Invest in projects or companies with concrete social and environmental outcomes, while also capturing financial returns. It’s intentional investing with values, delivered without sacrificing competitive financial returns.

With greater awareness of social and environmental challenges, as well as innovative new tools for impact assessment, impact investing has grown at great speed.

What is Impact Investing?

They want to invest in order to make a difference beyond just the financial returns to their portfolios, and many are already doing this by adding impact investments to their portfolios.

Impact investing refers to funding companies, projects and organisations that generate a positive social or environmental impact. It could help to solve the greatest challenges facing humankind today, such as poverty alleviation, the development of new health solutions, combating climate change or saving global ecosystems.

While impact investing certainly does come with risks, many impact investors report that their investments, by and large, perform as hoped for in terms of both their impact and their return. For some investors, the normal risk of an investee company not executing its business model and/or mismanaging its business is cited as the primary reason for an investment’s poor performance.

Impact investing has been the province of institutions, but now, via a growing number of socially responsible financial services companies and web-based investment platforms, individuals can incorporate impact investments into their portfolios, from microfinance loans to equity investments in socially missioned companies.

How Can I Create an Impact Portfolio?

A good way to begin building an impact portfolio is by identifying important goals and priorities. Do you want to be active on climate change or poverty reduction, or are you more concerned about gender or anti-genocide? If you can prioritise your values in this way, you can then go out and find companies and funds that take these ideals seriously – and invest in them.

Public equity is rarely the most obvious place to look for direct correlations between finance and environmental or social impact. Say you decide to buy shares in Tesla, the electric carmaker, on the stock market: how can you be sure that your money has been transmitted, via clearing houses, brokers, fellow investors, transactions and taxes, to Tesla’s accounts? It won’t necessarily be clear how any of the company’s business activities might be tracked to environmental or societal benefits.

Nevertheless, the demand to have one’s investments conform to social responsibility objectives is gaining momentum. As a rising generation of millennials enter into the investor landscape, there should be more opportunities for impact investors to place their wealth in keeping with their values.

How Can I Invest in Impact Companies?

Socially aware finance sector firms, robo-advisors and other online investment platforms, and researching and crowd-sourced investor groups offer individuals the chance to participate in impact investing. People can also use negative screening (‘protest vote’, or ‘exit’) to decline to support targeted companies in line with their values.

Millennials are twice as likely as baby boomers or their grandparents to want an investment strategy that reflects their values.

How your team wishes to participate in this effort is an important factor to consider as part of the decision-making process about impact investing for your foundation, family office or business. It will influence whether to pursue direct investments or funds, whether to seek advisory services from advisors who straddle philanthropic and impact investing worlds, and whether to prioritise education among your colleagues.

How Can I Invest in Impact Funds?

Having a gift in your will is becoming increasingly popular, with more and more funds dedicated to investing in causes you care about, sometimes by donation, sometimes through equity investments, sometimes through loans or guarantees, sometimes by giving your money to specialist organisations who know how to pool your money with that of others so risk is reduced and impact is increased.

There’s a parallel to the real world: consider a startup company that consolidates and organises villagers’ clothing manufacture while also factory-making garments more cheaply than before. A traditional investor would consider how much money the firm could make, compared with the cost of capital. Reaching the right answer requires very little thought beyond classic high-school mathematics. An impact investor would have to consider the environmental and social effects as well.

Studies also show that impact investments do not have to give up earning market returns. To find ways to create a personalised portfolio of impact, begin by working with professional advisors who have expertise both in giving and in investing.