There is doing well and there is doing good. Impact investing affords investors the opportunity to achieve both goals.
Impact investing targets social or environmental challenges while generating financial returns. “Impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise,” according to the Global Impact Investing Network.
It should not be confused with socially responsible investing, notes Thomas Kostigen, the New York Times bestselling author and writer of an impact investor blog for Financial Advisor.com. “SRI is largely passive,” he told Millionaire Corner. “It utilizes filters to create a customized portfolio that (correlates) to one’s beliefs or predilection (for example, not investing in companies that produce alcohol or tobacco). Impact investing is active. It’s going into a developing world in a very kind of Indiana Jones way to throw money and resources at social enterprises to create an impact. In doing so, it forges the destiny there and promulgates the economy or the local community to a better life.”
Kostigen, a journalist for more than 25 years, writes “The Ethics Monitor” column for Dow Jones MarketWatch. His books include the seminal The Green Book: The Everyday Guide to Saving the Planet One Simple Step at a Time, which became the go-to guide for the Green movement. His latest book, The Big Handout: How Government Subsidies and Corporate Welfare Corrupt the World We Live in and Wreak Havoc on Our Food Bills, was published in October.
Kostigen had written extensively on sustainability and social issues from a policy level, but he compelled to “do something more” after working on a documentary in Ethiopia for Artists Against AIDS Worldwide in the 1990s. In a refugee camp, a 10-year-old girl approached him and asked for a pencil. She wanted to do her homework, she said. Her goal was to become a doctor so she could return and help the people in her village,
“I decided I needed to do something more tactical in manifesting my writing and how people could actually use what I do to affect their lives in a positive way,” Kostigen said. That led to The Green Bookand You Are Here: Exposing the Vital Link Between What We Do and What That Does to Our Planet, published in 2008.
“That simple action and seeing how helping someone else and what the possibilities of that to help the world changed not only my life and my life path but I believe in turn it has had this ripple effect,” he said.
Impact investing has been around in different forms and with names such as “mission investing.” In October 2007, the not-for-profit Global Impact Investing Network was conceived when the Rockefeller Foundation gathered a small group of investors to discuss the needs of the emergent impact investing industry, according to its website.
That group expanded In June 2008, to include 40 investors from around the world, who endeavored to tackle social and environmental challenges in a way that would have a lasting impact.
Impact investing is higher risk, but with high risk comes higher social impact and potentially higher returns. Projects “are all over the map,” ranging from the sustainable harvesting of forests to establishing eye care centers in developing worlds to creating a mobile banking infrastructure in rural Mexico.
It is currently pitched to the high net worth investor, perhaps younger, high-tech entrepreneurs, who, Kostigen observes, “have been exposed to more social issues because of social media and want to do good. The Bill Gateses of the world; that’s the profile.”
Impact investing seeks to affect real change as opposed to charitable donations that in many cases can only provide relief in times of natural disasters or emergencies. “It’s giving food to people when there’s a drought or famine and then leaving when things get better,” Kostigen said. “But then they’re right back in the same situation. Philanthropy often only has a life cycle of how much money you have at the moment. And as we’ve seen with everything from colleges to major museums, when the market goes down, those pledges go away. If they were sustainable on a business level, they might be able to brave the storm a little better.”
What about less affluent investors? That is the next area of growth, Kostigen said. “It’s coming and it’s coming fast. People are looking at this from a business standpoint and asking, ‘Why can’t we create a platform for the middle market to (invest in) funds that were only open to high net worth individuals?”
“Inspiration goes a long way toward aspiration,” Kostigen observed. “Once you get people to aspire to do good, we can really change the whole landscape. That’s where it all starts.”
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.