Financial Planning Blog

Impact Investing

Ted George posted this article on June 15th, 2015

In case you had not noticed, there is a whole new area of ‘conscious’ investing that has grown in the last 5 years or so: Impact Investing. It grew out of the more mature Sustainable and Responsible Investing (SRI) movement.


SRI describes two types of investing, either of which can be an approach unto itself:
Sustainable Investing is about investing in companies that at the very least are not negatively impacting the environment.

Social Responsible Investing is about investing in companies that do not harm people or society. This encompasses shareholder rights, employment practices, product safety and community relations.

To make matters more confusing, SRI can now mean Sustainable, Responsible and Impact Investing. A more recent name for SRI is: Environmental, Social and Governance (ESG). These terms are currently used somewhat interchangeably.

Impact Investing vs. SRI

Impact Investing means investing in companies that positively contribute to one or more ESG areas as a matter of their primary intent. This requires not just ‘doing no harm’ but actually supporting some positive action in the world. A primary intent of such a company should be impactful, and this intent should be quantifiable and measurable.

Since a public company’s primary responsibility is to their shareholders there are many who believe that only a privately held company can truly be considered an impactful company. There is also a new class of corporation called a Benefit Corporation or a B Corp. 28 states have legislation which require Benefit Corporations legally defined goals to:
Include a material positive impact on society and the environment
Consider the impact of their decisions on workers, the community and the environment a well as on their shareholders
Publish an annual benefit report that assess their overall social and environmental performance an compares it to a third party standard

A prime example of a B Corp is Patagonia. Together with it’s sister companies, Patagonia became a Benefit Corporation the first day possible in their home state of California, January 3, 2012. They continue to push forward the ideals of Impact Investing as part of their corporate charter.

Dedicated impact Investing is generally not available through public companies nor mutual funds. SRI/ESG investing is however widely available through publicly traded investments. Some of these funds have ‘positive screens’ which indicate some level of corporate activities toward achieving a positive change in specific areas. According to the “Report on US Sustainable, Responsible and Impact Investing Trends 2014” from The forum for Sustainable and Responsible Investment, there are over $7 Trillion in US-domiciled SRI investments today. At the recent FPA NorCal Advisor’s Conference I attended in San Francisco last month, Gloria Nelund of TriLinc Global said currently there are approximately $500 Billion of assets in true Impact Investment.


So how do you actually accomplish Impact Investing today? It is important to understand that the word ‘investing’ is what separates an investment from a charitable gift. When giving a gift you do not expect any financial reward. With impact investing you do expect to receive a return on your investment, in addition to doing good in the world.

One way to make such an investment is to find an organization that is making a positive impact in the world, and invest in it. There are now also a number of organizations that offer private funds which invest in impactful companies. In most of these cases you will need to be an Accredited investor to participate.

When searching for such a fund you should perform the same diligence you would on any investment. In addition you need to determine if its areas of positive impact are the ones you care about. You must also determine whether Impact or Investment Returns are your primary concern. If Impact is your primary concern, know that you will probably make less than average market returns. If Returns is your primary concern you should earn returns similar to market returns. However your invested funds may not have as big of a positive impact.

Last Word

SRI, ESG, or Impact. Which type of investing is right for you? Do you just not want to support a particular industry such as tobacco or firearms? Are you really passionate about stopping child labor and unfair labor practices. Or do you see climate change and the environment as the defining issue the will determine whether humankind and the planet survives intact?

If you have major issues and concerns or feel passionately about certain causes, consider putting your investment dollars to work in those areas where they can make an impact.