Financial news outlet Barron’s defines impact investing as a means of generating portfolios that earn market-rate returns while contributing to a measurable social or environmental impact. Through impact investing, consumers are able to become social advocates for issues such as global poverty, social inequality and economic growth in the developing world.
Impact investments provide capital to organizations, companies or funds to provide services like housing, healthcare and education to the global poor.
Hyatt Hotel heiress, Liesel Pritzker Simmons, became a leading name in the impact investing movement after co-founding the Blue Haven Initiative with her husband. The Blue Haven Initiative resulted from the couple’s trip to Rwanda, a region where nearly 60 percent of the population lives below the poverty line.
After receiving $500 million in inheritance, Pritzker Simmons and her husband wanted to readjust their investment portfolio in order to have a more direct impact on impoverished people like those in Rwanda. The Blue Haven Initiative currently holds portfolio companies in Kenya, Columbia, Australia and the United States.
A U.S. Trust survey found that a third of investors with high net-worth partake in impact investing or are interested in doing so. The survey also notes a possible future growth in impact investing with 60 percent of millennials owning or being interested in impact investments compared to only 24 percent of the baby boomer generation.
Barron’s reports that Bain Capital hired an internal social-impact-investing business developer in April of this year and Goldman Sachs acquired Imprint Capital, an investment firm that focuses on impact portfolio in July.
In addition, multinational investment company, BlackRock, created the Impact U.S. Equity Fund in 2015 and Bank of America managed $9.8 billion in impacting assets, from green bond funds to socially influential ETFs that promote poverty alleviation.
According to the GIIN and J.P. Morgan annual impact investor survey, more than $10 billion of impact investments were made in 2014 and a 16 percent increase is projected for investment by the end of 2015.
The risks involved with impact investing include issues such as climate change, gender equality, education and agricultural sustainability, according to a Barron’s report. Successful investments made to alleviate these issues in the developing world can help to end global poverty.
Transparency can cause issues within the impact investing industry, so it is important for investors to remain not only socially conscious, but up-to-date on the progress of change their investments are bringing.
Passionate impact investors do not see any sacrifice in returns of impact stocks than others, with options in private equity and even exchange-traded funds. According to Barron’s, these socially aware investors insist that impact investments are less volatile and perform better than traditional financial benchmarks in bear markets.