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A way to make a difference with your investments while generating financial returns.
Impact investing is the act of purposefully making investments that help achieve certain social and environmental benefits while generating financial returns. It’s a broad term that refers to everything from investing in companies with an explicit mission aligned with your values to avoiding investing in companies that do not meet those criteria. It can also be defined more expansively to include donating to nonprofits and projects that blend these charitable funds with investment capital to support larger or higher-risk projects that may not otherwise be financially viable.
This strategy is based on the idea that you can align your investments with your personal and philanthropic values while realizing financial returns. So, for example, if you were interested in reducing the use of fossil fuels, you might invest in funds focused on companies that develop innovative renewable energy solutions.
Growth in impact investing has been driven in large part by interest among the wealthy and among women. But a generational shift may help to popularize the approach even more. Almost a third of Millennials cite alternative forms of giving, such as impact investing and social involvement in giving, as having an influence on how they give and invest, according to our study, The Future of Philanthropy. That’s nearly double the number of Baby Boomers. These trends, as well as increasing numbers of institutional investors incorporating impact into their approach, have been accompanied by a growth in options for individual donors and investors who want to participate in impact investing.
There are many different ways to invest for social or environmental impact or both. Here are a few common ones:
Impact investing offers a variety of benefits—some quantifiable and tangible, others less so but still important. Here’s a sample of the benefits of impact investing:
It’s also important to note that investing for impact doesn’t necessarily mean you have to compromise financial returns. Numerous studies have looked at the performance of impact investments and found that investing in sustainability has usually met, and sometimes exceeded, the performance of traditional investments.
Socially responsible investing (SRI) is often used synonymously with impact investing or sustainable investing. SRI typically refers to strategies for investing in mutual funds or corporate stocks and bonds based on one’s values. In general, a socially responsible investor tries to encourage corporate practices such as environmental stewardship, consumer protection, human rights and diversity.
As impact investing becomes more popular, the number of available SRI investment options has grown. Some emphasize aspects of a company’s behavior or management—often labeled as ESG (environmental, social and governance) factors. For example, gender-focused ESG funds select companies with significant female leadership while green funds might focus on companies that limit water consumption or carbon emissions.
Other social-impact funds focus on companies that generate revenue from products or services that address a specific social issue, like renewable energy or affordable housing.
Finally, some funds are notable simply for what they do not include. They may exclude “sin stocks” for example, such as shares of businesses that operate in industries like alcohol, firearms, tobacco, gambling or military weaponry.
The simplest way to get started with impact investing is by investing in one of the growing number of ESG funds or by donating to an impact investing nonprofit. More sophisticated strategies, such as making an investment in individual companies or lending to nonprofits, can be a complex enterprise and require more knowledge and expertise.
Since 1991, we have been helping donors like you support their favorite charities in smarter ways. We can help you explore the different charitable vehicles available and explain how you can complement and maximize your current giving strategy with a donor-advised fund. Join over 100,000 donors who choose Fidelity Charitable to make their giving simple and more effective.