What is impact investing and why should you care?

Impact investing stems from idea that profits and purpose can work in mutual benefit.

It is a sector that concentrates funds to businesses whose products and services have a net positive impact in society. In traditional investing, capital gains are the sole objective and any positive outcomes are ancillary. Impact investing makes that positive impact a prerequisite for investment.

Return on investment can be measured in more than one way.

The trend with impact investing is just getting starting. The sector is ripe for continued investment because of increased economic volatility and outsiders wanting to participate more directly in the financial system. This is what makes impact investing attractive:

Impact investing empowers people to take action.

Simple to sit back and blame the government for systemic social problems. The role of government is to serve its people, it rarely shapes society in a better way. The laws of the land are merely a reflection of the social sentiment and agreed upon social norms.

Impact investing does not wait on the government to act, instead it empowers the people to take action.

Many problems have simple, logical solutions from a first principles approach. If a city has poor public transportation options, the solution is to add more buses on the road or install a railway. Good ideas often get stalled in the semantics of government legislation.

Impact investing analyzed what the market needs, if the solution would produce a better situation than the current reality and calculates if it can be implemented for financial profit. If it works, the investment works. If the numbers don't work, it's not a fit. Simple.

Impact investing aligns actions with outcomes

Spending money with the intention for growth has a way of bringing accountability. Non-profit organizations have struggled to quantify the impact of their work and therefore must continually convince donors of the good work they accomplish. Impact investing solves this problem directly.

Monies spent in an impact investment are often tracked with a higher level of diligence and transparency than non-profit organizations can deliver.

Impact investing makes sure actions and desired outcomes are aligned. Leadership in public companies are often compensated in stock to make sure they have the shareholder's best interest in mind. Similarly, when investment outcomes are measured in both financial and social output, the benchmark for success reflects the desired outcome. What gets measured get amplified.

As Peter Drucker famously said, “What gets measured, gets managed.”

Impact investing recognizes that change costs money.

Impact investing tackles the headwind of change directly. Change costs money. Grass root efforts have their place, but by and large, the people who change the world are those that can afford to pay for it.

Impact investing is a reminder to not look at the work as it should be, but to look at the world the way it is and seek for narrow market segments where if money were invested wisely, could net a substantial benefit.