Steady Returns With Social Impact
Jed Emerson 09.29.09, 12:00 PM ET
In today’s volatile markets, investors are looking for new ways to capture returns while managing risk. The little secret of this past year’s capital crisis is that while many mainstream investments incurred significant losses in value, one category remained steady–with some investors significantly outperforming the mainstream market. It’s called impact investing.
Impact investing covers that category of investment, which is viewed as “sustainable,” generating financial returns by integrating consideration of social and environmental factors into the investment strategy. The category also includes a growing number of CDs and other fixed-income investment options–except in this case invested funds are used to support small, sustainable business and community development. Sound like a below-market instrument where you need to assume you will have to take a hit on your financial returns to allow for some vague effort to “do good”? Hardly. Impact investing is not your parent’s socially responsible investment strategy. For example, this past year various microfinance funds gave investors a 6% return during a period when many strictly commercial products were down three to five times that amount.
What was a niche industry has grown significantly in recent years–now totaling over $2.71 trillion in the United States alone. Recently, the venture capitalist Vinod Khosla announced he was raising $1.1 billion to invest in green energy, sustainable materials and energy-related information technologies.
While many of the more “cutting edge” opportunities are found in private and public equity funds not available to the average investor, other categories offer the “retail” investor opportunities for generating returns while knowing their investments are managing risk through consideration of environmental issues or being well invested in communities and regions around the world to provide needed capital for sustainable business development, micro-loans to entrepreneurs and general economic development.