What is Impact Investing? | Net Impact

What is Impact Investing?

What is Impact Investing? | Net Impact

Historically, investing for most people has typically involved an investor choosing good and profitable companies that would likely continue to be good and profitable. The investor then bought that company's stock, hoping they had made the right call. For today's more socially aware investors, that way of investing is simply not enough; they also want to influence social and ethical practices.

Impact investing

According to the Global Impact Investing Network, impact investing is investing with the intent not only to make money for the investor, but also to create a measurable benefit to society. Impact investors are trying to make a social or environmental impact through their investments rather than just make money for themselves. Depending on a particular investor's goals, they may seek returns that are above or below the market rate or be less concerned about returns at all.

Impact investments can be made in emerging markets (e.g., third world economies) or developed markets (Western-style capitalist economies). The people who make impact investments are known as impact investors, and they aim to put their money into areas such as the following:

  • Affordable housing
  • Healthcare
  • Education
  • Renewable energy
  • Sustainable farming

Social impact investing

Also referred to as socially responsible investing (SRI) or ESG (environmental, social and governance) investing, social impact investing isn't just a new tactic. These intentional investors tend to be much more interested in seeking SRI or ESG investments rather than just purchasing what looks like a good stock. Women and millennials, who are holding an ever-increasing percentage of the world's wealth, are generally more likely to focus on social impact issues when making investment decisions, supporting the continued growth in this area.

When and where did SRI come from?

Impact investing really isn't all that new. As long ago as the 19th century, the Methodist Church refused to invest inslave- and tobacco-related industries and similar companies. The Vietnam War of the 1960s and 1970s saw a resurgence of themed investments, with student demonstrators trying to force disinvestment from war-related industries. A similar disinvestment pattern was highly effective against Apartheid in South Africa. In other words, highly aware investors who examine the nature and conduct of the companies they invest in have been around for some time. However, the last decade or so has seen rapid and explosive growth in impact investing. Today's estimates of the size of the SRI market range from $715 billion to $12 trillion.

Ways to get involved

There are a lot of ways to get involved in impact investing. Investors can choose from:

  1. ESG mutual funds.
  2. Fund of funds focusing on impact investments.
  3. Customized impact investment platforms with large broker-dealers.
  4. Venture capital funds focusing on ESG investments.

Impact investing can also be fostered through exploring career opportunities such as those in sustainable agriculture, environmental industries, education, healthcare, and affordable housing. Local groups engaging in ESG- and SRI-investment-related projects can also be effective.

Get more information

Regardless of the path a person chooses when seeking to work toward socially responsible investing, knowledgeable guidance can be tremendously helpful. Learn more about impact investing with Net Impact’s career resources.