Impact investing funds offer the socially-conscious investor an actionable way to create an impact with their investments, alongside financial returns.
Let’s say you suddenly come into a large sum of money, $10 million, and you want to align your financial planning with your values. In other words, you don’t want to put your money into funds which allocate capital using a strictly financial lens.
An impact investment fund is one solution, but first it is important to educate yourself on the spectrum of impact investing opportunities.
So, where do you start in order to learn about impact investing and properly manage your risk while also creating a positive change in the world? Let’s take a look at the process you could take to make sure that $10 million is intelligently put to work to make the world a better place.
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What is Impact Investing?
According to the Global Impact Investing Network, impact investments are “made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”
This is a good definition because it references the diversity of instruments through which capital can flow. You could decide to invest directly in an early-stage social enterprise, or perhaps an already well-established one that is looking to expand into new markets.
Toniic Impact Investment Directory
There are also a bevy of impact investing funds that can help align that considerable capital with a smartly diversified portfolio of assets. A useful resource for any impact investor, and especially a new one, is Toniic’s Impact Investment Directory, which lists all the assets which Toniic impact investors have reported from their portfolios.
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How to Start Impact Investing?
To help make impact investment decisions it is important to know where you stand, or where you would like to stand, on the impact investing spectrum. Sonen Capital, an impact investment management firm, has developed the following spectrum to help new investors visualize the varying approaches to impact investing depending on the impact and financial goals of the investor.
Source: www.sonencapital.com
As you can see, at one end of the investing spectrum there is simply a maximize financial returns approach (not impact investing), regardless of any social/environmental impact factors. At the other end, we have philanthropy in which the asset owner seeks no financial returns. It is in between these extremes where we find impact investing, and all the nuance that comes with it.
Sustainable and Thematic impact investing is where you tend to find those approaches which aim for both financial and impact returns. Ideally, those financial returns are market-rate returns, and yet while it is entirely possible, the impact investing ecosystem may need more nurturing for that to be a widespread possibility.
Let’s think about that $10 million again. What do you need that money to do for you? Generate income? How much? Quickly, or patiently? That’s a cursory look at where to start from a financial perspective to begin to determine your desired financial risk profile.
Then, it is important to explore those areas of impact in which you want to effect change. This could be personally related, or determined by which impact area you have expertise in, or which has the most potential to positively affect the most amount of people, or simply be regionally based.
Brainstorming across these categories enables you to approach an impact fund, for example, better equipped to answer their questions and begin to make some impact investment decisions.
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Impact Investing Funds and Other Resources
Deciding where to invest, how much, for how long, etc. is a daunting task for the traditional investor. For the impact investor it is more complicated, but perhaps a bit more fulfilling as well.
Returning to our individual with newfound wealth of $10 million, let’s say they decided they want to focus on Sustainable and Thematic impact investing, achieving good financial returns alongside positive impacts. And they wanted to focus that capital on investments which promote positive environmental change.
To start, this person might want to look at the best-of-the-best impact funds in the world today.
This list from B the Change, details the 2017 Best for the World Funds, a vetted list of funds which rate highly not just in their track record of impact and financial returns, but also their transparency in that process.
They could then take a deeper look at those funds by category, for example the best funds for environmentally-focused impact investing.
Impact investment management firms, like the aforementioned Sonen Capital, are another good way to jump into the impact investing arena. This is an especially attractive option if our $10 million friend wants to build a more nuanced portfolio diversified across asset classes as well as impact themes. Some such firms include: Calvert Impact Capital, Trillium Asset Management, and Veris Wealth Partners.
Maybe you don’t have $10 million to invest. But maybe you do have some capital that could go into a more impactful portfolio. As the sector grows, so do the resources and people available to help make that journey a more feasible one so that as a global community we can also make our world-changing ambitions a more achievable reality.
