Social Impact Investing came about in 2007, and can be defined as "investments made in companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return."
What is Social Impact Investing, and Why Should You Care?
The term was first coined by Antony Bugg-Levine, who is the CEO of Nonprofit Finance Fund, a non-profit focused on using capital to create a “just and vibrant society.”
Social Impact and Financial Return
Impact investments are made in organizations, companies, investment funds, and individual entrepreneurs, to create a social and environmental impact, as well as a financial return. Potential returns of social impact investments range depending upon the risk level of the investment.
Different impact investing platforms focus on different sectors for their investments, such as developing countries that usually don't have the same access to financing as companies in mature economies, like Europe and North America.
Other opportunities exist in developed markets, usually in sectors and industries that are not yet mature. For example, solar projects are quite popular right now, as well as initiatives that support the growth of local food sources, and additional access to those food sources for local communities.
Investors who choose social impact investing not only want to generate a return on their investments, but they also want their money to do some good in the world, instead of just focussing on profits.
This creates a more sustainable approach to the development and growth of emerging economies. Since many of the people who live in the countries where social impact investments are concentrated are living below the poverty line, many of them have in the past only been able to consistently rely upon charity and volunteer organizations.
By investing in these economically underdeveloped areas of the world, we can use impact investing to help in creating jobs, and also provide companies with the resources to improve their communities access to basic needs.
Charity and volunteer organizations do a great job of helping the world's poorest people, but charity isn't a sustainable model because it always relies on someone to give their money away for no financial compensation in return. This model greatly reduces the potential for people to help with the issues and causes they care about because it is limited to those people who can afford to lose access to their own money.
A True Win-Win
Social impact investing allows people who want to make a difference the opportunity to help others while still earning money themselves. It creates a true "win-win" scenario and provides a sustainable model that can last well into the future. Now a mother in a family of four who wants to help worthy social causes, but can’t afford to give away her money, can now use impact investing to grow her money while helping out developing economies at the same time.