“Impact investing is poised to change the trajectory of poverty, crime, homelessness, for education, green energy and much more. It just needs to be unleashed.” –Sir Ronald Cohen and Matt Bannick for Forbes Magazine
We think of ourselves as good people, and when faced with the decision to do something about societal issues or make them worse, we want to believe we will make the right decision. Poverty, disease, climate change, pollution, disparities in education and health care — all seem like issues that should not plague society and the world, not when we have so many tools and resources available to us.
While the problems in society are pretty clear, it is less obvious what we can do to help. We feel willing to invest time, effort, and money into making the world better, but sometimes donating money feels so dead-ended. We know our money might have helped, but it feels like a drop in the bucket compared to all the social change that is needed. Meanwhile, we notice how many businesses seem to get richer and richer, while the places they operate in become poorer. We see the negative societal and environment consequences of irresponsible business practices everywhere.
For those who have money in investments or the stock market, they may question whether the companies they are supporting are operating ethically. Wouldn’t it be wonderful if we could invest into companies that operate ethically and work towards making positive change?
Thoughtful, ethical investing is what Social Impact Investing is all about.
Investing into companies and nonprofits that strive to improve the lives of their employees and customers while benefiting the world at large can give us the power to create social change in areas we care about. Not only will the world benefit down the road from the success of ethical businesses, we will feel the satisfaction of knowing our dollars are doing good, and not evil.
When individuals or organizations invest in businesses that strive to generate social or environmental impact, rather than just considering financial return, the investment is considered a social impact investment. Invested money is different than donated money because the organization is held responsible to making a return on the investment. This helps to prevent the business from using the money unscrupulously. While investors may not expect as much return on an investment into a nonprofit or a responsible business as they would have gotten from a bottom- line business investment, the return on the investment should still increase, albeit slowly, as the business or nonprofit generates income. Funders want to see return on the social investment. Is the organization achieving the social change it said it would?
The scope of social change is vast, as is the degree to which people want their dollars to have immediate impact. While we generally think of social impact companies as those that are actively working to improve the world by conducting chemical cleanup, bringing food to starving areas, or developing technology to reduce climate change, ethical companies can also work to reduce negative impacts on the environment while treating their customers, employees, and the societies they operate within with respect.
Investors consider what kind of impact they want to have, how much risk they can take on their investment or how little of a return they can tolerate.
What do I want to change in the world?
Is it astounding that so many people go without access to enough clean water and nutritious food? Is it tragic to see the destruction of natural habitats and resources and the extinction of species as a terrible theft from future generations? Is the answer to worldwide peace in extending education to every corner of every society? Should a company behave ethically, like a person should, with respect and empathy to society and the environment? Whatever one cares about, he/she can choose an organization that supports what he/she is passionate about.
How much impact do I want to have, and how immediately?
Investing into a green cleaning product can spare as many families as buy the product from the harmful chemicals of a non-green product and will reduce overall damage to the environment, but will do nothing to get the dangerous products off of the shelves. If, on the other hand, investing into an organization working to change federal regulations so that dangerous cleaning chemicals will be banned, the impact will take longer if it is achieved at all, but if it is achieved, the results will be dramatic.
How much risk can I take and how much return do I want?
Unlike with typical investing, in which financial return is the only objective, with social impact investing there is a particular result the investor wants to achieve in society. This means that the investor is concerned about both financial and societal return on the investment. Risk and return will vary dramatically between investments. An organization selling a simple healthy product with a good business plan is a less risky investment than an organization striving to change legislation. Investors are realistic about what returns they are hoping for in the investment and monitor progress closely to see if the investment is matching the financial and social impact goals.
Social Impact Investing Will Address Some of Society’s Greatest Challenges
Whatever one wants to invest in, however much risk he/she can handle, and return he/she needs, there are social impact investments to fit individual needs while changing the world for the better. Forbes states“Impact investing is poised to change the trajectory of poverty, crime, homelessness, for education, green energy and much more. It just needs to be unleashed.”
The power to harness the massive energy and power of significant monetary investments for positive change in the world is within reach for all of us. When we think of all that our dollars could be doing to help the world while earning money for us, it seems crazy not to put our money to work in social impact investments.