Impact investing makes a positive impact while also producing a positive return. To invest, you can do so via private equity, debt, fixed-income securities and more, and you often can get in with a minimum of $1,000. This relatively low minimum investment opens the door for millions of potential investors — and might eventually lead to a positive impact on the world. Sometimes it’s easy to spot a trend before it becomes mainstream; this is one of those situations. (For more, see: Impact Investing: Making a Difference and a Profit.)

The term “impact investing” was coined in 2007 at The Rockefeller Foundation Bellagio Center. The Rockefeller Foundation was founded in 1913, and its mission always has been to improve the well being of humanity around the world. With impact investing, the foundation also is looking to make a profit by “mobilizing large pools of private capital from new sources to address the world’s most critical problems.” (For related reading, see: J.D. Rockefeller: From Oil Baron to Billionaire.)

Overall, impact investing has seen rampant growth, and that growth is expected to continue. Approximately $50 billion was allocated to impact investing in 2009, and that number is expected to grow to $500 billion by 2019, and as high as $3 trillion eventually. But the potential is nearly unlimited: The amount of total capital available in private markets for social purposes: $210 trillion. (For more, see: Change the World One Investment at a Time.)

The Goal

The total capital available in private markets for social purposes is an exceptionally large number, but if you consider the possibilities with impact investing, you will have a better understanding of the potential. It’s no secret that the millennial generation is more socially and environmentally friendly than past generations. Since the millennial generation is also the largest in U.S. history, this could lead to a world changed for the better. (For related reading, see: A Financial Advisor's Guide to Millennial Clients.)

The world seems to be in disarray at the moment, with issues ranging from the global economy to geopolitical tensions to carbon emissions — and plenty in between. Historically speaking, humans have a tendency to wait until their backs are against the wall before fixing a problem. With social and environmental issues, a viable solution is impact investing. (For related reading, see: These SRI Funds Focus on Empowering Women.)

In addition to generating a profit, impact investing aims to: 

  • Improve education
  • Increase access to financial services
  • Sustain agriculture
  • Make housing affordable
  • Make healthcare affordable and accessible
  • Support clean energy technologies
  • Increase job opportunities
  • Reduce crime
  • Curb homelessness

Characteristics 

According to the Rockefeller Foundation's Global Impact Investing Network, there are four characteristics of impact investing, summarized here:

  1. Intentionality. “The intent of the investor to generate social and/or environmental impact through investments is an essential component of impact investing.” 
  2. Investment with return expectations. "Impact investments are expected to generate a financial return on capital and, at a minimum, a return of capital.” 
  3. Range of return expectations and asset classes. "Impact investments generate returns that range from below market to risk-adjusted market rate."
  4. Impact measurement. "A hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments. Impact measurement helps ensure transparency and accountability, and is essential to informing the practice of impact investing and building the field.” 

Individual Opportunities

There are several opportunities open to individuals who want to get directly involved in impact investing. 

  • RSF Social Finance: Offers a diversified, direct loan fund comprised of more than 90 leading non-profit organizations and for-profit social enterprises. Expected returns are similar to that of a bank CD. RSF has maintained a 100% repayment rate, plus interest, to its community of investors since 1984. The minimum investment is $1,000. 
  • Calvert Foundation: Since 1995, more than 13,500 investors have invested $800 million in Calvert Foundation’s portfolio of nonprofits and social enterprises worldwide. Online investments begin as low as $20. Calvert Foundation also offers targeted investing in areas such as small businesses in the Twin Cities, small businesses in Denver, women’s empowerment, microfinance, fair trade, education, and affordable housing.
  • Mosaic: More than 2,500 people have invested in Mosaic’s solar projects, totaling more than $5 million. According to Mosaic, the rate of return is competitive. The solar projects will lower electricity bills while leading to a cleaner environment. 

Individuals also can invest in companies that are making a difference in the social and environmental landscape. Although it's not strictly considered impact investing, if you put your money into companies such as Tesla Motors Inc. (TSLA), First Solar Inc. (FSLR) and General Electric Company (GE) (to name just a few), you're investing with the intention of making a long-term profit while also having a positive impact on the environment. (For related reading, see: How to Profit From Solar Energy.)

Big Impact Investing 

On a larger scale, financial institutions — including  hedge funds and private equity funds — are participating in impact investing. (For related reading see: Picking Top-Quality Hedge Funds.)

  • Commonwealth Development Corporation: “Our mission is to support the building of businesses throughout Africa and South Asia.” 
  • Norwegian Investment Fund for Developing Countries: “Invests in the establishment and development of profitable and sustainable enterprises in developing countries. By contributing to the development of local businesses, jobs and economic growth, Norfund aims at reducing poverty.” 

The Bottom Line

Impact investing allows you to invest with the dual goals of seeing a return and making a positive impact on the world, whether it’s social or environmental. This trend is still in its early stages, and the growth potential is very high. (For more, see: How Social Impact Investing Works.)

Dan Moskowitz does not own shares in TSLA, FSLR or GE. 

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