A Short Guide to Impact Investing
Anyone who’s ever gotten into investing knows private capital is essential for many companies to thrive, from startups to well-established organizations. It’s a powerful force in business, for sure.
And surprisingly, that same capital can also be a major force in bettering the world. It’s called impact investing. In other words, people invest their money in companies and other organizations that will provide a financial return for them while also actively trying to solve a social, economic, or environmental issue.
It’s not enough to just have a zero-harm policy (which is the essence of socially responsible investments). These investments must be directed at somehow creating a change.
A 2014 study by J.P. Morgan and the Global Impact Investment Network found that among 125 foundations, major fund managers, and development finance institutions, the amount of sustainable investments under management exceeded $45 billion, up 20 percent from the previous years. That number and the opportunities for impact investment are only going to increase as more and more socially and environmentally conscious entrepreneurs—particularly millennials—enter the marketplace.
So What Exactly is Impact Investing?
The term was first coined in 2007, when the Rockefeller Foundation gathered a group of investors and philanthropists together to discuss new ways how to use private capital for the greater good.
Impact investments happen in both developed and developing nations. Some are focused on the environment, while others might be focused on improving economic conditions for impoverished people, and others might work on making housing, healthcare, or healthy food more accessible for the disadvantaged. Micro-loans are one example, as well as companies that provide solar power sources in
There are a few defining elements to such an investment:
- Intent: There is a clear, defined purpose and intent to have a positive effect on the environment or social conditions.
- A return: At the very least, you can expect your capital to be returned to you, but typically you can also expect an added return. Depending on the nature of your investment, this might be at market rate, or it might be at a lower, concessionary rate.
- Measurability: The organization should be able to define the contribution it has made and provide real, quantifiable numbers.
Impact investing is widely regarded as a powerful tool—alongside general philanthropy and government interventions—to enact real change at the global level.
How Can You Get Involved in Impact Investing?
With the increasing popularity of impact investing, it’s really no surprise that a variety of online communities have cropped up to enable more people to get involved and to better serve growing organizations. Some of those include:
Learn more about impact investing at any of these sites. Are you ready to start making a difference with your investments?
