What the heck is impact investing?

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Listen to learn:

  • The basic definition of impact investing
  • What counts as an impact investment
  • The 2 things to do today to start doing well and doing good with your investments

What’s the basic definition?

So, what the heck is impact investing?

I get this question all the time.

The truth is there is a big debate going on about the term.

I tend to come down on the side that all investing is impact investing.

Why?

Because every investment has an impact. It goes to fund the work of whatever organization or individual you are investing in. At the same time,

…when we talk about Impact Investors that generally implies a level of intentionality. Now, you’re paying attention to the impact that your investments are having and you are trying, on purpose, to create a social or environmental return alongside your financial returns.Cynthia Jaggi,Founder of WellMoney

Similarly, we talk about making impact investments.

That means we are intentionally trying to create that kind of social or environmental return.

What Counts as an Impact Investment?

The next question often is, “well, what counts? what’s enough social or environmental return and how much intention has to be behind it? For whom does it have to create that return?”

Again, there’s differing perspectives here. People I respect a lot like Kim Tan at Springhill Management has written in the Stanford Social Innovation Review that impact investments have to have four criteria, and most notably they have to be primarily and intentionally targeting the poor.

While I agree with his other three criteria, that impact investments need to be commercially sustainable and profitable businesses, they need to be intentionally designed to tackle social issues* and they also need to be accountable to the social and environmental returns I don’t think that impact investments have to be limited to enterprises usually operating in slums and rural areas where the poor live.

For people who are just starting out though, thinking about impact investments there are two takeaways that I really want you to bring with you.

One is that it’s very important to

start getting intentional about where your investments of money and of your time are going.
start getting intentional about where your investments of money and of your time are going. As much as possible, think about and measure the social and environmental return not just the financial return of any investments you’re making.

So first is: Be Intentional.

The second is that it’s a win already that we are having this conversation about what impact investing means. And we want to keep that conversation going.

So think about what it means to you.

What does it mean to you to invest for impact?

Summary

So to review, impact investing is a new term and there’s lots of debate about what exactly it means. But it does absolutely require intentionally looking for social and environmental returns to be an Impact Investor, alongside your financial returns. Some do think it should be limited to enterprises working primarily to serve the poor, but others see a broader definition. Whatever you do, be intentional about where your investments of time and money are going. Ask yourself, “What does impact investment mean to me?”

*Afterward on this point: I define social problems very broadly. You can see anything that is holding us back from optimal well-being as a social issue, though that doesn’t mean they all carry the same weight