Many investors are concerned about the impact companies have on the environment, society, and the economic well-being of the global population. For this reason, they are seeking more than just a dollar return on their investments.
Making money is important, but many investors desire to leave a positive footprint on the world. For this reason, socially responsible investing (SRI) has become a popular investment strategy. SRI origins go back centuries, but it was the political environment of the 1960s that re-introduced and modernized the concept. Today, a growing sector of SRI is “impact investments”. This investment sector is drawing strong interest from investors, especially those of the millennial generation.
What is Impact Investing?
The Global Impact Investing Network (GIIN) defines impact investments as “investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.”
Often referred to as “investing with purpose”, companies recognized as impact investments also make the effort to measure and report the impact they are having on the global society and environment.
The primary goal of impact investing can be categorized into two buckets: “impact first” and “financial first”. Impact first investors tend to focus on solving a specific social, environmental, or economic problem while accepting a lower level of financial return to achieve their primary goal. Financial first investors on the other hand are typically seeking competitive financial returns while making as much impact as possible on a particular problem. The latter type of investors hold the view that by generating returns that are competitive to those of traditional investments, more capital will be attracted to this strategy; thus, creating even greater positive impact over the long run.
Impact Investing Opportunities
Impact investments can be found in a broad range of market sectors, such as education, renewable energy, community development, health and wellness, microfinance, natural resources, and sustainable agriculture. Likewise, it touches all asset classes including fixed income, private and public equity as well as real assets. Existing companies that currently qualify as impact investments include Patagonia, Ben & Jerry’s, Plum Organics, California FreshWorks, Solar City, and Beartooth Capital.While impact investing is still fairly new (2008), opportunities are becoming available through mutual funds. Investment managers such as Blackrock, Calvert Investments, and AdvisorShares have various offerings.
New Corporate Registration in Indiana
As a direct response to this new era of impact investing, effective January 2016, Indiana began allowing corporations to register with the Indiana Secretary of State as a benefit corporation. While traditional corporate law requires a board of directors to put the financial benefit of the shareholders as the top priority in all decision making, a benefit corporation can take into consideration the impact of a decision on other stakeholders such as their employees, the community, and the environment. The owners, officers, or board of directors of a benefit corporation are not bound to maximizing the profit of the business, but rather can balance profit with the business’s positive impact. Indiana joins more than thirty other states in passing such legislation.Summary
Impact investing is becoming very popular, especially with millennials. To learn more about this topic, visit CaseFoundation.org. There you will find A Short Guide to Impact Investing. However, as with any investment, be certain to carefully review and fully understand the company or mutual fund before investing.Prior to implementing any investment strategy referenced in this article, either directly or indirectly, please discuss with your investment advisor to determine its applicability. Any corresponding discussion with a Bedel Financial Consulting, Inc. associate pertaining to this article does not serve as personalized investment advice and should not be considered as such.
