Impact Investing: What It Is and Why More Investors Are Getting Involved
Impact investing means putting capital into companies or funds that pursue a measurable social or environmental goal alongside a financial return. It’s related to — but more specific than — general socially responsible investing, and it’s grown into a global market worth roughly $1.6 trillion in assets under management.
Is Your Portfolio Ready to Make a Difference?
Interest in aligning investments with personal values has grown substantially in recent years. As a result, more investors are exploring environmentally and socially focused investment options.
According to the Global Impact Investing Network (GIIN), the impact investing market has grown to approximately $1.6 trillion in assets under management worldwide, reflecting a 21% compound annual growth rate over the past several years.
What Is Impact Investing?
Define impact investing simply: it’s an investment approach built around achieving a measurable or tangible social outcome, in addition to a financial return.
The specific criteria depend on your personal values and priorities. For example, you might choose to invest in:
- A company committed to planting a set number of trees each year
- An organization that provides resources to school districts in low-income communities
How Impact Investing Relates to SRI and ESG
You may come across related terms when researching impact investing:
- Socially responsible investing (SRI): Investing based on ethical business practices and personal values.
- Environmental, social, and governance (ESG) investing: Investing based on specific criteria covering environmental conservation, social impact, and governance standards.
These approaches follow more specific guidelines than general impact investing, but all share a common thread: aligning your money with your values.
A note on risk: Impact investing, SRI, and ESG investing carry certain risks. Because these strategies exclude certain securities for non-financial reasons, investors may forgo some market opportunities, and the overall universe of available investments becomes smaller.
Impact Investing Performance: What to Expect
A common question is whether pursuing social impact means sacrificing returns. Based on available survey data, that hasn’t necessarily been the case.
In a 2020 survey of impact investors conducted by the GIIN, 88% of respondents indicated that the financial performance of their investments either met or outperformed their expectations.
Making a difference is only one part of the equation — it’s important to evaluate impact investments with the same financial diligence you’d apply to any other investment.
Benefits of Impact Investing
Why is impact investing important to so many investors? A few key benefits stand out:
- Alignment with personal values: Your portfolio reflects causes and outcomes you care about.
- Measurable outcomes: Impact investments are tied to specific, trackable goals rather than vague intentions.
- Competitive performance potential: Many impact investors report returns in line with or exceeding expectations.
Tips for Getting Started With Impact Investing
If you’re considering impact investing, keep these concepts in mind:
- Identify your values. What specific areas of impact matter most to you — sustainability, social justice, your religious beliefs, or something else? Clarifying this first helps narrow your focus.
- Explore your investment options. A variety of investment vehicles are structured around impact goals. Once your values are clear, the right types of investments tend to become more apparent.
- Review impact reports. These reports break down how a company is creating impact and what measurable goals it’s tracking. They’re a valuable factor to weigh when evaluating opportunities.
Bringing Impact Investing Into Your Financial Plan
Impact investing can help keep your portfolio aligned with your personal beliefs while still pursuing your financial goals. Whether you’re new to the concept or looking to refine an existing strategy, reviewing your options with a professional can help clarify whether this approach fits your broader plan.
Tyler Harrelson, CLTC®, CES®, CFS®, and the team at The Art and Science of Successful Planning (ASOFSP) in Fort Myers, Florida, work with individuals and families across Florida to explore impact investing and other values-aligned investment strategies as part of a comprehensive financial plan.
Frequently Asked Questions
What is impact investing?
Impact investing is an approach to investing that targets a measurable social or environmental outcome alongside a financial return, such as supporting reforestation efforts or funding resources for low-income school districts.
How is impact investing different from socially responsible investing?
Socially responsible investing (SRI) and ESG investing follow more specific criteria — such as ethical business practices or governance standards — while impact investing is defined broadly by pursuing a measurable social or environmental goal.
Does impact investing sacrifice financial returns?
Not necessarily. In a 2020 GIIN survey, 88% of impact investors said their investments’ financial performance met or exceeded their expectations.
How big is the impact investing market?
According to the GIIN, the global impact investing market has grown to approximately $1.6 trillion in assets under management, up significantly from earlier estimates.
