The phrase “impact investing” has only been around since 2008, and became trendy about two years ago. But it has become a firm part of the world of philanthropy because of its effectiveness and mission.
Impact investment is, simply put, an investment that an individual or company makes into other companies, organizations or funds, with the intention of the investment having a positive (social or environmental) impact.
The Global Impact Investing Network says it best:
“Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.”
Impact Investing is an interesting concept, because philanthropy was previously a field in which entities made donations and did work to minimize the [negative] impact that businesses had on society. But the concept of impact investing shows that socially responsible business practices are both possible and effective. Investors who practice impact investing are already good at making smart investments. Their goal is to make their investments more valuable.
This leads to the question of what actually counts as an impact investment? The exact specifications will vary based on who you speak to. Many companies will argue that every portion of their investment will have a positive impact on some level (ie: they create jobs, are providing a service, or meeting the demands of the people). But, in order to truly narrow it down, one must look at the intention of the investment and its actual impact. There are organizations that are actually working on impact investment certification (similar to LEED standards for environmental impact and USDA standards for food.)
There is a spectrum that one can look to, to determine the level of impact your impact investment really has. There are three levels: Impact Motivated, Impact Committed, & Impact Certified.
An investment can be considered “Impact Motivated” if there is a general desire for positive impact along with the focus on financial return. Investments shift into “Impact Committed” when there is an explicit intent to have a social impact, and a commitment is made to measure the impact against specific metrics. “Impact Committed” investments are also committed to a high level of transparency and a regular reporting schedule. The highest level on the impact investing spectrum is an “Impact Certified” investment. In order for an impact investment to be considered “certified”, the investment’s positive impact must be measured against third party metrics, have third party validation, and hit a minimum score.
To learn even more about impact investments and their philanthropic impact, you should read through this fantastic guide that the Case Foundation put out: here