Throughout history, a pattern has emerged again and again: capital drives change. Wherever money is injected, innovation often follows.
As an investor, you have a great deal of power — you have the ability to influence where the money is directed, dictating where time and energy are spent. While billionaires, like Bill Gates, can pour hundreds of millions of dollars into various causes, philanthropy isn’t the only way to utilize capital to improve the world.
Investing, by definition, is predicated upon delivering a positive return on capital deployed. Increasingly, many investors are looking beyond just a monetary gain from their investment. They are also interested in leveraging their capital to create positive change in society and the environment. As an impact investor, you are able to 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 social ventures become more prevalent, impact and financial returns are ever more tightly linked. In fact, a reputable study on impact investing, by the Cambridge Associates and the Global Impact Investing Network, found that the financial return on impact investments is equal to, if not greater than, the return on traditional investments. The figure below compares the performance of impact investments to that of comparable funds. As the graph shows, 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, indicating that these are 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 17 item plan, called the Sustainable Development Goals (SDGs), to ensure the social, economic, and environmental well being of the world. These include items ranging from ending world hunger to ensuring quality education to ocean conservation. Each has 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, individual investors 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 that can be found below.
You can also engage in impact investing in the private market 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 because its fundamental goals are to help people live better and healthier lives.
In summary, there are tons of opportunities to support causes you care about. You can be a seasoned investor or new to investing or anywhere in between. 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.