Impact investments represent a new form of investing, seeking both financial returns and social benefit simultaneously. They may involve either private equity or debt investments and often tie back into revenue streams.
Most impact investments meet or surpass their expected returns in terms of both social and environmental returns, but financial returns cannot always be assured.
1. Donate to Charity
One effective way of contributing to social or environmental causes is through donations. From giving to organizations dedicated to sustainable energy or women’s health, your money can make an impactful statement about where your priorities lie.
Impact investing is another means of giving back, which involves selecting investments with tangible social and environmental impacts along with financial returns. The challenge here lies in knowing which causes are worth supporting versus those which might not make much of an impactful difference.
Investors can access opportunities that align with their values through various vehicles, including direct investments, exchange traded funds (ETFs), mutual funds, and mutual fund companies. Some investors take a more holistic approach that blends direct investing with impact investing activities like community organizing and advocacy work.
2. Volunteer
Many for-profit and nonprofit organizations dedicate themselves to addressing social and environmental concerns. Some focus on specific causes like clean water access while others take more broad approaches towards encouraging positive change.
As well as traditional forms of giving such as philanthropy and volunteer work, another way impact investing can support social and environmental causes is through investments made. An impact investor might choose to put his or her money behind companies using eco-friendly practices or provide loans for start-up companies with similar environmental or social goals.
However, impact investing comes with its own challenges and associated risks that must be considered carefully before diving in. These challenges include lack of reliable information on companies or projects as well as risks such as greenwashing – when companies make claims that are false.
Impact investing involves an in-depth examination of personal values and an unwavering dedication to improving society – something which may prove challenging for investors with limited financial resources.
3. Share Your Knowledge
Individuals now have an opportunity to use their funds in investments that seek both positive social impact and competitive financial returns – this practice is known as impact investing, an area within sustainable, responsible and ethical investing (SRI).
Carbon footprint measurement metrics have become more widely available over time, yet defining “impact” remains difficult for an average investor. There are over 500 metrics used to gauge social impact; making sense of them can be dauntingly complex.
Private foundations can utilize program-related investments, or PRIs, to align their endowment assets with their philanthropic goals and increase organizational impact. PRIs may include recoverable grants, equity investments in private companies or loans to nonprofits at below market rates – these below market investments often feature recoverable grants, equity stakes or loan financing arrangements for nonprofits. However, impact investing may require more rigorous risk models and require a longer time horizon for impact to materialize; nevertheless it remains an effective means for meeting investment goals as well as supporting causes such as combatting climate change, educational gaps closure and dismantling white supremacy.
4. Share Your Resources
As our world faces new challenges, it is more crucial than ever that all of us use our resources – both financial and non-financial – towards creating a brighter future. This applies both financially and otherwise.
Impact investing is one way of doing just that. By choosing companies with missions to create a better world, impact investors can help fund solutions to global problems.
Patagonia invests its investment capital in companies which develop renewable energy infrastructure, engage in organic regenerative agriculture practices, conserve water supplies and use sustainable materials sourced from ethical suppliers. They use biodegradable packaging that sources from ethical suppliers.
Rabsey recommends becoming familiar with the terms and acronyms associated with impact investing before beginning to invest. Find a professional adviser to advise you on tax and legal implications before investing with a small portfolio initially and reviewing progress regularly in order to stay aligned.