Impact investing is a newly minted term in the lexicon of Socially Responsible Investing jargon. It references going beyond the broad net of “socially responsible investing”, and investing in companies and/or products that are for-profit enterprises pursuing the solution to a global problem. An example would be the “clean water fund”, in which you might purchase a bundle of investments across different sectors, such as water purification plants, water distribution companies, water well maintenance, etc. The goal of the “solution” you are investing in is both to have a profitable return on your money, and help in some small way to solve a global predicament or opportunity.
I most recently discussed Impact Investing while watching the Mayweather/McGregor fight in a crowded sports bar in Hawaii. My husband Shawn is an avid boxing fan, and he convinced our 15 year old daughter Sophia and me to join him to watch the fight and avoid the $99 download fee at home. She and I naively thought we would happily go along for the ride, have a chance to get dressed cute and go out to lunch as a family. Instead, we were sandwiched like sardines in one of the only two bars on Kauai broadcasting the fight. Sophia sat between Shawn and I on the bar stools so close together our shoulders touched. To my right, was a man named Steve who was on Kauai for work. Coming up on his 30th birthday, he was in every way a true millennial. Once discovering I help people with their finances, he lamented about started college in 2007, being told that if he got a business degree “companies would be lining up for him”. When he graduated sixty thousand dollars in debt four years later, the economy was in shambles and people like him were lining up for every possible job opportunity. He explained how his generation felt so traumatized by that, the implosion of the American Dream. As a result, like many in her demographic he is waiting to get married, have kids, is saving money and living below his means (unlike his extravagant Gen X big brother he told me about as well). He wants to rent in the city, work hard, pay his debts off, and think long and hard about the feasibility of a house in the ‘burbs. In addition to being a corporate medical software sales rep with an MBA that travels the world making presentations to hospitals, he is also a regular activist. He shared details of various demonstrations he has attended, and how “fucked up” everything is, and how he’s just sick of it and he’s going to do something. He looked at me and said, “isn’t there any way to make money in my retirement plan with companies that care about the world?”. BINGO! Yes! Impact Investing solves his economic problems and his sense of social responsibility.
Impact Investing is aimed to generate specific beneficial social or environmental effects, while simultaneously achieving financial gain. Impact Investing is technically a subset of Socially Responsible Investing (SRI), but they are actually notably different in their underlying philosophy. The definition of socially responsible investing encompasses “avoidance of harm, impact investing actively seeks to make a positive impact by investing, for example, in nonprofits that benefit the community or in clean technology enterprises.” , while the definition of Impact Investing is “….One example of an impact investing project is a community solar program. A platform called Mosaic allows people to invest as little as $25 to fund solar projects that save money for homeowners, schools or other institutions while reducing carbon emissions….”. The Impact Investing vehicle is designed to find a solution to a specific problem, and make money at the same time. At the same time, the SRI screens (of minimizing harm) are applied to the companies chosen for inclusion in the Impact Investment portfolio for each specific project.”
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