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Impact Investing for Students

Introduction

Impact investing is a form of investing that aims to generate positive social and environmental impact along with financial returns. It is a way of aligning your investments with your values and making a difference in the world. Impact investing is not a new concept, but it has gained more attention and popularity in recent years, especially among young people who are more conscious and concerned about the issues facing our planet and society.

As a student, you may think that impact investing is something that only wealthy individuals or institutions can do, or that it requires sacrificing returns or taking on more risk. However, this is not the case. In fact, impact investing can be accessible, affordable, and profitable for anyone, including students, who want to make a positive impact with their portfolios. In this article, we will explore what impact investing is, how it differs from other forms of investing, what strategies and platforms are available, and how you can get started as a student.

Understanding Impact Investing

Impact investing is a broad term that encompasses various types of investments that seek to create positive social and environmental outcomes. According to the Global Impact Investing Network (GIIN), impact investments are “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return” . Impact investors can target a range of impact areas, such as climate change, education, health, poverty, gender equality, human rights, and more. They can also invest across different asset classes, such as stocks, bonds, funds, private equity, venture capital, real estate, and more.

Impact investing is different from other forms of investing in two main ways: intention and measurement. First, impact investors have a clear intention to generate positive impact through their investments, not just as a by-product or a side effect. Second, impact investors measure and report the impact of their investments, using various metrics and standards, to ensure that they are achieving their intended goals and to improve their performance over time.

Socially Responsible Investing (SRI)

Socially responsible investing (SRI) is a precursor and a subset of impact investing. SRI is an investment approach that considers the environmental, social, and governance (ESG) factors of the companies or entities that are being invested in. SRI investors seek to avoid or minimize the negative impact of their investments, while also seeking financial returns. SRI can be seen as a form of ethical investing, as it reflects the values and beliefs of the investors.

Evolution of SRI

SRI has a long history that dates back to the religious movements in the 18th and 19th centuries, which advocated for avoiding investments in activities that were considered immoral, such as slavery, alcohol, tobacco, gambling, and weapons . SRI gained more momentum in the 20th century, especially during the civil rights movement, the anti-apartheid movement, and the environmental movement, which spurred more investors to divest from companies that were involved in human rights violations, racial discrimination, or environmental degradation .

SRI has evolved over time from a negative screening approach, which excludes certain sectors or companies that do not meet the ESG criteria, to a positive screening approach, which selects companies that perform well on the ESG criteria, to a best-in-class approach, which compares and ranks companies within the same sector based on their ESG performance . SRI has also expanded from a niche market to a mainstream practice, as more investors, especially institutional investors, have adopted the ESG principles and integrated them into their investment decisions .

ESG Criteria

ESG criteria are the key factors that SRI investors use to evaluate the performance and impact of the companies or entities that they invest in. ESG stands for environmental, social, and governance, and each category covers a range of issues that are relevant and material for the investors and the stakeholders. Here are some examples of the ESG criteria :

  • Environmental: This category includes issues such as climate change, greenhouse gas emissions, renewable energy, energy efficiency, waste management, water management, biodiversity, pollution, and environmental regulation.
  • Social: This category includes issues such as human rights, labor rights, employee health and safety, diversity and inclusion, customer satisfaction, product quality and safety, community engagement, and social impact.
  • Governance: This category includes issues such as board structure and composition, executive compensation, shareholder rights, business ethics, transparency and disclosure, anti-corruption, and regulatory compliance.

ESG criteria are not fixed or standardized, and they may vary depending on the industry, sector, geography, and stakeholder preferences. However, there are some common frameworks and guidelines that can help investors to assess and compare the ESG performance of different companies or entities, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the UN Principles for Responsible Investment (PRI), and the UN Sustainable Development Goals (SDGs) .

Aligning Investments with Values

One of the main motivations for impact investing is to align your investments with your values and to express your personal or social preferences through your financial choices. By doing so, you can not only achieve financial returns, but also support the causes that matter to you and contribute to the positive change that you want to see in the world.

Identifying Personal Values

Before you start investing, it is important to identify your personal values and what kind of impact you want to create or support with your investments. This can help you to narrow down your focus and to select the appropriate investment opportunities that match your goals and interests. Some questions that you can ask yourself to identify your personal values are :

  • What are the issues that you care about the most and why?
  • What are the solutions that you believe are the most effective and innovative for addressing those issues?
  • What are the trade-offs that you are willing to accept or not accept in terms of risk, return, and impact?
  • What are the sources of information and inspiration that you trust and follow for learning more about those issues and solutions?

