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How Small Businesses can Join the Impact Investment Trend

By: Carla Chinski

Twitter: @carlachinski

Post Date: 2024-01-29

Can Small Businesses Invest in Social Good?


According to a whitepaper by The Case Foundation, “Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.” 

Impact investing has emerged among the pursuit of profit with its imperative of positive social and environmental change. Among a larger societal claim for corporate responsibility, and traditionally dominated by large corporations and heavyweight investors, this realm is now witnessing an increased interest from an unexpected quarter – small businesses. The question that arises is whether these smaller entities can really invest, to not only thrive economically, but also contribute meaningfully to ecological and green investment initiatives.


It’s possible that business owners are more insecure about where their money goes; according to many related articles, one “might consider investing in low-risk investments if you have a shorter time horizon. Savings bonds, money market funds, and GICs offer modest, low-risk returns, but they are easier to turn into cash. Higher-risk investments may appeal to you for their higher potential returns.” Is there a possibility for low-risk, small investments to incentivize growth?


According to Forbes, it is. However, investment trends for small businesses are not exempt from economic shrinking and inflationary tendencies. Savings, smaller stocks, and low-risks are in. This has two main consequences: first, this benefits small businesses because it’s far more doable than high-risk, long-term with high returns. Second, more big companies want to jump on that bandwagon–producing, thus, less availability of small stocks.


The Current Landscape of Impact Investing


Impact investing has grown exponentially, with an estimated $715 billion in assets under management globally. Small businesses, traditionally sidelined in the investment narrative, are now emerging as vital players in this domain. Their agility and community-centric operations position them uniquely for impactful ecological ventures.

Reports like the one done by Symbiotics on small enterprise impact investing highlight how small businesses are not just beneficiaries of impact investments but also contributors. 


Regarding the contribution for investments, the way in which small businesses add value is a way for big businesses to invest in smaller ones by, for example, outsourcing their production line or using raw materials from local producers. In short, they often lead in adopting sustainable practices, thereby influencing larger market trends. 

Meanwhile, platforms like Honeycomb Credit demonstrate how small businesses can tap into community-focused impact investing, blurring the lines between investors and beneficiaries.

Challenges for Small Businesses in Impact Investing

Despite the growing interest and potential, small businesses face unique challenges in the realm of impact investing. Firstly, there's the issue of financial constraints. Unlike larger corporations, small businesses often operate with limited capital, making it challenging to allocate funds for impact investments. Moreover, the lack of access to larger networks and investment opportunities further exacerbates this challenge.


Secondly, there's a knowledge and resource gap. Many small business owners are not fully aware of the mechanisms and benefits of impact investing. This lack of awareness, coupled with limited access to specialized expertise, poses a significant barrier. The Symbiotics report we’ve mentioned, and insights from Calvert Impact Resources, underscore these challenges, highlighting the need for more inclusive and accessible impact investment opportunities tailored to small businesses.

Opportunities and Strategies for Small Businesses

Despite these challenges, there are significant opportunities for small businesses in the impact investment landscape. To begin with, small businesses can leverage their community roots and flexibility, through strategic partnerships, collaborations, and much-needed diversification. They are often more agile and can adapt quickly to sustainable practices, which is advantageous in and of itself.

That explains why many platforms today offer small businesses a way to engage in impact investing through community-focused initiatives. 


These platforms can bridge the gap between small businesses and investors, fostering a symbiotic relationship where both parties benefit, marrying tech, local production, and finance. Furthermore, small businesses can look to form alliances and networks that provide the necessary knowledge and resources. Collaborations with NGOs, government programs, and impact investment funds can offer the support needed to navigate the complexities of this investment sphere. In the long term, the benefits of engaging in impact investing are manifold, though they are still not a tried-and-true trend.

The Road Ahead for Small Businesses in Impact Investing

Looking forward, the trajectory for small businesses in the sphere of impact investing is promising. With increasing awareness and the growing emphasis on sustainable practices, small businesses are well-positioned to play a crucial role. Technological advancements and innovation will further aid small businesses. Digital platforms can provide easier access to impact investment markets, while advancements in sustainable technologies can offer cost-effective solutions for small businesses to adopt green practices.

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