one being undertaken in UN SDG that relates to thematic and impacts investing. The focus of these is on the measurable high impact solutions. In comparison to the more-established sustainable investing strategies, the UN SDG-thematic and impact investing market is small. Yet, there is a big potential for mobilizing the capital for projects, which bring financial returns and also bring benefits to the environment.

The focus of thematic and impact investing is on targeting such companies that cover the mission of contributing to the specific UN SGDs. This matter is further pushed in terms of pure impact investing goes further, as the focus of such investments reflects a direct contribution towards environmental or social impact in a positive manner. An example of this can be seen in the private markets funding the growth of impactful companies or through the listed equities' shareholder engagement. With such investments, the investors are able to engage with the innovators in an active manner, irrespective of whether they are institutions or individuals. Such start-ups or forward-thinking entities can drive the decarbonized economic growth, as well as, can forward the circular economy.  The range of engagement levels would be from the company mission's input to its active ownership. At the core of the impact investment market, are the private equity and private debt, which has increased from 2018 to 2018 by 737% at a figure of over $502bn in assets (Credit Suisse, 2022). This reflects the commitment of players towards climate change, so as to create a positive image in eyes of stakeholders, thereby pushing the long-term growth of the company.

Chapter 5: Conclusion

The research was aimed at showing the importance of impact investing in the climate change era from a perspective of challenges and opportunities that were presented in this regard. The secondary sources used in this research allowed interpretivist approach to be adopted to answer the research questions. The research question was to see the challenges and opportunities that contributed to impact investing. In the context of the opportunities, one cannot emphasize enough that working on climate change is the need of the hour. This duty is reflected in the concept of CSR, and in working on ESG investments, the investors are able to adopt a futuristic view. It cannot be denied that regulations pertaining to climate change are only going to get stricter. Thus, where the companies are able to take a proactive approach and work in this regard, they will be able to create an image in the eyes of the stakeholders, which is positive as it gives the idea that the company is committed to resolving this grave global concern. Climate change is impacting the world and when people are able to see that a company invests in climate change initiatives, they leave a lasting image on these stakeholders' minds.

The role of investors becomes very significant here. Without impact investing, the world will not be able to reach the goals set out under the Paris Agreement and the efforts to the lies of UN SDGs would all go waste. The magnitude of investments that have been made in this regard, along with the initiatives of GIIN referred to above, show that steps have been taken in this regard. The focus is to invest in measures that can bring down the carbon footprint. This is also beneficial from the perspective that the company, by helping the environment, would also be able to attain its climate financial obligations. One can also deem impact investing as a trend and try to garner the positivity of stakeholder outlook by working on climate change. The impact investment would also pull the globe towards the companies and could put them in a leading position. Even more than that, the need is to work on resolving climate change and finance is the key here.

Impact investing has not only an opportunity but also poses certain risks and challenges. For impact investing, there is a need to access the resources, which often becomes a tough task. In this regard, there is a need to check the competencies and skills of the present investments and philanthropic activities. This is because impact investment in climate change requires the proper knowledge and understanding of how the different stakeholder groups get impacted by the decisions of the investors. Only when this is done, can the companies understand the effectiveness of their present measures, the required measures and the impact, which such suggested or future measures would have. This impact has to be such that contributes to climate change in a substantial manner, so as to make the impact investment useful. There is also the possibility of commitments being shown on one hand and breaches being undertaken in this regard. Thus, where a double standard situation is attained, all these efforts of impact investments are laid waste. The value alignment is thus to be done for impact creation. In reality, the relationship or correlation between impact investing and climate change, as being a positive measure for companies, is also not clearly established. The benefits mentioned above are literally works and estimates and conclusive studies are yet to be undertaken to truly show that impact investments in climate change context do prove beneficial for the companies.

Irrespective of the positive or negative impact that impacts investing has on the company's financial position, one cannot deny the fact that there is a dire need for measures to be taken to deal with the problem of climate change. Even if these measures prove costly or not that profit bearing, the significance of climate does not need to be restated. There are also chances that the companies who invest in climate change right now prove to be high cost, in comparison to such investments later on, with more companies being brought on board. In order to deal with all these challenges, the need is to align the financial goals of the company with the goals of the environment and to attain harmony between the two. The targets set by different entities for bringing down the carbon emissions thus have to be worked on. Undermining climate change is not an option as ignoring this would cause poverty and inequalities, which are difficult to tackle. Furthermore, the access to education and healthcare provisions would also be impacted if the environment were damaged any further. This is the reason why the theme of net-zero is among the leading measures adopted by the nations to address the climate change problem.

Hence, there is a need for global efforts to be increased towards impact investing for climate change. This would allow for the resources to be pulled together so as to deal with the challenges posed by climate change. The world is changing and there is a need to reflect this change in a positive manner so as to make the trend of impact investing bigger and to fast track, the measures of combating climate change. The SDGs and Paris Agreement would all remain a paper document unless real-time commitments are attained. Impact investment is an effective strategy to deal with insufficient finances, which essentially proves as a hurdle. The future prospects of impact investment do seem positive. Impact investing provides a new mode of approaching the previous challenges posed by climate change. In short, there is a need for investors to consider being involved in impact investing so that the challenges of the present can be eradicated, for a sustainable future.

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