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What is Impact Investing?

Every so often there is a new buzz word that attracts a lot of attention in the world of retail investing and personal finances.  I have only heard it a few times, so I figured if I wasn’t that familiar with it maybe others haven’t either.  The term is Impact Investing.

Investopedia defines impact investing as,

Investing that aims to generate specific beneficial social or environmental effects in addition to financial gain. Impact investing is a subset of socially responsible investing, but while the definition of socially responsible investing encompasses avoidance of harm, impact investing actively seeks to make a positive impact – investing, for example, in non-profits that benefit the community or in clean technology enterprises.

In my opinion this makes so much more sense than socially responsible investing! It is proactively deciding how to invest your dollars rather than passively screening those companies you deem as unsocial.  Notwithstanding it may make more sense to me than SRI, I don’t entirely “get” it.

Why I don’t Entirely Understand Impact Investing

For me, Impact Investing would make sense if you believe that a particular industry is going to grow because there is a paradigm shift.  So, if you really believe solar is going to take out traditional energy then it makes sense to me…but when you buy a share of a stock it isn’t like you are supporting the company by providing the company with actual money.  Rather you are simply taking just a tiny bit of ownership in the company.  So I guess if , so I guess if that makes you sleep better all the better, but personally I don’t feel that strong in a cause where I would want to deploy funds at the risk of growth.



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