Impact Investing 101 – What You Need To Know

More than ever, sustainable investing is a topic of conversation – in the investment world, development pioneers, and politics. It is clear we can’t keep going ‘business as usual,’ but what to do instead is a more contested issue. What is the best sustainable investment strategy that will save the future of our planet? That will help achieve gender equality? That will put an end to world hunger and the water crisis? At FLIT Invest, we believe that impact investing is the most sustainable and effective investment strategy that generates positive measurable impact while growing your wealth. This article is the first of a 3-part series where we will introduce the ins and outs of impact investing. We will cover the essentials of impact investing, how it differs from other strategies, and how FLIT Invest implements this investment approach in our app. Understanding your options is essential to making an informed choice and making the greatest impact when you vote with your dollars. Read on! Be empowered.

A History of Impact Investing

Impact investing is a relatively new concept compared to other sustainable investing strategies. The term was coined in 2007 during the Rockefeller Foundation’s Bellagio Conference in Italy by stakeholders and leaders in finance, philanthropy, and development. Impact investing joins charity and economics to form an investment strategy that does good in the world, on purpose, and makes money. They created an early framework to build a worldwide social and environmental impact investing industry.

Even before 2007, impact investing was being practiced. BlueOrchard, founded in 2001, a UN Initiative, was the first commercial manager of microfinance debt investments worldwide. The company became a leading global impact investment manager and recently celebrated its 20th Anniversary! Another great example would be the Omidyar Network, which in 2004 launched a “philanthropic investment firm” that blended philanthropy and investment. Since then, impact investing has grown, and the Global Impact Investing Network (GIIN) launched to promote effective impact investing. GIIN developed best practices for impact reporting and impact investing and serves as a reference point for all impact investors. 

Impact investing is continuing to grow, not just in the more sustainably minded banks. Today, practically every big investment firm has an impact investing arm, whether internal or by acquiring an independent impact investing boutique. Governments are also supporting impact investing. It is clear that important people in important places are backing impact investing. Despite rhetoric against sustainable investing in recent years, the impact investing market hit $1 trillion in 2022, according to the Global Impact Investing Network (GIIN). To us, that sounds like a lot of dollars making a lot of difference!

What is Impact Investing?

Let’s talk definitions. What actually is impact investing? According to GIIN, impact investments are “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.” The emphasis on intention and measurement is the key takeaway that distinguishes impact investing from other sustainable investing or even philanthropy. In the next section, we explain what each element means for impact investing. 

Impact Investing: Intentional and Measurable

INTENTIONAL: Investments must make a positive social or environmental impact and make good financial returns. That is, you are doing good with your money on purpose and intending to make money back. Impact investors can choose which investment themes they invest in and select multiple (for example, at FLIT Invest we offer these 6). Still, investment themes are ultimately chosen to impact the world positively. Many impact investing funds use the UN SDGs as a framework or the GIIN’s IRIS platform to capture their investments’ social and environmental impacts.

 

MEASURABLE: The social and environmental impact of investments must be measurable. Measurability indicates intention but also ensures follow-through from the companies in your portfolio. If a Clean Water company says it’s making an impact, tell us how many billions of gallons, please! If a company is offering Climate Solutions to reduce greenhouse gas emissions, tell us how many GHG emissions were avoided thanks to their business. Measurability is accountability! 

The Two Sides of Impact Investing

So given impact investing is about the impact and financial return, you can take two paths within impact investing. You can prioritize impact or profit while still satisfying the principles of impact investing. The choice is up to you; there is room to be finance-first without being finance-only and impact-first without being impact-only. Both approaches are valid since pursuing financial returns alone would be considered traditional investing, while seeking impact alone would be regarded as conventional philanthropy. See below a helpful diagram showing the various sustainable investing strategies and how they balance finance–impact.   

Whether you’re finance-first, impact-first, or somewhere between, impact investing is the strategy FLIT Invest believes will change the world. We believe that impact investing is the most sustainable investing strategy available. To read more about the sustainable investing space, you can read our article What is Sustainable Investing?  

Is Impact Investing Still Growing

Looking at the big numbers for sure! The impact investing market provides a lucrative opportunity to make an impact and yield returns. From 2019 to 2022, the impact investing market has grown from $500billion to $1 trillion. The impact investing actors are not only limited to traditional investors, but new actors such as NGOs, religious institutions, pension funds, and individual investors are coming onto the scene. But wait, there’s more! The full market potential for impact investing is yet to be reached. According to the IFC, the impact investing market for private institutions and households in 2018 has a potential of $26.5 trillion. This is an exciting space to be in. Additionally, impact investments can perform as successfully as the rest of the market, and for more convincing, you can read GIIN’s 2020 Annual Impact Investor Survey 

The growth of impact investing is promising for a young discipline, but challenges remain as options are still limited compared to traditional investing or philanthropy. It can be hard to find options marketed truthfully or have a low enough account minimum for the everyday person. Investing should not just be for the ‘finance bros’ or ultra-wealthy – it should be for conscious consumers, financial activists, students trying to save, and young professionals thinking about their future. It’s time to democratize investing and make it accessible for all. You can become an advocate for change and capitalize on a growing market by signing up for early access to the FLIT Invest app today. 

