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What is Impact Investing?

impact investingDepending on your personal investment strategy, you may seek out investment opportunities within a certain industry, such as tech or finance. You may prefer debt- or equity-based financial instruments, or you may prefer short- or long-term investments.

These all come with the potential for financial gain, but what about making a difference?

That’s where impact investing plays a role. A subset of socially responsible investing, impact investing seeks to make a positive impact, or help reduce the negative effects of business activity, on the social environment. Typically supporting enterprises like nonprofits, sustainable energy or other green tech startups, and other companies with a strong commitment to corporate social responsibility, impact investing includes many different forms of investment vehicles. It differs from a grant in that investors do expect a return of capital or otherwise see a return on investment, such as in quantifiable social impact.

By the numbers:

  • According to the Global Impact Investing Network’s Annual Impact Investor Survey, 208 investors from around the world reported managing a total of $114 billion in impact-related assets at the end of 2016
  • Investors committed more than $22 billion to impact investments in 2016 and planned to commit $25.9 billion in 2017
  • The majority of survey respondents reported that portfolio performance overwhelmingly meets or exceeds investor expectations for both social and environmental impact and financial return
  • Overall environmental, social, and governance (ESG) assets managed worldwide amount to over $22 trillion
  • Sustainable, responsible, and impact investing rose 33% between 2014-2016 to $8.72 trillion
  • Millennial investors are two times as likely as the overall investor population to invest in companies targeting social or environmental goals

While institutional investors made up the majority of impact investors in the past, interest is predicted to grow in 2018 across both individuals and institutions. According to a 2016 report from Toniic, Millennials are one of the key investor segments pushing for impact investing; 79% of those interviewed described themselves as impact investors seeking both financial and social impact returns. As younger investors are more likely to focus on social responsibility and making a positive impact, the potential impact investing holds to meet global challenges and put capital to work may be one of the key draws.

Curious about how to get involved in impact investing? There are a number of financial services organizations that offer investment opportunities, whether debt instruments for nonprofits or for-profit social enterprises, microloans to small business owners, or an equity stake in a socially or environmentally conscious startup. Other opportunities exist on a larger scale, such as the Austin Community Foundation and its Impact Investing Program, right in MicroVentures’ hometown, which specifically offers high-impact donors a sophisticated, local investment strategy with social returns in the Central Texas area.

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