Impact investing means using your money to create change in the world while also earning financial returns. Unlike traditional investing that only looks for profit or ethical investing that screens companies, impact investing intentionally supports businesses and initiatives designed to solve social and environmental problems with measurable results.
History and Growth of Impact Investing
Though values have long influenced investment choices, “impact investing” as a defined strategy emerged in 2007 during a Rockefeller Foundation conference at the Bellagio Center. The term describes investments made with the dual objectives of financial gain and deliberate social or environmental benefit. This approach fills the gap between pure philanthropy and profit-driven investing. Today, impact investing is a rapidly growing field attracting institutions, family offices, and individual investors alike.
How Impact Investing Works
Investors seek opportunities where capital can fuel projects or companies tackling specific challenges such as affordable housing, renewable energy, sustainable agriculture, or access to healthcare and education. Common sectors include:
- Renewable energy projects like solar and wind farms
- Affordable housing developments
- Sustainable farming practices
- Microfinance loans to small entrepreneurs
- Health and education technology startups
Central to impact investing is measuring outcomes. This requires clear metrics such as carbon emissions reduced, jobs created, or people served. Organizations like the Global Impact Investing Network (GIIN) provide frameworks and standards to guide and verify impact results (source: GIIN Impact Investing).
Financial returns can vary. Some impact investments offer market-rate returns comparable to traditional investments, while others accept below-market returns where social impact is prioritized. The key is balancing profit with purpose.
Examples of Impact Investments
Impact investing occurs in many forms and scales:
- Community Development Financial Institutions (CDFIs) that lend to underserved communities
- Green bonds funding environmentally beneficial projects
- Venture capital backing sustainable startups
- Specialized impact mutual funds and ETFs
Who Can Participate?
Impact investing is accessible to all types of investors:
- Individual investors can access impact funds or projects through platforms and advisors
- Foundations and family offices increasingly allocate portions of endowments to impact
- Pension funds and banks are exploring impact options
Tips for Getting Started
- Define your social or environmental priorities
- Research investment options and impact measurement methods
- Evaluate financial risk and potential returns
- Diversify impact investments across sectors and geographies
- Consult financial advisors experienced in impact investing
- Start with manageable amounts through funds or crowdfunding
| Investment Type | Impact Focus | Expected Returns | Typical Investors |
|---|---|---|---|
| Microfinance | Economic empowerment | Below-market to market | Individuals, funds, foundations |
| Renewable Energy | Climate mitigation | Market-rate | Individuals, institutions |
| Affordable Housing | Housing security | Below-market to market | Institutions, individuals |
| Sustainable Agri | Food security, environment | Market to above-market | Funds, family offices |
| Green Venture Capital | Innovation for sustainability | Market to above-market | Funds, high-net-worth individuals |
Common Misconceptions
- Impact investing is different from ESG or ethical investing: It focuses on intentional impact through core business activities rather than only screening or management practices (source: Investopedia).
- It aims to generate financial returns, not just promote charity.
- Watch out for “impact washing”—false claims without measurable goals.
- Financial due diligence remains critical.
Frequently Asked Questions
Is impact investing only for the wealthy? No. Platforms and funds make it accessible to everyday investors.
How to verify impact? Look for clear goals and regular reporting using recognized standards.
Can you lose money? Yes. Like any investment, impact investing carries risks.
Difference from charity? Impact investing expects a financial return alongside social/environmental benefits.
For readers interested in sustainable investing strategies, see our Sustainable and Responsible Investing glossary entry.
References:
- Global Impact Investing Network. What is Impact Investing? https://thegiin.org/impact-investing/
- Investopedia. Impact Investing. https://www.investopedia.com/terms/i/impact-investing.asp
For official tax and investment guidance, visit the IRS’s Charitable Contributions and Investment Income pages.
