There’s no question that the problems we face as a global society are getting more complex. With trillions of dollars flowing through both governmental and large philanthropic channels, tackling these big societal issues can often feel too big for us as individuals to affect.
As an investor, however, you have a choice about where you put your money, and that choice can make a real impact on the causes you care most about. Investing conscientiously offers you a unique opportunity to transcend conventional wealth accumulation by giving your investments the power to have a positive and sustainable influence on society and the environment.
In this article, we look closely at the rising trend of impact investing. By aligning with companies that share your values and avoiding those that don’t, we’ll show you how your wealth can magnify your positive influence in the world while also boosting your financial standing. We’ll outline the benefits and challenges associated with impact investing, and outline some steps to get you started so you can begin, as Gandhi said, being the change you want to see in the world.
Getting Started with Impact Investing
What is impact investing?
Impact investing involves intentionally putting your money into ventures that contribute to social and environmental change, and avoiding those that don’t align with your values.
Impact investing can include donating to nonprofits and supporting projects that blend charitable funds with investment capital.
What are the benefits of impact investing?
Impact investing elevates your return on investment (ROI) to a dynamic force for positive change.
You don’t have to choose between your investments and your value system because impact investing aims to create harmony between investment decisions and your principles.
By integrating your values and investments, you avoid ownership situations in which companies you’re invested in contradict or undermine your personal ethics.
What are the challenges of impact investing?
Impact investing faces challenges such as underdeveloped markets with limited infrastructure, finding suitable investment opportunities and exit strategies, bridging the expertise gap in both finance and social impact, and addressing the difficulty of measuring impact due to the lack of a widely accepted standard.
Is impact investing the right fit for me?
Deciding whether impact investing is a good fit depends on your commitment to social and environmental change as well as your understanding of the potential it holds.
What Is Impact Investing?
Impact investing involves intentionally putting your money into ventures that contribute to social and environmental change, and steering clear of those that don’t align with your values – all while growing your portfolio. Simply put, you seek out projects that bring both financial returns and measurable positive changes to society.
We’re not just talking about traditional investments like stocks and bonds. Impact investing can include donating to nonprofits and supporting projects that blend charitable funds with investment capital. This fusion helps support riskier initiatives that might struggle to get off the ground otherwise.
What Are The Benefits Of Impact Investing?
- Return on Investment (ROI): Think of impact investing as more than wealth accumulation, but purposeful growth. Impact investing elevates your ROI from a number on your portfolio statement to a dynamic force for positive change. Through reinvesting in socially and environmentally beneficial projects, your pursuit of profit creates a philanthropic ripple effect.
- Aligned Philanthropic Goals: You don’t have to choose between where you place your investments and your value system because impact investing aims to create harmony between your financial moves and your principles. By aligning more of your assets with your philanthropic goals, impact investing becomes a dynamic way to use your wealth as force for the greater good.
For example, a foundation can invest your money on your behalf, but by law, is also obligated to pay out a certain amount of their assets under management every year for the benefit of charitable causes. As a donor, you likely will have the ability to specify which causes or initiatives you would like your funds to support. Keep in mind, foundations are just one vehicle for investing for impact. - Avoiding Conflicts: Synergy between your principles and financial interests is the key to avoiding conflict. When your investments clash with your core values it can quickly cause internal discord. That’s where impact investing shines: by integrating philanthropic values into your investment decisions, you won’t find yourself in uncomfortable ownership situations in which companies you’re invested in contradict or undermine your personal ethics.
What Are Some Challenges Involved With Impact Investing?
- Risk of Underdeveloped Markets: In environments where significant impact is most needed, overcoming hurdles related to limited infrastructure and diverse socio-economic conditions is critical. However, it is possible to foster positive change and financial sustainability with a thorough understanding of these risks and creative ways of mitigating them.
- Limited Opportunities & Exit Strategies: Scarcity of suitable options can create challenges finding investment opportunities that align with your impact criteria and financial goals. This challenge extends to exit strategies, particularly in markets with currency controls. Balancing your impact goals with market intricacies, however, is possible through commitment and thoughtful, strategic planning right from the start.
- Expertise Gap: Threading the needle through the social and financial aspects in impact investing requires a powerful combination of financial know-how and social impact insight. Finding advisors skilled in both can be challenging (but not impossible). With impact investing on the rise, so, too, is the number of experts capable of blending philanthropy with savvy investing.
- Difficulty of Measurement: Measuring the impact of your investments isn’t as straightforward as checking your portfolio statement. Traditional divides and varying approaches between financial and social impact measurements creates a challenge. Though progress has been made, there remains a need for a widely accepted impact measurement standard.
Is Impact Investing The Right Fit For Me?
Deciding whether impact investing is an avenue worth exploring depends on your commitment to social and environmental change as well as your understanding of the potential it holds. Almost any philanthropic issue has an associated impact investment opportunity, making it an ideal way to marry market forces and commitment to drive positive change. Remember, impact investing is one tool among many to achieve your goals. Defining what success means to you will guide how impact investing fits into your overall investment strategy.
The Bottom Line
Impact investing offers you a chance to redefine success in wealth management by creating a legacy that reflects your commitment to positive change. As you get started, take into account the profound influence your investments can have on the collective well-being of society and the environment, all while enhancing your portfolio. It’s a transformative approach that transcends traditional wealth management, positioning you as a change-maker for a better, more sustainable world.
Final Thoughts
Aligning your investments with companies that share your values and avoiding those that don’t is a strategic move toward creating a meaningful impact. However, navigating the complexities of impact investing requires expertise and thoughtful planning. To construct a portfolio that reflects both your financial objectives and values, we highly recommend working with a seasoned financial planner who values your dedication to being an instrument of positive social and environmental change.
Investing can be more than a means to accumulate wealth. Impact investing can help you create a powerful legacy built on a commitment to changing the world for the better, one investment at a time.
For further resources including case studies and current impact investing projects, check out the Rockefeller Philanthropy Advisors website.
The financial advisors at SK Wealth are committed to empowering you through informed decision-making in all facets of your financial picture. Our financial planning process, The Integrated Financial Advantage™, has been crafted and honed over the past 25 years to ensure our clients receive personalized recommendations that allow them to live with intention, tomorrow and today.
