Use this discussion to understand impact investing and to consider some of your investing options.
Impact investing defined
The Global Impact Investing Network, or GINN, provides a detailed explanation of impact investing, and GINN defines the term as “investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return." This form of investing is used to solve several types of problems, including sustainable agriculture, clean technology, healthcare and education.
GINN states that impact investments must fit the investor’s intention of creating positive social or environmental change, along with the need to generate a return on invested capital. While an impact investment may include a variety of asset classes, the return generated may sometimes lag the market averages when compared to more traditional investment portfolios.
Growing interest, more choices
This Forbes article points out that roughly a third of high net worth investors own impact investments or have an interest in the approach, and the publication also points out that retirees are interested in supporting causes through impact investing. An investor can buy stocks or bonds issued by ventures that attempt to solve a specific environmental or social problem.
One type of impact investment is AARP’s Age Strong program, an investment vehicle that funds loans to provide services to people over the age of 50, including services for food and housing. The website points out that, by the year 2040, there will be 72 million people in the U.S. over the age of 65, which is double the number today. Age Strong’s goal is to raise $70 million to meet the needs of this population.
Impact investors can also find investments that address the need for smart farming. This article explains that world food production must increase by 70% by the year 2050 to meet the growth in population worldwide, and traditional farming methods are not sufficient to meet this need.
Smart farming uses technology to analyze how farmers use their land. This approach can increase the amount of crops produced per acre and identify the best crops to plant, based on soil analysis. Technology can also help a farmer analyze air temperature, humidity and the risk of plant disease. Investing in smart farming can help farmers dramatically increase their production and meet the growing need for food worldwide.
Make a difference
Investors have hundreds of investments choices, and some people find the decision process difficult. Consider impact investing to generate a return on your capital and to help solve a social or environmental challenge.