Impact Investing and Social Finance

Impact investing and social finance offer solutions to some of society’s pressing societal problems; however, there can be challenges associated with them. First of all, impact investors must recognize that their returns may not be guaranteed.

Investors may come across greenwashing – when companies claim social impacts without evidence or careful evaluation. Furthermore, the market must develop infrastructure that facilitates impact investments.

Impact-First Investing

Many HNWIs and families are turning to impact investing as an approach for their philanthropy, seeking guidance from advisors in creating and executing impact strategies.

Impact investments are investments designed to achieve both financial returns and tangible social results, often using debt, equity or structured products such as pay-for-success contracts or outcomes partnerships as investments vehicles.

Impact investment offers more than market-rate financial returns; it also serves as a source of new capital that supports business models for social good and accelerates their expansion. Impact investing complements and catalyzes existing philanthropy or government grantmaking programs by drawing more private investors in, as well as enabling projects with limited risk capital access to scale faster and achieve more social benefits than would otherwise be achievable with limited risk capital access alone. Unfortunately, however, finding and conducting the due diligence necessary for impact investments can be time and resource intensive – particularly for beginners entering into impact investing themselves!

Impact-First Funds

Impact investing offers many ways for you to increase both your bottom line and contribute towards creating a more sustainable world. One easy way is choosing companies that prioritize environmental, social and governance (ESG) criteria in their operations; or you could find ESG-focused mutual funds as another way of diversifying investments while meeting impact goals.

Impact investing is helping close a multi-trillion-dollar capital gap that impedes progress on issues like poverty, global health, climate change, and inequality. But this trend alone won’t solve these problems; more people from diverse backgrounds must join us in creating a better tomorrow.

One effective strategy for making an impactful contribution is through a donor-advised fund that invests in impact-first opportunities, including program-related investments (PRIs) made by donor-advised funds that offer below market returns; or catalytic capital where investors pool their assets to support enterprises or funds that have difficulty finding suitable financing.

Impact-First Donor-Advised Funds

Impact investing can help support nonprofits that address issues you care about while also encouraging corporate practices such as fair labor practices and environmental stewardship. Furthermore, unlike philanthropy, impact investments provide financial returns which can be recycled over time to address social problems more quickly.

Impact-first strategies provide support for innovative business models for social good that don’t fit within traditional investment and philanthropic frameworks, such as microfinance, community development, affordable housing and sustainable agriculture.

Finding an impact-first strategy means finding the ideal opportunity. Consult your sponsoring organization about pre-vetted impact investing opportunities that fit with both short and long-term charitable goals, consider teaming up with other donors interested in impact investing, or connect with intermediaries that provide market-based solutions more easily accessible – they may even assist with creating an appropriate portfolio of impact investments.

Impact-First Investments

Impact investors typically prioritize social and environmental returns over financial ones, seeking below-market returns in both developing markets as well as developed ones across asset classes.

Locate issues you care about and invest in companies with social missions similar to your own. Lending directly to nonprofits with either your capital or that of other donors can also help. Or use an automated robo-investor for an ESG factor focussed portfolio investment portfolio.

We aim to make it simpler for DAF account holders, family offices and private foundations to allocate philanthropic dollars efficiently and catalyze solutions at scale through impact investing. Many impact-first investors report that adopting this approach breathes fresh life into their philanthropic strategies while adding urgency and taking more risk on innovative approaches that may not fit within traditional investment or philanthropic frameworks – including investments into revenue-based financing for historically marginalized entrepreneurs or climate solutions that accelerate innovation.