You might have started looking into responsible investing to see if you could tackle some of the problems facing the world, even in a small way. Whether you care passionately about the environmental problems that have emerged as a result of climate change, social inequalities that keep people from living harmoniously, or the way corporations interact with their multiple stakeholders, there is something you feel strongly enough about to invest in it. Impact investing sounds right to you, but how exactly does someone define “impact investment?” Falcons Rock Impact Investments has those answers for you.
What “Impact” Means
Impact is a very powerful word, but what does it actually mean? The definition and parameters are quite broad, but at its core, impact investing simply means the use or investment of money with the goal of creating a financial return on investment as well as furthering a social or environmental cause. This makes impact investing different from two other, similar types of investing:
· Socially responsible investing (SRI), which has its roots in exclusionary screening and is often an expression of investor values and beliefs; and
· Environmental, social and governance (ESG) integration, which is about finding investment opportunities that fit specific criteria while keeping risk management a priority.
These two concepts overlap in that they’re evaluated and prioritized by different investors based on subjective values. Impact investing has these elements as well, but goes even further and challenges the deeply-entrenched, traditional belief that social and financial benefits are mutually exclusive.
These two investment concepts often overlap. Impact investments may include these elements as well but goes even further and challenges the deeply-entrenched, traditional belief that social and financial benefits are mutually exclusive. Investing for impact puts dollars directly into securities that are designed to have a specific, positive social or environmental outcome and generate a market rate of return. Examples of impact investment themes include:
- Green Bonds – often issued by municipalities, these bonds fund a specific environmental project or goal, such as alternative energy, energy efficiency, pollution prevention, sustainable water, green building, or climate adaptation.
- Affordable Housing – financing for affordable homeownership to low- and moderate-income borrowers and renters.
- Enterprise Development & Jobs – providing small businesses and companies with access to capital to help them create and retain jobs in underserved urban and rural areas.
- Disaster Recovery – supports disaster-prevention initiatives and community development activities in federally-designated disaster areas or disaster-prone areas.
- Sustainable Agriculture – equity or debt financing for sustainable businesses such as organic farming, hydroponics, aquaponics, and vertical farming.
- Education/Childcare – providing education and childcare services primarily in low- and moderate-income communities.
- Other themes such as Healthy Communities, Neighborhood Revitalization, Senior Services, Gender Lens, Affordable Healthcare, and Arts & Culture.
Why Do It?
Investors realize that, as owners of assets in a company, they have a lot of power over what goes on in the organization. This ability to inspire real change is one of the motivating factors behind responsible investing. Many want to help markets develop solutions for problems and are willing to invest money, vote proxies, and find other ways of influencing organizations in order to make that happen. Some investors want to have funds that are consistent with their values or address the concerns of the people closest to them. There are other investors that are after financial performance, diversification, and risk management in their assets, and go about this by doing the research into exactly what they own and encouraging transparency in the companies they put their money into.
Explore with Falcons Rock Impact Investments
No two people have the same definition of impact, and no two investors put their money to work in the same way. There’s no limit to the amount of good in the world, though: Falcons Rock Impact Investments believes this and knows that you do, too. We screen our options and opportunities for the criteria that concern our investors and the impact they want to leave in the world. Learn more about our process.