Getting Started with Impact Investing

1. What is Impact Investing?

Unlike traditional investing, which focuses solely on financial returns, or philanthropy, which prioritizes social good without expectation of financial return, impact investing occupies the space between—seeking to achieve both.

The Global Impact Investing Network (GIIN) identifies four core characteristics of impact investments:

1. Intentionality: The investor's intention to generate social or environmental impact is essential.
2. Financial Returns: Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.
3. Range of Asset Classes: Impact investments can be made across asset classes, including cash equivalents, fixed income, venture capital, and private equity.
4. Impact Measurement: A commitment to measure and report the social and environmental performance of investments.

2. A Brief History of Impact Investing

While the term "impact investing" was coined in 2007 at a Rockefeller Foundation convening, the practice of aligning investments with values has deeper roots:

Early Foundations (1960s-1990s)

• 1960s-70s: Socially responsible investing (SRI) emerges, initially focused on negative screening—excluding investments in tobacco, weapons, or apartheid-era South Africa.
• 1970s: Community development financial institutions (CDFIs) begin providing capital to underserved communities.
• 1980s-90s: Microfinance gains prominence through organizations like Grameen Bank, demonstrating that serving the poor could be financially sustainable.

Modern Era (2000s-Present)

• 2007: The term "impact investing" is coined at a Rockefeller Foundation meeting.
• 2009: The Global Impact Investing Network (GIIN) is founded to increase the scale and effectiveness of impact investing.
• 2010s: Major institutional investors begin allocating to impact strategies; the UN Sustainable Development Goals (2015) provide a universal framework.
• 2020s: Impact investing goes mainstream, reaching $1.57 trillion in assets under management by 2024.

"Impact investing challenges the long-held view that social and environmental issues should be addressed only by philanthropic donations and government aid, and that market investments should focus exclusively on achieving financial returns."

3. The Impact Spectrum

Impact investing exists on a spectrum, ranging from finance-first approaches that prioritize competitive returns to impact-first strategies that may accept below-market returns for greater impact:

Finance-First Impact Investing

Finance-first investors seek competitive, market-rate returns while also achieving measurable impact. This approach demonstrates that impact and returns are not mutually exclusive—the GIIN reports that 94% of impact investors meet or exceed their financial expectations.

Impact-First Investing

Impact-first investors prioritize social or environmental outcomes and may accept below-market returns to achieve greater impact. This approach is common among foundations using program-related investments (PRIs) or mission-related investments (MRIs).

4. Impact Investment Strategies

Thematic Investing

Investing in sectors or themes aligned with specific impact goals:

• Climate & Environment: Renewable energy, sustainable agriculture, circular economy
• Healthcare: Access to medicine, affordable healthcare, health technology
• Financial Inclusion: Microfinance, fintech for the underbanked
• Education: EdTech, workforce development, early childhood education
• Affordable Housing: Low-income housing, community development

SDG-Aligned Investing

The UN Sustainable Development Goals (SDGs) provide a universal framework of 17 goals addressing global challenges. Many impact investors align their portfolios with specific SDGs to ensure their capital contributes to measurable global progress.

Place-Based Investing

Targeting investments to specific geographies—whether underserved communities domestically or emerging markets internationally—to address regional inequities and generate local economic development.

5. Asset Classes in Impact Investing

Impact investments span the full range of asset classes:

6. Your First Steps

Ready to begin your impact investing journey? Here's a practical roadmap:

Step 1: Define Your Impact Goals

What issues matter most to you? Climate change? Education? Healthcare access? Clarifying your values helps narrow the universe of potential investments and ensures alignment between your portfolio and your priorities.

Step 2: Assess Your Risk Tolerance and Return Expectations

Impact investments span the risk/return spectrum. Determine where you fall—are you seeking market-rate returns, or are you willing to accept concessionary returns for greater impact?

Step 3: Start with What You Have

You don't need to overhaul your entire portfolio. Consider:

• Moving cash to a community development bank or credit union
• Allocating a portion of retirement funds to ESG or impact-focused mutual funds
• Exploring crowdfunding platforms for direct investments in social enterprises

Step 4: Due Diligence

Evaluate both financial and impact metrics. Look for investments with clear theories of change, measurable outcomes, and third-party verification of impact claims.

Step 5: Measure and Learn

Track both financial performance and impact outcomes. Use frameworks like IRIS+ to standardize measurement and compare across investments.