Investing with Impact
Throughout history, there is a pattern that emerges over and over again: capital drives change. Wherever money is injected, innovation often follows.
You hold a great amount of power as an investor because of this — you have the ability to influence where the money is directed, which means where time and energy are spent. While billionaires like Bill Gates can pour hundreds of millions of dollars into various causes, whether it is closing the opportunity gap or finding cures for infectious diseases, this charity work isn’t the only way to leverage your capital to create a positive impact on the community.
Investing, by definition, entails trying to create a positive return on investment. However today, many investors are looking beyond just a monetary gain from their investment. They instead are able to leverage their capital to drive positive change in societal and environmental issues that they care about alongside generating positive financial returns. As an impact investor, you are able to help kickstart startups working in healthcare, sustainability, education, microfinance, and more.
In the past, impact investing wasn’t seen as the “cool thing to do”, however as our society has become more focused on impact and more social ventures are emerging, it has become obvious that impact and financial returns aren’t mutually exclusive. In fact, a reputable study by the Cambridge Associates and the Global Impact Investing Network on impact investing found that the financial return on investment for impact investments are equal to, if not greater than the returns on traditional investments. The figure below compares the performance of impact investments to that of comparable funds, and as seen in the graph, there are no significant disparities between their returns.
This data, along with studies conducted by many other reputable groups debunk the myth that impact investing sacrifices financial returns for social impact. Financial institutions such as UBS and Blackrock have recently invested billions of dollars in impact investment funds, demonstrating that it is a promising area of growth.
So how do you choose an issue to focus on? If nothing immediately comes to mind, the UN developed a list of 17 items as a plan to ensure the social, economic, and environmental well being of the world called the Sustainable Development Goals (SDGs). These include items ranging from ending world hunger to ensuring quality education to ocean conservation, which each have a set of quantifiable goals that the UN hopes to achieve by 2030. The SDGs are widely used as an impact framework for many large funds and institutions.
As more and more impact-related R&D becomes privately funded as opposed to being funded or conducted by governmental organizations and grants, individual investors now have more of an opportunity than ever to leverage their wealth to create a positive impact on both their community and on their portfolio.
There are several strategies related to impact investing. ESG (environmental, social, and governance) mutual funds and ETFs are portfolios of companies meeting ESG guidelines, giving you the opportunity to invest in a pre-selected set of promising impact-oriented companies. Morningstar created a list of top-performing sustainable funds, which can be found below.
You can also engage in impact investing in the private market as well through equity crowdfunding, angel investing, and/or venture capital. This is what Bioverge focuses on — helping investors discover and fund early-stage startups tackling pressing issues in healthcare. Healthcare investing is one of the best ways to directly create a positive impact with your capital, since its fundamental goal is to help people live better and healthier lives.
In summary, there are tons of opportunities, whether you are a seasoned investor or if it is your first time investing, to support causes you care about. Whether it is impact-driven venture capital, angel investing, or investing in a larger fund, there are plenty of ways to use your money to drive positive change.
