What is Impact Investing?

Social entrepreneurship is a field that is based on the notion of “capitalism with a cause”, “compassionate capitalism”, “social responsibility” and even “capitalism with a human face.”

Social entrepreneurs and social businesses work with a social mission, and they manipulate the workings of the capitalist system to help make a positive social or environmental difference.

Creating enterprises is one way for you, as a social entrepreneur to make an impact.

Another great method is to engage in socially responsible investing – and this can be part of your own personal finance initiatives day-to-day, rather than starting up your own social enterprise.

Impact Investing: One Type of Socially Responsible Investing

Even if you don’t run your own social enterprise, you can be personally involved in socially responsible investing using a portion (even a small amount) of your regular income and savings.

Paul Sullivan wrote a very relevant article in the New York Times, entitled ‘With Impact Investing, a Focus on More Than Returns.’ Here, he talks about ‘impact investing’ as one form of socially responsible investing.

He gives a definition of impact investing, as follows:

More often, impact investing is described by what it is not. It does not work in the same way as socially responsible investing, which excludes areas a person does not want to invest in — like tobacco or guns — through a simple screening process. Impact investing focuses more on bringing about change — helping the working poor in India buy a home, for instance.

While most of the money is going into areas like helping to reduce poverty and improving the climate, it is not philanthropy. Investors expect at least a return of their capital with an adjustment for inflation and, in many cases, a lot more than that.

According to Paul, impact investing seems to be a larger-scale form of socially responsible investing, as he claims that it usually involves “minimum investments often around $1 million.”

Investing in Proactive Companies Engaged in Social Impact

Although impact investing seems to need larger amounts of investment input, the philosophy behind it is still relevant even for the small investor and average person wanting to do good while doing well. The general philosophy is to invest your money in companies that make a positive social impact. It seems to be distinctive from other forms of socially responsible investing which merely excludes companies engaged in prohibited business practices. Impact investing, on the other hand, focuses on investing in companies that proactively engage in a social mission (a social return on investment), along with definite financial returns. For example, impact investing involves investing in companies that engage in sustainable energy technology or affordable housing.

If you’re very interested in the concept of social entrepreneurship, but you can’t see yourself starting up a social enterprise yourself, really do consider impact investing. You can support other social entrepreneurs and encourage social impact through your investment, even while you receive a financial return and grow your money, too.

Share Your Impact Investing Ideas and Resources

I’m aware that there are a number of ethical mutual funds that are available in Australia and the USA, which include only social responsibility type of companies. So I’m going to open it up to you. Share your impact investing ideas and resources. Are you engaged in impact investing yourself, and if so, how?