Investing in Causes That Matter

Once you have identified your personal values and your desired impact, you can look for investment opportunities that align with them and that can help you to achieve your financial and impact objectives. There are many ways to invest in causes that matter, depending on the type, scale, and stage of the impact that you want to support. Here are some examples of the impact areas that you can invest in :

  • Climate Change: You can invest in companies or projects that are mitigating or adapting to the effects of climate change, such as renewable energy, clean technology, green transportation, carbon capture, and climate resilience.
  • Education: You can invest in companies or organizations that are improving the access, quality, and affordability of education, such as online learning, edtech, vocational training, and student financing.
  • Health: You can invest in companies or entities that are enhancing the health and well-being of people and communities, such as biotechnology, telemedicine, health care delivery, and health insurance.
  • Poverty: You can invest in companies or initiatives that are alleviating poverty and promoting economic inclusion, such as microfinance, social enterprises, fair trade, and affordable housing.
  • Gender Equality: You can invest in companies or funds that are advancing gender equality and empowering women and girls, such as women-led businesses, gender lens investing, and gender-focused impact bonds.
  • Human Rights: You can invest in companies or organizations that are protecting and promoting human rights and social justice, such as human rights defenders, social movements, and legal aid.
  • And more: You can invest in any other cause that you are passionate about and that is aligned with your values, such as animal welfare, arts and culture, peace and security, and more.

Impact Investing Strategies

There are different strategies that you can use to implement your impact investing goals and to diversify your portfolio. These strategies can be applied across different asset classes and sectors, and they can vary in terms of the level of impact and return that they generate. Here are some examples of the impact investing strategies :

Investing in Socially Responsible Companies

One of the simplest and most common ways to do impact investing is to invest in publicly traded companies that are socially responsible and that have a positive impact on the environment, society, and governance. You can use the ESG criteria to screen and select the companies that meet your standards and expectations, and to avoid or exclude the companies that do not. You can also use the best-in-class approach to compare and rank the companies within the same sector or industry based on their ESG performance, and to invest in the ones that are the most responsible and sustainable. You can invest in socially responsible companies through individual stocks, mutual funds, exchange-traded funds (ETFs), or index funds.

Supporting Sustainable Initiatives

Another way to do impact investing is to support sustainable initiatives that are addressing specific social or environmental challenges or opportunities. These initiatives can be in the form of projects, programs, or enterprises that are delivering positive impact outcomes and that are seeking capital to scale up or expand their activities. You can invest in sustainable initiatives through different instruments, such as bonds, loans, equity, or grants. Some examples of the sustainable initiatives that you can invest in are :

  • Green Bonds: These are bonds that are issued by governments, corporations, or financial institutions to raise funds for environmental projects, such as renewable energy, energy efficiency, green buildings, or pollution prevention.
  • Social Bonds: These are bonds that are issued by governments, corporations, or financial institutions to raise funds for social projects, such as education, health, employment, or inclusion.
  • Impact Bonds: These are bonds that are issued by governments, intermediaries, or social service providers to raise funds for social or environmental outcomes, such as reducing recidivism, improving maternal health, or restoring forests. The repayment of the bonds is contingent on the achievement of the predefined outcomes, which are verified by independent evaluators.
  • Loans: These are loans that are provided by banks, microfinance institutions, or peer-to-peer platforms to individuals, businesses, or organizations that are creating positive social or environmental impact, such as entrepreneurs, farmers, or nonprofits. The loans can have flexible terms and conditions, such as lower interest rates, longer repayment periods, or grace periods.
  • Equity: These are equity investments that are made by angel investors, venture capitalists, or private equity firms in companies or enterprises that are generating positive social or environmental impact, such as social enterprises, impact startups, or B corporations. The equity investors can have active or passive roles in the governance and management of the companies or enterprises, and they can exit through various channels, such as IPOs, acquisitions, or secondary markets.
  • Grants: These are grants that are given by foundations, governments, or corporations to individuals, businesses, or organizations that are creating positive social or environmental impact, such as researchers, innovators, or activists. The grants can be in the form of cash or in-kind support, such as equipment, training, or mentoring. The grants do not require repayment or return, but they may have reporting or accountability requirements.

Ethical Corporate Governance

Another way to do impact investing is to influence the ethical corporate governance of the companies or entities that you invest in or that you are interested in. Ethical corporate governance refers to the policies, practices, and structures that ensure the accountability, transparency, and responsibility of the management and the board of directors of the companies or entities, as well as the protection of the rights and interests of the shareholders and the stakeholders. You can influence the ethical corporate governance of the companies or entities through different mechanisms, such as :

  • Shareholder Activism: This is the use of the rights and powers of the shareholders to influence the decisions and actions of the management and the board of directors of the companies or entities, such as voting, proposing resolutions, engaging in dialogue, or filing lawsuits.
  • Proxy Voting: This is the delegation of the voting rights of the shareholders to a third party, such as a fund manager, a proxy advisor, or a shareholder advocacy group, who can vote on behalf of the shareholders according to their preferences and instructions.
  • Shareholder Engagement: This is the communication and collaboration between the shareholders and the management and the board of directors of the companies or entities, with the aim of improving the ESG performance and the long-term value of the companies or entities.
  • Divestment: This is the selling or withdrawing of the investments from the companies or entities that do not meet the ESG criteria or that are involved in harmful or controversial activities, such as fossil fuels, tobacco, or weapons.

