Impact investment – investments that generate both financial returns and social or environmental good – were long a niche market for well-capitalized financiers. Today, they are a growing component of portfolios on Main Street, with even establishment organizations such as the World Economic Forum, G8 and Aspen Institute all exploring ways to get involved.
So, what’s the hype about? Why are investors like me getting involved? Personally, I believe in supporting ventures that create paths toward a healthier planet. We can play an active role is shaping our future. Many, like Elon Musk, are changing the trajectory of the human story and making a fortune doing it– and we can, too. I’m convinced that it has never been as critically important to understand and take responsibility for the implications of our actions as global citizens.
But impact investing isn’t limited to creating a healthier planet. Impact investing can eradicate poverty, wipe out hunger and attain food security, expand access to quality healthcare and education, achieve gender equality, and ensure justice and promote peace – just to name a few goals. And it can be done anywhere, by anyone.
Meet global challenges. The world’s most pressing problems – climate change, extreme poverty, limited access to healthcare and education – cannot be solved through government grants alone. Just to meet the Sustainable Development Goals (SDGs) in developing countries requires an estimated annual $2.5 trillion. Private capital is needed to fill that gap.
Achieve market-rate returns. It has always been possible to “do good while doing well,” but this is even truer today. Global challenges are global opportunities. Those who provide solutions to today’s problems will be the financial winners of tomorrow. Data from the Global Impact Investing Network shows that the majority of the estimated $15 billion impact investment market produces market rate returns.
Stabilize your portfolio. Impact investing can be a useful complement to other investments in your portfolio. A new study by Morgan Stanley, which surveyed over 10,000 equity mutual funds over the past seven years, finds that social impact funds on average had lower volatility than comparable non-impact funds.
Put your capital to work. Investments in social, health and environmental causes provide an efficient way to meet your individual or your company’s social responsibility goals with a much higher ROI than donations or grants, which simply hand out money. Instead, smart impact funds allow investors to help sustainably grow the recipients – whether that’s a small-holder farmer, a health startup, or a company solving energy challenges – and build an inclusive circle of progress.
Align values with investments. There’s no reason why investors can’t pursue a triple bottom line of “people, planet, profit.” With impact investing, values and profit no longer have to be in competition. This type of investing allows you to signal your commitment as a responsible investor without giving up returns
Connect with big thinkers. I recently attended an investment conference in an unusual setting: The Pontifical Academy of the Sciences at the Vatican, in Vatican City, Rome. Here, I met with renowned human rights activists, leading entrepreneurs, investors and development experts. Impact investing brings together people from diverse backgrounds who are united by a belief in the financial and social imperative of impact investments.
Change the culture of investing. Impact investing is on the rise; the majority of funds dedicated solely to investing in social change were created in the past decade. Today’s investors are in a position to take advantage of this energy and to further bring impact investing into the mainstream. If investors commit our leadership ability, entrepreneurial acumen and resources to a revision of the status quo, we can help create a new normal around impact investing
Be a global citizen. As investors, it is often easy to become overly focused on financial bottom lines and the sectors that dominate our portfolios. Investing in social or environmental opportunities broadens our horizons and gives us an opportunity to drive positive change.
Heal the world. Our futures are interdependent. As investors and social entrepreneurs, we have a moral imperative to act collaboratively to transform our economies and redefine our notions of value. Impact investing allows us to be a part of social change that makes a measurable difference for our planet and future generations.