How Do I Start Impact Investing
Impact investing is still a relatively new phenomenon unfortunately, this means that most channels are still reserved for high net worth investors. However, this doesnt mean that all avenues are closed to those who want to contribute, but dont have the means to invest large sums.
Until the industry at large matures and becomes more accessible, SRI and ESG investing are a great way to align your investments with your values and allow you to familiarize yourself with the landscape. In truth, a large number of SRI and ESG investing options overlap with impact investing with more and more companies moving to a model that factors in and measures impact.
The easiest and most straightforward way to get into impact investing is by purchasing bonds to be more specific, green and sustainability bonds. Robo advisors are another field that is closely tied with SRI and ESG investing with Wealthsimple leading the charge on that front, and Betterment coming in at a close second. And if gender equality is a cause near and dear to your heart, Ellevest merits your consideration as well.
As you must know by now, your journey to impact investing first starts with choosing the right broker. Here are our top picks for platforms that facilitate environmentally-conscious investing:
- Sustainable Investings SRI Funds Directory
Not sure where to start with ETFs? See our report on the most popular ETF brokers.
Whats The Difference Between Impact Investing And Socially Responsible Investing
Impact investing is a subset of socially responsible investing. While SRI seeks to divest from investments that have harmful effects, and avoid further investments in areas which might do harm to the common good, impact investing takes things a step further. The simplest way to think about impact investing is to think of it as proactive SRI.
The goal of impact investment isnt simply to avoid harm it is to intentionally effect positive change in the world. This approach encompasses actively participating and investing in projects that provide real, tangible, and measurable benefits to society at large while providing returns at the same time.
To summarize, the difference is in intent. SRI seeks to avoid harm impact investing seeks to effect good.
Do you have a smartphone? Certain brokerages facilitate SRI through the leading stock apps.
Innovative Impact Investing Example: Public Equities
Domini Sustainable Solutions FundAsset Class: Public Equities
The Domini Sustainable Solutions Fund has a global portfolio of public companies providing solutions for a better world. From renewable energy to medical systems to healthy and organic food, the fund targets well-managed companies supporting the transition to a sustainable economy. They operate with a buy and hold strategy under the investment thesis that companies addressing environmental and social challenges provide long-term growth potential.
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Health Care Impact Investing
Health care is another major area in the U.S. that represents a system in desperate need of reform. Health care costs are rising to epic proportions.
Unfortunately, there is a racial component to health care disparities as well. The fact that Blacks are far more likely to die as a result of COVID-19 complications underscores two major issues:
Considering the above, theres a serious need for improved access to quality health care among minority communities. Some medical centers are focused on providing health care services to underserved communities.
Moreover, there are several ailments that still have few or even no therapeutic options. At the same time, theres a robust community of companies that employ the worlds top scientists in an effort to find solutions for these medical ailments.
Study Your Subject Matter
Emma Vaughn at Fast Company underscores the importance not just of having a high-level understanding of impact investing generally, but also a deep familiarity with your area of interest and the variety of strategies employed by related funds:
In a rapidly growing but still relatively young industry, youll find different funds with similar philosophies pursuing different goals with varying strategies. While linked by a common thesis, they all have varying sector and geographical focuses and even slightly different priorities. … From healthcare investments to financial inclusion to domestic issues or international development, there are now a range of approaches and sub-sectors to target based on your specific experience and interest.
Read:7 Tips to Landing a Job in Impact Investing
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How Does It Work And How Much Does It Cost
The Big Exchange attempts to give investors far more detailed information on the choices made by the 50 funds on its platform and the companies within them. This information can be viewed without the need to create an account.
Firstly, the funds have been independently assessed and rated using an Olympic medal system: gold, silver or bronze. If a fund is not deemed worthy of a medal rating it wont be put on the platform.
Users can filter funds by their rating, only viewing gold-rated options for example, or can filter them by their purpose split between people and planet.
Each fund has a page with important information about it, including its cost and recent performance, and links to relevant documents.
This is where most platforms would stop, however the Big Exchange also provides a detailed assessment of the goals of the fund and, crucially, where it is making change in terms of the UNs sustainable development goals . It also raises potential issues that investors may have with the companies within the fund, and gives it an overall rating out of three for positive influence and transparency.
