Impact investing and blockchain technology
Impact Investing is a kind of investment that will be done with the intention of generating measurable social or environmental impacts alongside financial returns. Considering the size of the market that impact investing hit in the year 2022 which is $1.164 trillion, it is gaining signification attention from investors to achieve both social and financial returns.
Since impact investing is gaining attention and going to house trillions of investments and investors like now, it will be better if the functions of impact investing are reimagined by revolutionary technologies and the only technology that qualifies for the position is Blockchain. That is why in this blog, we are going to explore the role of blockchain in impact investing and how it is going to help drive positive social and environmental outcomes.
So, let’s get started
Role of Blockchain technology in Impact investing
Better measurement structure and transparency
Blockchain is a decentralized ledger technology that stores the data after a stringent verification and the data stored in the blockchain is immutable. Therefore, it can be used as a trust machine in impact investing.
For projects, Blockchain technology will serve as a source to measure the impact. For investors, it allows them to track the investment progress and demand accountability. For instance, if a farmer in a particular location wants to raise funds for improving his/her cocoa form and get investment. Investors of the project can track the progress of the investment including the utilization of funds, expansion of the farms, and generation of new jobs using data provided by the farmer and a proven authorization by the blockchain. From organic certification to outcome measurements, everything is possible even in the most granular format with blockchain technology.
Extending access and improving the community
Another advantage of utilizing blockchain development in impact investing is how it increases the range of investors and democratizes investment implementation.
Tokenization is a potential use-case of the blockchain which can be used to the fullest in impact investing. Blockchain-enabled tokenization is the process of issuing digital contracts that back real-world assets or impact. The prime example of this is tokenizing the shares of the project like water sanitation or women’s financial inclusions. It will create a better marketplace in the impact investment and give positive externalities to price the tokens easily.
It also enables increased liquidity where the tokens can be bought, sold, and traded easily, and allows the investors to quit the investment at their own comfort. In addition to all these things, tokenization brings a broader range of investors to the table which includes the investors who are previously excluded due to some high investment qualifications or other institutional barriers. Fractionalizing the assets will make it happen, where investors own the tokens that represent the portion of impact investment and share the profits.
Increasing efficiency for maximum impact and benefits
Since blockchain is a distributed ledger that is transparent and open to all in the network, all investors involved in the specific investment can have access to the decentralized information. This forms the key aspect for the successful automation of functions.
The best example of this kind of network is blockchain-enabled smart contracts, where self-executing treaties can be formed with the conditions directly embedded in the contract. These smart contract-enabled treaties can automate various functions like asset transfers, the release of funds, and the tracking of performance metrics on published data. As a result, it saves the time spent on manual tasks, decreases the need for intermediaries, reduces transaction costs, and executes the impact investing deals faster.
Reduced corruption and fraud
The data stored in the blockchain is immutable, i.e., highly resistant to changes and no other hackers can easily steal the data as the verification method of blockchain is very stringent.
With this trait of blockchain, it can be used in reducing fraud and corruption in impact investing. As the blockchain is designed to be immutable, it is virtually impossible to change the data that is already stored in the blockchain. This makes it more difficult for the cyber villains and hackers to manipulate the transactions, and investment records or misdirect funds to their accounts.
Hence, with blockchain utilization in recording investment data, investors can be confident and stay peaceful about transferring their funds for the intended purpose.
Now we have come to the end
Blockchain technology and Blockchain development for impact investing can reimagine the industry by improving accountability, trust, and transparency and reducing fraud and corruption, increasing efficiency and accessibility, improving impact measurement and reporting, and giving rise to tokenization.
Hence with the blockchain integration in impact investing, investors can more effectively and easily invest in potential projects to generate positive environmental and social outcomes. Since the technology is relatively new and has less utilization, it is evident that blockchain technology has the potential to become the next big thing in the world of impact investing.