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Prior to founding FLIT Invest, Alejandro worked at J.P. Morgan’s Private Bank in New York, where he oversaw and managed investments for ultra-high net worth families. Before J.P. Morgan, he was an investment analyst at Northwestern Mutual, responsible for developing comprehensive financial plans and asset allocation models. Alejandro is a CFA charterholder and former professional soccer player.

Steven is a UX/UI Designer based in Los Angeles, CA. He received his BA from CSULB focusing on graphic design. Steven approaches his projects with a keen eye for design while prioritizing user-friendly solutions. He is passionate about animal welfare, and environmental causes.

Prior to FLIT, Kinga worked at Ericsson as a software developer specializing in data analysis where she developed machine learning models to evaluate the quality of the encrypted media traffic over mobile networks. She is an advocate for promoting a transparent and effective work environment. Kinga values diversity and feels strongly about providing access to education. She has a sweet tooth, loves reading and HIIT training.

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Prior to founding FLIT Invest, Richard was an investment banker at ING in London. He advised banks, asset & wealth managers, FinTechs and other financial institutions on mergers & acquisitions, financing and other strategic projects. He is an impact investing enthusiast having advised BlueOrchard – leading global impact investing asset manager – on their sale to Schroders. Richard is a former professional triathlete, vegetarian and nature enthusiast.

Serena is a sales and growth professional. She has experience in rapidly scaling revenues for consumer products through the deployment of marketing campaigns and team strategy development. Serena has a keen eye for identifying and implementing emerging consumer trends that result in better user experiences. She is passionate about criminal justice reform and is a loud voice in the fight for gender and racial equality.

Martin is a Software Architect and Developer whose goal is to make FLIT Invest an application that puts usability and security first. Martin started his career in finance, where he developed an integrated treasury solution for banks and corporations. Then he deep-dived into medical imaging at Siemens Healthcare, where he spent years developing a next-generation radiography system. Martin is an avid traveler and loves cycling, hiking, and skiing.

Zsolt has worked as a Software Engineer in Germany, Scotland, and Hong Kong. His work experience lies predominantly in the FinTech industry, both in startups and well-established companies. Before FLIT Invest, Zsolt was a developer at Asia’s leading wealth management platform in Hong Kong. Alongside FLIT, Zsolt is completing his Master’s Degree in applied mathematics in London. In his free time, he enjoys swimming and reading fiction.

Tina is a UX/UI Designer based in Los Angeles, CA. Her expertise in both Economics and Interactive Design allows her to approach topics from a variety of perspectives in order to create products, assist people, and solve problems. She characterized challenges in a larger scope as an explorer, and she continued to look for solutions that would better human life. In addition to design, Tina is enthusiastic about women’s issues in society and animal welfare in various countries.

Peter is a Mobile Engineer with extensive experience in native iOS and Android app development. He has worked with various Fortune 500 companies across industries including fintech, transportation, human resources, energy, accounting, and pharmaceuticals. Being a lifelong learner he’s always eager to acquire new skills in various topics. He’s enthusiastic about different aspects of finance, and in his free time he enjoys working out.

Nick is a User Researcher based in Los Angeles, CA. After receiving his BA in Psychology, he moved on to receive a certificate in UX/UI from UCLA which set him on the path to understanding users. Nick approaches User Research with an empathetic lens, ensuring that every user’s needs are considered in each step of the process. Nick is passionate about providing sustainable change, and in his free time, he’s looking for another national park to check off the list.

Brian is a self-taught iOS developer based in Los Angeles, CA. Driven by a strong interest in finance and renewable energy, he takes pride in being part of a team that takes huge steps towards a greener future. Prior to joining FLIT, Brian played multiple competitive games such as League of Legends at a top-tier level- applying the same mindset of growth and improvement from gaming to his iOS development. Brian is often playing the piano in his free time and is extremely fascinated by artificial intelligence.

Rob is an impact investing analyst passionate about sustainability and its role in finance. Currently, he is a student at the University at Buffalo (UB), where he is the President of the UB Sustainable Business Association and a Board Member of the UB Equity Research Group. In his free time, you can catch Rob exercising or golfing.

Holly is a BSc Psychology with International Placement graduate from the University of Manchester, UK. She has worked and volunteered in the social care sector for 7 years and whilst at university, established an award-winning student zero-waste shop. She is passionate about social justice and environmental sustainability, and in her spare time volunteers as a Scout Leader and enjoys going for tea and cake with friends.

Jake is an entrepreneur, designer, and biologist passionate about sustainability. Previously, Jake founded VOSTIC, a company that manufactured and distributed a kelp-based replacement for plastic. Jake holds a master’s degree in Design Systems from Pacific Northwest College of Art and a bachelor’s degree in Biology from Lewis & Clark College. On weekends you might find him making music or snowboarding at Mt. Hood.