What Exactly is Impact Investing

By Sonya Dreizler via Iris.xyz

Last month I wrote about the important distinction between SRI and ESG. Today I’m continuing on that theme and answering one of the questions I get about terminology: what is impact investing and why do you use that term?

What is Impact Investing?

I define Impact Investing in the terminology section of my website as investing that “drives social and environmental progress through investments, while screening for risk and creating competitive returns.” There is no universal definition of this term, which can be challenging. But most people have a general understanding of the term and it’s a good jumping off point for conversation, which I’ll talk about in the second section of this post. But first, let’s look at the evolution of  and current use of this term.

History: Ethical and values based investing related terms have been used to describe investing or divesting based on a set of morals and/ or values since the 1970s. In 2007 The Rockefeller Foundation coined the term impact investing for “investments made with the intention of generating both financial return and social and/or environmental impact.” Note that this definition is broad on the subject of returns. The investments seek financial return, but not necessarily competitive with the broader market. This is typical of early use of the term when it was often used to make a distinction between philanthropy and investing, and usually referenced private investments. Some investments yielded healthy returns, while others had expectations of below market rates of return.

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