Impact investing is changing what it means to use financial markets to drive sustainability.
Kipp Baratoff of Meyer Memorial Trust, an Oregon-based foundation, defines impact investment as "an activity that has a clear and measurable deliverable to social or environmental outcomes." Capital investing in the past has been about one thing—profits. Now, these new-age impact investors skip the plundering and seek profits aligned with their principles.
According to the Global Impact Investing Network, this form of investment has the "potential to unlock significant sums of private investment capital to complement public resources and philanthropy in addressing pressing global challenges."
Still, the industry's barriers to success are overwhelming. There's confusion over terminology. The lack of standard performance benchmarks and shortages of rating agencies, intermediaries and investment consultants choke the flow of capital into impact funds. But, as Baratoff noted, "the willingness to do what makes others uncomfortable" can open the door to new asset classes: the desirable social and environmental outcomes of impact investment.
How do you know when you've found the right type of impact investing? Well, ImpactBase can help with that. It's an online global directory of impact investment vehicles that brings clarity to an otherwise ambiguous marketplace. For Baratoff, his approach depends on how each program is defined, managed and its core objectives.
For example, foundations and nonprofits that seek out competitive returns without sacrificing their established values provide investors several measurable outcomes. These mission-related programs negate the misperception that investors must sacrifice financial returns for social or environmental good.
Traditionally, investment portfolios are geared toward profit maximization. However, mission-driven investment includes an examination of these traditional portfolios and restructures them to deploy capital to the individual's mission of working towards a optimal financial return, as well as their chosen social or environmental good.
Through impact investing, we can create a world that not only enables growth, but satisfies profits, purpose, and planet with our limited resource pool.