Making money and making a difference do not have to be mutually exclusive. That’s what impact investing is all about.
The Global Impact Investing Network defines impact investing as solving “social or environmental challenges while generating financial returns, which can range from producing a return of principal capital to offering market-rate or even market-beating financial returns. Impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise.”
Impact investing is similar to socially responsible investing, by which investors put their money where their core beliefs are: They support public companies that are in sync with their environmental views, religious beliefs or notions about social justice. The impact investing market is expected to grow from $50 billion today to about $500 billion in the next decade, according to the Microfinance Exchange and the Monitor Institute.
Impact investing focuses on private equity or nonprofit projects.These companies may not engage in the sustainable business practices that are of paramount importance to socially responsible investors, but they are providing solutions to urgent environmental and social challenges in developing countries or inner city neighborhoods.
“While much socially responsible investing tries to change or reward the practices of publicly traded corporations, impact investing affects society on a neighborhood or micro-level by helping families, strengthening small businesses or building housing,” Justin Conway, a relationship manager at the Calvert Foundation in Bethesda Md, told Financial Planning magazine.
Using one’s wealth to help others is a priority for just over 41 percent of investors with a net worth between $5 million and $25 million (not including primary residence). Of these, nearly half are seniors over the age of 64. In less affluent households with a net worth between $100,000 and $1 million, just over a quarter (28 percent) share this attitude, but of these, this noble impulse is felt more keenly by the younger investors ages 54 and under,
An illustrative example of impact investing cited by FP is the case of EcoEnergy International, a developer of renewable energy, including hydro, wind and coal-carbon capturing. In 2004, Trillium Asset Management invested $1.5 million on behalf of six clients that wanted to devote a portion of their portfolios to improve the environment. When EcoEnergy was sold to Suez Energy in four years later, the investors made two and a half times their investment while at the same time benefiting society.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.