What’s Impact Investing and who is it for? Good questions.
By Christen Graham, President, Giving Strong, Inc.
I’ll bet you don’t know much about Impact Investing. That’s okay, you’re not alone. According to a 2013 poll conducted by the CFA Institute not even financial advisers are clear on what it is — only 14 percent said so — yet retail and institutional investors are asking for it.
What is clear from both this poll and a multitude of events this spring is how few professionals know where to start. While there might be a generally accepted definition for what it is (the Global Impact Investing Network says: Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return), the ways to invest and the ways to make impact are varied. Here are some good things to know:
Everyone can be an impact investor. From the hard working millennial and newly liquid small business owner to foundations and other endowment managers, you have the ability to deploy your hard working capital toward making social change. Ask your financial advisor about “ESG funds” in your retirement portfolio. The acronym stands for environmental, social and corporate governance considerations in your portfolio. Think of it as socially conscious investing. Pax World is among the pioneers in this space which has spawned a number of recent options for investors.
For the affluent, foundations and institutions there is another option: direct impact investments. The choices seem endless, and all calculate a fiscal return, from direct funding community renewable energy projects and sustainable farms to financing mission-focused start ups that have a shot of being the next Tom’s Shoes or Revolution Foods. Indeed next generation affluent are increasingly recognizing this investment path for social impact in addition to philanthropy as it satisfies a desire to give back, an ability to participate in the mission and a way to have a meaningful day job too.
This segues into a collaborative Impact Investment model that brings together philanthropists and foundations with business and government. Fashion designer Tory Burch created the Tory Burch Foundation to support the economic empowerment of women entrepreneurs and their families. They are among the latest to use a federally approved Community Development Financing (CDFI) model to sponsor communities of women entrepreneurs. Similarly a Maine-based CDFI offers a pooled community fund, CEI Investment Notes, to finance high impact micro, small and medium businesses ventures in the state.
Micro finance is another direct Impact Investment option for more modest sized investment accounts. Kiva is among the best known global microfinance lenders. Kiva provides the public a platform to make a loan to help support a small business in an impoverished community. As they put it, microfinance is the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services.
These are merely the tip of the iceberg. For every impact one wants to make, there is an option for how to invest in making it happen. While how to practice Impact Investing is still evolving, one thing is certain — it is not charity. Those who make an Impact Investment are still taking a risk — past performance is no indication of future, right? Will the portfolio perform, will the mission-driven business succeed, and will the entrepreneurs make it? These are the same questions for any investment, yet the idea of Impact Investing is that should the risk pay off, the rewards are reaped in more than dollars but in community development, healthy environments, educated students and more.