What’s Impact Investing? Good question.

I’ll bet you don’t know about Impact Investing. That’s ok. According to a recent poll conducted by the CFA Institute not even financial advisors are clear on what it is – only 14 percent said hey know. That jibes with the audience that attended the Impact Investing conference in Boston this fall, part of a continuing series put on by FA Magazine. The majority were there to learn the basics.

What is clear from both this poll and that event is that even before engaging in an Impact Investing 101 conversation, there needs to be a basic definition for what Impact Investing even means. While everyone agrees Impact Investing is meant to make a positive social impact, the ways to invest are varied. Here are some good things to know:

Everyone can be an impact investor. Ask your financial advisor about “ESG funds” in your retirement portfolio. The acronyms stand for environmental, social and corporate governance considerations in your portfolio. Think of it as socially conscious investing. Pax World is among the pioneers in this space which has spawned a number of recent options for investors.

For the affluent, foundations and businesses, there is another option: direct impact investments for a return. The choices seem endless, from direct funding community renewable energy projects and sustainable farms to financing mission-focused tech start ups, like RallyPoint, a professional online platform for military talent or PossibilityU, an online college admissions platform that gives low-income students access to best-in-class tools. Indeed next generation affluent are increasingly recognizing this investment path for impact as it satisfies a desire to give back, an ability to participate in the mission and a way to have a meaningful day job too.

This segues into a collaborative Impact Investment model that brings together philanthropists and foundations with business and government. Fashion designer Tory Burch created the Tory Burch Foundation to support the economic empowerment of women entrepreneurs and their families. They are among the latest to use a federally approved Community Development Financing model to sponsor communities of women entrepreneurs.

Micro finance is another Impact Investment option. Kiva is among the best known global microfinance lenders. Kiva provides the public a platform to make a loan to help support a small business in an impoverished community. As they put it, microfinance is the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services. While some studies indicate that microfinance can play a role in the battle against poverty, it is also recognized that is not always the appropriate method, and that it should never be seen as the only tool for ending poverty.

These are merely the tip of the iceberg. For every impact one wants to make, there is an option for how to invest in making it happen. While Impact Investing has no common definition yet, one thing is certain – it is not charity. Those who make an Impact Investment are still taking a risk – past performance is no indication of future, right? Will the portfolio perform, will the mission-driven business succeed, and will the entrepreneurs make it? These are the same questions for any investment, yet the idea of Impact Investing is that should the risk pay off, the rewards are reaped in more than dollars but in community development, healthy environments, educated students and more.

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christengraham

About christengraham

President of Giving Strong, Inc. Christen advises businesses, foundations and families for how to make a greater social impact.