Impact Investing: Definition, Process, Trends (2023)

Impact investing has become increasingly popular in recent years, as investors seek to generate financial returns while also making a positive impact on society and the environment. In particular, impact investing in sustainability-focused startups has the potential to make a significant contribution to creating a more sustainable future.

Sustainability-focused startups are those that prioritize environmental and social impact as core components of their business model or product/solution they are looking to bring to market. These companies seek to solve some of the most pressing issues facing the world today, such as climate change, resource depletion, and social inequality. Impact investors are drawn to these startups because they offer the potential to solve problems they are passionate about, whille also offering a potential for financial returns.

This sector has shown steady growth in recent years; globally, the impact investing market grew from $420.91 billion in 2022 to $495.82 billion in 2023 (a 17.8% compound annual growth rate). 

One of the major drivers of that growth is the increase in Millennial investors. According to a 2022 survey by Fidelity Charitable, 61% of Millennial investors have made at least one impact-driven investment. 

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Of those who have not, 40% still expect to do so in the future. And interestingly, across all age groups, the survey found that investors will look to expand their allocations towards impact investing in the coming year. Here’s why:

Why investors choose to back sustainability and greentech startups

One of the key benefits of impact investing in sustainability-focused startups is that it allows investors to align their investments with their values. Many investors are increasingly concerned about the impact of their investments on the environment and society. By investing in sustainability-focused startups, they can ensure that their money is going towards companies that are making a positive contribution to the world. In fact, Fidelity Charitable’s survey found that this motivation makes impact investing highly satisfying for those who participate: 
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Another benefit of impact investing in sustainability-focused startups is that it can help to drive innovation. Many sustainability-focused startups are developing new technologies and business models that have the potential to transform entire industries. By investing in these companies, impact investors can help to bring these innovations to market and accelerate the transition to a more sustainable economy.

Impact investing trends to watch in 2023

As we move further into 2023, sustainability-focused startups continue to gain momentum as they tackle some of the biggest challenges facing our planet. With climate change and resource depletion becoming increasingly urgent issues, these startups are driving innovation and creating new opportunities for investors to make a positive impact. Here are some of the hot subsectors to watch in the greentech space this year.

Circular Economy Startups

In 2023, circular economy startups will continue to grow in popularity. These startups aim to create a closed-loop system in which waste is minimized, and resources are kept in use for as long as possible. From recycling and upcycling to product-sharing platforms, circular economy startups are developing innovative solutions to reduce waste and increase resource efficiency.

Carbon Capture and Storage Startups

With the urgent need to reduce carbon emissions, carbon capture and storage (CCS) startups are also gaining momentum. These startups are developing new technologies to capture carbon dioxide from industrial processes and store it underground or repurpose it for other uses. With governments and corporations increasingly committing to net-zero emissions, CCS startups are likely to see significant investment in 2023.

→ CASE STUDY: Carbon Streaming’s $104.9M Raise

Sustainable Agriculture Startups 

Sustainable agriculture startups are also poised for growth in 2023 as the world faces mounting food security challenges. These startups are developing new technologies and farming practices that reduce the environmental impact of agriculture and increase productivity. From precision agriculture and vertical farming to regenerative agriculture and alternative protein sources, sustainable agriculture startups offer a range of solutions to create a more sustainable food system.

Green Energy Startups

As renewable energy continues to grow in popularity, green energy startups are also on the rise. These startups are developing new technologies to increase the efficiency and reduce the cost of renewable energy sources such as solar, wind, and hydro. They are also exploring new energy storage solutions to make renewable energy more reliable and cost-effective.

Electric Vehicle Infrastructure Startups

As the demand for electric vehicles (EVs) continues to grow, we may see more developments in EV charging infrastructure in 2023. Companies are investing in technologies to make charging stations faster and more efficient, and we may see advancements in wireless charging and battery-swapping technologies.

Waste-to-Energy Technologies

Waste-to-energy technologies, such as anaerobic digestion and gasification, are being developed to convert waste into energy sources. In 2023, these technologies may see further development, as they offer a sustainable way to dispose of waste while also generating energy.

In conclusion, impact investing offers a unique opportunity for investors to generate financial returns while also making a positive impact on society and the environment. By aligning their investments with their values and supporting innovative companies that are working to solve some of the world's most pressing challenges, impact investors can play a key role in building companies and brands that are focused on sustainable solutions - thereby creating a more sustainable future.