Impact Investing: How to Put Your Money Where Your Heart Is

Impact investing was always there, always a part of my professional world, but I just wasn’t aware of it. When I finally saw it for what it is (an incredible tool for positive change), everything fell into place in both my professional and personal life.??

For over 12 years, I’ve worked in private equity. I was also personally involved in various philanthropic and charity initiatives. But as I started reading more and learning about impact investing, it struck me that I didn’t need to keep my work life and personal values separate; they could actually come together in a meaningful way.?

I’m fortunate that AfricInvest , where I work, has a strong focus on impact investing, which made it easy for me to naturally gravitate towards this field.?

What Is Impact Investing?

When I think about impact investing, it’s about much more than just financial returns (though that’s certainly an important part of it). At its core, impact investing means putting your money into something that not only brings you a return but also creates a positive, measurable impact on the community, the environment, or the world at large.?

To me, the key difference between impact investing and traditional investing is this dual focus. Yes, you're still looking to make money - this isn’t about charity or donations. But at the same time, you’re deeply invested in the outcomes that go beyond financials.?

For example, if I were to invest in an education company, I wouldn’t just be concerned with the revenue or the tuition fees. I’d also be asking questions like: How many students are being educated? How many scholarships have been provided to those in need? It’s this measurable, positive change that sets impact investing apart.

How I Evaluate Worthwhile Impact Investments

As an impact investor, you have to balance financial returns with the goal of creating social and environmental impact. You can’t let just your heart or just your head lead, so to speak - you need a balance.?

There are different approaches to this balance, and I tend to lean towards a method that aligns closely with my personal values.?

Here’s how I approach it:

1. Identify Key Sectors. The first step for me is to identify sectors that resonate with my personal values. I’m particularly drawn to education, healthcare, and agriculture. These areas are important to me on a personal level and offer significant opportunities to create meaningful impact.

1. Find Companies Within These Sectors. Once I’ve identified the sectors, I focus on finding interesting companies that are making (or could make) a real difference in these areas.?

1. Evaluate the Investment Opportunity. This is an investment, after all, so ask yourself is the company financially sound? What is the company's growth strategy? How strong is the management team? What are the expected financial returns??

And then, from an impact perspective, ask yourself: What is the company's impact thesis? What measurable impact are they aiming to achieve? How do they plan to improve their community or environment?

1. Consider the Risk Appetite. Just like traditional investing, impact investing involves different levels of risk. Sometimes, I might invest in a well-established company in the healthcare sector that needs growth capital.?

Other times, I might take a riskier approach, similar to what Melinda Gates has done with Pivotal Ventures, by investing in startups that aim to revolutionise a particular field. It’s all about aligning the level of risk with the potential for both impact and financial return.

My Decision-Making Process

When evaluating a potential investment, I approach it with a structured and methodical mindset. Here’s how I break it down:

• Macro Analysis. I assess the sector in which the company operates, determine its growth potential - is it expanding, stable, or declining? - and analyse the competitive landscape.

• Company Evaluation. I review the company’s history and financial performance, understand its operational strategy and growth plans, evaluate the management team’s strengths and weaknesses, and ensure alignment with the company’s future direction.

• Impact Assessment. I take time to examine the company’s footprint - how do they impact their community and environment? -, identify the specific impact metrics that can be measured and reported on, and ensure the company’s impact goals align with your own values and objectives.?

How Impact Investing Changes Communities?

One thing I've learned about impact investing is that there are many moving parts, and you don’t have to navigate them alone. It’s essential to connect with various stakeholders, whether it's NGOs, local government bodies, or even the community members themselves.

For example, when I’m considering an investment in a company that operates in a particular area, I don't just rely on what the company’s management says or what I read in reports. I make it a point to engage with local NGOs who are deeply embedded in the community. They often have invaluable insights into what the community really needs, what might be missing, and how best to make a meaningful impact.?

The Broader Societal Impact

I believe impact investing has a powerful role to play in creating systemic change. When we invest in companies and initiatives that are aligned with these larger goals, we’re not just helping one group of people; we’re contributing to a ripple effect that can lead to widespread improvements.

For instance, by investing in renewable energy projects, we’re not only supporting environmental sustainability but also helping to create jobs and reduce energy costs in underserved areas. This, in turn, can help reduce economic inequality by providing more opportunities for those who need them most.

Common Challenges as an Impact Investor

You can’t succeed in impact investing solely on good intentions and a strong moral compass. The challenges will come, and you need to remember you’re making an investment, after all.?

• One of the biggest challenges I face as an impact investor is navigating the complexity of balancing financial returns with the desired impact. The lens through which you view returns, risk profiles, and other financial metrics can vary depending on the stage of the company - for example, SME or start-up - you’re investing in, but interestingly, these financial aspects often aren’t directly tied to the impact angle.?

Instead, it’s more about your risk appetite as an investor (something to consider when you’re weighing up a potential investment).?

• Another significant challenge is the current state of reporting and measuring impact. We’re still a bit behind in terms of being able to quantify the impact we want to see.?

There’s a lot of talk around ESGs (environmental, social, and governance), SDGs (sustainable development goals), and other buzzwords, but unfortunately, there’s also a lot of whitewashing going on - terms are being used, but the real, tangible impact isn’t always there. That means you need to be careful when choosing where to invest.?

• Quantifying impact is where things get particularly tricky. Whether it’s creating jobs, educating people, or improving healthcare outcomes, being able to say, “In five years, this investment will have achieved X,” is essential.?

This space is still evolving, and while there’s been some excellent work done - like the efforts by GIIN to standardise reporting - there’s still plenty of room for improvement.?

Advice for Aspiring Impact Investors

What I love about impact investing is that it can evolve with you. As your passions and priorities shift, your investments can shift too. If something like an environmental crisis suddenly feels urgent to you, you have the freedom to direct your resources there. Whether you’re supporting cutting-edge healthcare innovations or helping a company provide affordable medicine, the key is to stay connected to what matters most to you.

Ultimately, it’s about choosing the right metrics and tools that align with your personal goals. It’s this connection that makes impact investing so fulfilling for me - knowing that my investments are driving the kind of change I truly care about.

For those interested in pursuing a career in impact investing, my advice is twofold: focus on the necessary skills and the introspective qualities that drive success in this field.

Assess Skills and Qualities

First and foremost, the skills required for impact investing are much like those needed for any type of financial investment. You’ll need a strong grasp of financial analysis, due diligence, and strategic planning. This means evaluating a company’s performance, understanding its growth strategy, and assessing whether its business goals are achievable.?

You’ll also need to consider how the funds will be used and what kind of returns you can realistically expect. Essentially, you’re applying the same rigorous evaluation process that you would in any investment scenario.

Conduct Personal Reflection

Impact investing isn’t just about numbers; it’s deeply personal. You need to take the time to reflect inwardly and consider what kind of impact you want to make in the world.?

Ask yourself: What values are most important to me? How do I want my investments to contribute to positive change? This inward reflection helps you align your financial decisions with your personal values.

Balance Risk and Time Horizon

Another key aspect to consider is your risk appetite and time horizon. Impact investments can vary widely - from long-term, high-risk ventures like new technologies that may take decades to show results, to more immediate, tangible projects like distributing medications in underserved areas. What kind of risk are you comfortable with, and how long are you willing to wait for results? Those questions - and your answers - matter.?

Now, how did YOU discover impact investing? What does it mean to you? I’d love to hear!