Loading the player...

What is 'Impact Investing'

Impact investing is investing that aims to generate specific beneficial social or environmental effects in addition to financial gain. Impact investing is a subset of socially responsible investing (SRI), but while the definition of socially responsible investing encompasses avoidance of harm, impact investing actively seeks to make a positive impact by investing, for example, in non-profits that benefit the community or in clean technology enterprises.

BREAKING DOWN 'Impact Investing'

The term "impact investing" was first coined in 2007, although the practice developed over years beforehand. The basic goal of impact investing is to help reduce the negative effects of business activity on the social environment, and it can be considered an extension of philanthropy.

How Does Impact Investing Work?

Impact investing requires investors to consider a company's commitment to corporate social responsibility (CSR), or the sense of duty to positively serve society as a whole, before becoming involved with that company. This societal impact differs depending on the industry and the specific company within that industry, but some common examples include giving back to the community by helping the less fortunate or investing in sustainable energy practices.

Impact investing includes many different forms of capital and investment vehicles. The bulk of impact investing is done by institutional investors, but a range of socially conscious financial service companies, web-based investment platforms, and investor networks now offer individuals an opportunity to participate in it. One major venue is microfinance loans, which can provide small-business owners in emerging nations with startup or expansion capital. Women are often the beneficiaries of such loans. Impact investing need not always be profitable; investors often factor in social gains or goals.

Financial Benefits of Impact Investing

Because socially and environmentally responsible practices tend to attract impact investors, companies can financially benefit from committing to socially responsible practices, and investors also tend to profit. A 2013 study by GIIN and JP Morgan found that over 90% of impact investors reported that their investments were meeting or surpassing their projections.

The Future of Impact Investing

Impact investing appeals largely to younger generations, such as millennials, who want to give back to society, so this trend is likely to expand as these investors gain more influence in the market. By impact investing, individuals or entities essentially state that they support the message and the mission of the company in which they're investing, and they have a stake in the company's welfare. As more people realize the social and financial benefits of impact investing, more companies will engage in social responsibility.

RELATED TERMS
  1. Social Responsibility

    The idea that a company should embrace its social responsibilities ...
  2. Social Capital

    Social capital is the economic resources obtained from interactions ...
  3. Social Audit

    A formal review of a company's endeavors in social responsibility. ...
  4. Social Enterprise

    An organization that is directly involved in the sale of goods ...
  5. Social Security Benefits

    Social security benefits are funds that are received by retired ...
  6. Social Sentiment Indicator

    A measurement based on aggregated social media data that helps ...
Related Articles
  1. Financial Advisor

    Impact Investing: How it Works and How to Invest

    Impact investing makes a positive impact, socially and/or environmentally, while also aiming to produce positive returns, and it's a growing trend.
  2. Investing

    Impact Investing Basics

    Learn about impact investing, including some of the common phrases used and how it differs from traditional investing.
  3. Investing

    Social Returns Just As Important for Millennials

    The Millennial generation is driving the growth of socially responsible and impact investing.
  4. Financial Advisor

    Talking to Clients About Socially Responsible Investing

    Many clients are asking their advisors about socially responsible investing options. Here are some of the questions advisors should be ready to answer.
  5. Investing

    The Difference Between Social and Impact Investing

    ESG? SRI? How to make sense of socially-responsible and impact investing.
  6. Investing

    Understanding Social Impact Bonds

    Social impact bonds are powerful investment vehicles for the solving of social issues in a sustainable fashion.
  7. Managing Wealth

    Go Green With Socially Responsible Investing

    Find out how morals and ethics can bring you a surprising return.
  8. Investing

    Four Socially Responsible Stocks To Watch

    Making money in the market shouldn't prevent you from sleeping at night. Find out how to keep your conscience clean and bank account growing.
  9. Investing

    The Value in Socially Responsible Investing

    Socially responsible investing has been growing in popularity. Discover if it's the right strategy for you.
  10. Investing

    Impact Investing: The Ethical Choice

    This new wave in ethical investing is taking a new approach. Find out how it differs from its predecessors.
RELATED FAQS
  1. Why is social responsibility important to a business?

    Take social responsibility seriously, and your business could benefit from happier, more productive staff members while helping ... Read Answer >>
  2. What is the Social Security administration responsible for?

    Learn about the Social Security Administration's main responsibilities along with its history, structure and social safety ... Read Answer >>
Hot Definitions
  1. Receivables Turnover Ratio

    Receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting ...
  2. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  3. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  4. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  5. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  6. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
Trading Center