Make your money work for you. It’s something we often hear when the finance industry markets its products and services. However, in recent years, something interesting has begun to happen. Not only can you make your money work for you by earning interest in savings accounts or investing it in mutual funds or ETFs, but you can also make it work for the greater good.
Gregory Casagrande is a serial social entrepreneur based in New Jersey. He worked for much of his career in big corporations in the motor industry before making the leap into microfinance and impact investing. He founded the SPBD Microfinance Network, MicroDreams Foundation, and the Ice Angels, and has served as Chairman on numerous boards for companies focusing on affordable clean drinking water, bioinformatics, online education, and microfinance investing. For Casagrande, making a social impact, in underdeveloped and underserved markets, is a passion.
Like a growing number of investors, Casagrande believes in the importance of economic opportunity for all. This is what drew him to his successful career championing the underdog through the provision of tailored financial and educational services for the poor in the microfinance sector. But for those who want to make a difference without changing career paths, impact investing is an excellent way to realize the change you want to see in the world.
The Goal of Impact Investing
“The goal of impact investing is to generate positive change,” says Casagrande. The impact investor is investing in companies that fully embrace, as a part of their mission, advancing a key social objective. That may be providing affordable clean drinking water to poor families in India and Africa, or empowering women micro-entrepreneurs to start small income generating businesses to enable them to rise up and be permanently out of poverty, or providing online tools to help molecular biologists more easily advance basic research in understanding the genetic components of the world’s most pernicious diseases. Impact investing directs capital to companies that are in these sorts of spaces. These companies armed with the financing provided by the impact investor will ultimately drive the social change that the investor seeks.”
Impact investors characteristically have good intentions to either have positive social or environmental impact, as Casagrande notes. But they also have clear expectations when it comes to a financial return. In impact investing, the goal is usually to achieve what is called “market-competitive” returns, meaning they generate financial returns competitive with other comparable forms of investment. There is an expression of both “doing well and doing good” Casagrande says.
However, in some cases, an impact investor may value the social or environmental change more highly than the financial return, which results in more modest financial goals like below market returns or simply regaining the invested capital (or “breaking even”). “It’s important to establish your own financial and impact goals as well as to understand your own tolerance for risk before searching for the appropriate vehicle for your money,” advises Casagrande, a seasoned impact investor and entrepreneur himself. “Once you know what you hope to achieve and what level of risks you are willing to take, then you can seek out funds and investments with similar goals.”
It’s important to note that impact investments have a commitment to the investor to measure and report the social and environmental performances of the investment as well as the financial performance. This supports both accountability of the fund’s manager and helps further develop the category of impact investing. These reports can help investors ensure their goals are aligned with the fund’s and can also help inform investment decisions going forward.
The Bottom Line
“There has been increasing interest in impact investing in recent years as the goals and priorities of investors evolve,” says Casagrande. “We are becoming aware that thoughtfully designed businesses can be positively transformational towards improving our world in so many different ways.”
Casagrande notes that “developing business models that creatively address chronic societal problems in a way that is both financially sustainable and scalable gives rise to numerous impact investing opportunities.” Many investors are taking note and love the fact that their investment money can be both invested for the common good while still generating a reasonable return. Even bigger organizations than you might think are getting on board. Many groups have decided that impact investments should be a part of most large investment portfolios. Banks, pension funds, financial advisors and wealth managers often choose to offer impact investments in order to demonstrate their value to clients in a competitive market. Institutions and foundations choose these investments to promote their core goals. Many impact investors will also point out that impact investments are generally less correlated with other financial assets and so are a helpful addition to many portfolios.
Perhaps the best news is that, according to a 2019 survey conducted by the Global Impact Investment Network, the performance of impact investments overwhelmingly meets or exceeds the investors’ expectations for both social and environmental impact as well as financial return. Evidently, you can make your money work for you in more ways than one.