It may be that you personally have no problem with the issues raised, however, it does help investors to form a complete picture of what will happen to their money.
This is helpful, however, the platform does not make it clear which firms are its biggest, which is a slight annoyance.
Elements Of Impact Investing
The practice of impact investing is further defined by the following elements.
Note: On April 3, 2019, the GIIN published the Core Characteristics of Impact Investing, which complement this definition and aim to provide even further clarity about how to approach impact investing. View these four tenets that establish baseline expectations for impact investing, here >
INTENTIONALITY An investors intention to have a positive social or environmental impact through investments is essential to impact investing.
INVESTMENT WITH RETURN EXPECTATIONS Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.
RANGE OF RETURN EXPECTATIONS AND ASSET CLASSES Impact investments target financial returns that range from below market to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity.
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, ensuring transparency and accountability while informing the practice of impact investing and building the field.
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At First It’s Easy To Find An Angel Investor Or Get Some Money From Friends And Family To Start Off Or Prototype Your Idea But After That When You Really Want To Grow And Bring It To Scale It’s Quite Difficult To Find Finance
A new and exciting milestone for you of course is the FASE Benelux which as we said is a financing agency for social entrepreneurs based in Brussels. What led you to found an organisation which sees a connection of social entrepreneurs and investors all under the one roof?
Well FASE started as part of Ashoka Germany which was founded by Markus Freiberg. It really catered to the biggest needs at that time of the Ashoka Fellows who had so many problems scaling their business and finding the right finance.
What Is Impact Investing 6 Things You Need To Know
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What is Impact Investing? How does it work? Well, if you want to make a difference even as you make that profit, impact investing is the way to go.
As times change, so do how companies and individuals are conducting their business. More and more business entities are heading the call for increased social responsibility and environmental protection.
Investors have also changed their tactics. Instead of running only after profits, many investors now want to make an impact. People want to put their money in companies that can bring positive social change and preserve the environment, while still generating profits.
So, if you are thinking about making a positive change with your money, impact investing is the answer. But exactly what is impact investing? Will it guarantee you financial returns? And, do these companies really work to bring social and environmental benefits to society?
If you are new to impact investing, here is everything you should know.
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What Is Impact Focused Investing
Impact-focused investing, or simply impact investing, is an investment strategy that seeks to achieve social or environmental goals, as well as generate profit. Unlike philanthropic endeavors, impact investors typically expect a return on their investment, although this may be a secondary consideration.
How Do I Break Into Impact Investing
Are you currently experiencing disillusionment in your professional life? Imagine a future in which you are living and working closer to your values. It takes guts to admit that youre no longer satisfied with your career choice, and frankly, if you have a lucrative job such as a fund manager, you may feel like you have more to lose than others who are perhaps earning less.
But its important to remember that you also have so much to gain: fulfillment, passion and that elusive sense of purpose you seem to be missing right now. As you likely know, these cant be bought. In the past few years, many exciting opportunities have opened up in the space of impact investing, giving financial professionals more ways to apply their skills to the social agenda.
Turning that imagined future into reality starts with outlining the steps to take in that direction right away. So, get moving
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The Impact Investing Ecosystem: Esg Investing Socially Responsible Investing And The Radical Frontiers Of Impact Capital
All investing has an impact that is largely opaque to the investor, and I think that the work of our field, in part, is to make that impact, positive and negative transparent to the investor so that the investor can choose.
Fran Seegull, Executive Director of the U.S. Impact Investing Alliance
What Is The Difference Between Impact Investing Esg Investing And Socially Responsible Investing
Although all of these terms technically have distinct definitions, they are most often used interchangeably, with the exception of ESG investing that is used often in public equities and for classifying funds for universal investors. In general, impact investing is an umbrella term and can be used as a broad synonym for ESG investing and socially responsible investing.
ESG investing describes investments that are made with environmental, social, and corporate governance criteria as an explicit focus of the investment. These often involve investment screens, either positive or negative, to shrink the field of investable companies based on environmental, social, or governance factors. An example of an ESG screen would be removing oil and gas companies from investment consideration or choosing to only invest in companies with diverse leadership teams .
Socially responsible investing is a method in which investments are made with the intent to create social change. SRI investments can include those made to empower marginalized communities, increase workforce diversity, and break down systemic barriers in the economy.
