What is Impact Investing and Why Should You Start Now?
Impact investing is a modern form of investing where you use your investment dollars to support the changes you want to see in the world.
When putting together a portfolio, many investors simply look at potential risk and returns. But when you really think about it, there’s a whole other layer to where you invest your money. With every investment you make, you’re putting money toward the companies you value and which causes you believe in.
Whether you’re new to investing or a seasoned pro, your investments indicate what you support. Taking this broader and more socially conscious view of investing means you’re investing with impact.
What is Impact Investing?
Impact investing is a modern form of investing where you use your investment dollars to support the changes you want to see in the world. Many impact investment funds focus on environmental, social, and governance (ESG) issues, specifically going to companies that are creating meaningful and positive changes in those areas.
For example, people who are interested in impact investing would be inclined to invest with a company committed to reducing its carbon footprint by half in the next 10 years. They may also seek out investment opportunities in a business that’s pledged to provide housing for the homeless in their community, and/or a shipping conglomerate that’s vowed to adopt an emissions-free fleet by 2030.
Think of impact investing as an investment strategy where you would only invest your dollars in companies that are working to make sustainable, meaningful differences toward the causes you care about. Business as usual isn’t enough. The goal is to invest in companies with dedicated business practices that make a positive impact on the issues that matter.
Impact investing is:
- Beneficial – It’s money invested intentionally to result in positive social or environmental change.
- Proactive – Impact investors make forward-looking choices regarding where to invest their money, all in the service of making tangible change toward the causes important to them.
- Communal – Impact investing focuses on the greater good, not just the greater returns.
How Is Impact Investing Different from Regular Investing?
When you invest your money without doing research into the types of companies in your portfolio, there’s a chance your money could support businesses engaging in practices that don’t represent your values. You may be investing in a company that has unsafe manufacturing conditions, for example, or in businesses that pay women significantly lower wages than men. Regular investing strategies typically don’t take causes or other change areas into consideration when building an investment portfolio.
Alternatively, impact investing requires a more aware approach. When you decide to use your money for impact investing, you know in advance that your money is working to support the causes important to you.
Is Impact Investing the Same as Socially Responsible Investing?
People may use the terms “impact investing” and "socially responsible investing" interchangeably, but there are subtle differences.
According to Investopedia, impact investing can be considered a “subset of socially responsible investing”, with impact investors’ tendency to be proactive being the key differentiator. While socially responsible investing typically refers to investments that do no harm and can be passive, impact investing actively seeks to make change.
Why Should You Start Impact Investing?
Impact investing is a potentially seismic way to address the planet’s looming challenges. In a recent Forbes interview, Ibrahaim AlHusseini, founder of The Husseini Group, noted that “in the past, the prevailing narrative was that money must be left to grow unencumbered by the wealth holder’s values. Now we have the choice to make equal or larger returns while we solve real social or environmental problems at the same time.” It’s the power of multiple voices, speaking together, to demand corporate accountability and real change.
In the past, impact investing opportunities have been limited to investors with large amounts of money. While many direct impact investing opportunities are still limited to high net worth investors, there are many ways to invest with impact even if you are just getting started.
So, why should you start impact investing?
If you want your money to not just grow, but really work toward influencing sustainable change with the environment and social equality, you may want to consider impact investing.
If you’re a problem-solver who loves tackling big challenges, impact investing may be right for you.
If you want to encourage businesses to make sustainability-driven, long-term decisions that will also boost their bottom line, impact investing may be a wise choice.