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What Is An Impact Investment Fund
Impact investing funds pool together finances from several impact investors to buy securities. However, every impact investor retains ownership rights over their shares.
The whole purpose of creating an impact investment fund is to have a better chance of picking top investment opportunities.
Additionally, impact investors, in this case, gain from better funds management and are charged a smaller investment fee.
How To Get Involved In The Impact Investing Sector
Impact investing is a rapidly growing industry – according to the Global Impact Investing Networks Annual Impact Investor Survey, in 2018 alone, there was over $228 billion in impact investing assets, which nearly doubled that of 2017.
The business and social entrepreneurs funded by these dollars are working to make improvements in areas including energy efficiency, education, health, economic empowerment, and food security – just to name a few. When considering a career in impact investing it is important to think about where you can make the greatest impact. Think about what interests you – whether it is a specific environmental or social issue or a country, region, or community in need. If you are interested in the field you should pursue a career in impact investing regardless of your gender or race. As impact investing continues to grow, diverse students and young professionals should be encouraged enter the field and use their diverse perspective as an asset to the organization.
Next, you must know your options because wherever you are on your career path, you do have options. Start by understanding the entire cycle of an investment and the types of careers available at each stage, as outlined below:
Sourcing leads Analysts and associates conduct primary and secondary research to identify potential investees for their organization.
Impact evaluation Analysts track and measure an organizations social and environmental impact on the communities it serves.
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Innovative Impact Investing Example: Private Equity Private Debt
Asset Class: Private Equity, Private Debt
The Employment Technology Fund invests in early stage technology companies that create opportunities for economic advancement for those struggling to succeed in the U.S. labor market. The fund supports innovative entrepreneurs working to increase access to learning, employment, and economic mobility, thus building toward a more equitable and inclusive future of work.
You can watch a webinar discussion exploring the opportunities for impact investors to address the major unemployment challenges we are likely to face in the coming months and years that features Joann Chen, Director of Employment Technology Fund. Sign up to receive this conversation, along with a collection of innovative impact investing examples, in your inbox:
Impact Investing Vs Socially Responsible Investing
SRI, which is sometimes referred to as sustainable or socially conscious investing or, when focused on environmental causes, green investing, is a form of impact investing. While the definition of SRI encompasses avoidance of harm, impact investing also suggests positive impact via its investments.
Investors who practice SRI tend to believe in and choose companies that subscribe to their views with respect to human rights, environmental protection, and a sense of responsibility to consumers. For example, some investors may choose not to invest in companies that manufacture, distribute, or promote cigarettes because of their overall negative effect on people’s health.
Many asset management companies, banks, and other investment houses now offer funds specifically tailored to socially responsible investors.
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S To Starting A Job Search In Impact Investing
Impact investing is still a new addition to the financial services industry landscape, but there are no special tricks when it comes to landing a job in this booming sector. All the traditional approaches to any job search still hold true, and there is also real opportunity to shape new roles and positions as extensions of unique skill sets.
What We Really Now Call The ‘missing Middle’ Or The ‘financing Gap’ Is Really After The Startup Phase And Before The Big Growth Phase It’s Really The Phase Where You Want To Scale Your Organisation Bring More Professionals In And Start Building Structures Around What You’re Doing
You would need roughly between 250k and one million Euros at this stage. This is an amount which is usually too big for foundations or grant makers to provide but it’s also not interesting yet for the regular impact investors and it’s also too risky. So what we do at FASE is we bring together different kinds of funders. We bring together impact investors and normal investors to see and make sure that these really great social enterprises can be funded.
Could you please tell us a bit more about some of the projects your team are working on FASE?
Well I think my favourite story is still from Frank Hoffmann who started Discovering Hands. Here, blind people are able to find breast cancer bumps much better and easier, also when they are still smaller than what an MRI or mammography can pick up. This is one of my favourite ones where we really brought together philanthropists and impact investors on a hybrid model to support the growth of this model which is a great, great organisation.
I can’t say what we are currently working on because we’re still in the phase of just bringing it to our investors. However, we just finished with Green Tech which is a very interesting organisation in Africa. They are Brussels based but they’re working in Africa. They look for technologies or technological innovations in Africa and try to improve on these and also themselves invest with equity. It’s a great model. It’s one of my favourites and we raised one million Euros for them.
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