Evaluating Social Impact Metrics

One of the challenges and opportunities of impact investing is to evaluate the social impact metrics of the investments. Social impact metrics are the indicators and measures that show the extent and the quality of the social and environmental outcomes that are generated by the investments. Evaluating social impact metrics can help impact investors to monitor and improve their performance, to communicate and report their impact, and to compare and benchmark their results.

Metrics for Measuring Impact

There are different metrics that can be used to measure the impact of the investments, depending on the type, scale, and stage of the impact. Some of the metrics are quantitative, such as numbers, percentages, or ratios, while others are qualitative, such as stories, testimonials, or case studies. Some of the metrics are output-oriented, such as the amount of products or services delivered, while others are outcome-oriented, such as the change in behavior or condition of the beneficiaries. Some of the metrics are standardized, such as the ones that are used by the industry or the sector, while others are customized, such as the ones that are defined by the investors or the investees.

Some examples of the metrics that can be used to measure the impact of the investments are :

  • Output Metrics: These are metrics that measure the quantity and the quality of the products or services that are delivered by the investments, such as the number of customers served, the number of units sold, the revenue generated, or the customer satisfaction rate.
  • Outcome Metrics: These are metrics that measure the change or the improvement that is caused by the products or services that are delivered by the investments, such as the increase in income, the decrease in poverty, the improvement in health, or the reduction in emissions.
  • Impact Metrics: These are metrics that measure the long-term and the systemic effects that are created by the outcomes that are achieved by the investments, such as the contribution to the SDGs, the multiplier effect, or the social return on investment (SROI).

Understanding Reporting Standards

There are different reporting standards that can help impact investors to evaluate and report their social impact metrics in a consistent and comparable way. Reporting standards are the frameworks and guidelines that define the principles, criteria, and indicators that should be used to measure and report the impact of the investments. Reporting standards can help impact investors to improve their transparency and accountability, to enhance their credibility and reputation, and to facilitate their learning and collaboration.

Some examples of the reporting standards that can help impact investors are :

  • IRIS+: This is a catalog of generally accepted social and environmental performance metrics that can be used by impact investors to measure and manage their impact. IRIS+ is developed and managed by the GIIN, and it covers various impact themes, such as agriculture, education, energy, financial inclusion, and more.
  • GRI: This is a set of standards for sustainability reporting that can be used by organizations to disclose their economic, environmental, and social impacts. GRI is developed and maintained by the Global Reporting Initiative, and it covers various topics, such as governance, ethics, human rights, climate change, and more.
  • SASB: This is a set of standards for sustainability accounting that can be used by companies to communicate their material ESG issues to investors. SASB is developed and maintained by the Sustainability Accounting Standards Board, and it covers various industries, such as consumer goods, health care, technology, and more.
  • B Impact Assessment: This is a tool for measuring and improving the social and environmental performance of companies and funds. B Impact Assessment is developed and administered by B Lab, and it covers various areas, such as governance, workers, customers, community, and environment.

Financial Performance of Impact Investments

One of the myths and misconceptions about impact investing is that it requires sacrificing financial returns or taking on more risk. However, this is not true. In fact, impact investing can offer competitive or even superior financial performance compared to conventional investing, while also generating positive social and environmental impact. There are several reasons and evidence that support this claim, such as :

Debunking Myths about Returns

There are some common myths that undermine the financial performance of impact investments, such as :

  • Myth: Impact investments have lower returns than conventional investments.
  • Reality: Impact investments can have comparable or higher returns than conventional investments, depending on the asset class, sector, geography, and strategy. According to a study by the GIIN, impact investments across various asset classes have delivered returns that are in line with or exceed the market benchmarks . According to another study by the Wharton School, impact investments in private equity have outperformed conventional investments in emerging markets .
  • Myth: Impact investments have higher risk than conventional investments.
  • Reality: Impact investments can have similar or lower risk than conventional investments, depending on the risk profile, diversification, and hedging of the portfolio. According to a study by the Cambridge Associates, impact investments in private equity have shown lower volatility and lower correlation than conventional investments in developed markets . According to another study by the Morgan Stanley, impact investments in public equities have shown lower downside risk and higher resilience during market downturns .
  • Myth: Impact investments have higher costs than conventional investments.
  • Reality: Impact investments can have similar or lower costs than conventional investments, depending on the transaction size, structure, and fees of the intermediaries. According to a study by the GIIN, impact investments have comparable or lower management fees and carried interest than conventional investments across various asset classes . According to another study by the Bridgespan Group, impact investments can have lower transaction costs and higher capital efficiency than conventional investments in social sectors .

Successful Examples

There are many examples of impact investments that have achieved both financial and impact returns, across different asset classes, sectors, and geographies. Here are some examples of the successful impact investments :

  • LeapFrog Investments: This is a private equity fund that invests in financial services and health care companies that serve low-income and underserved consumers in Africa and Asia. LeapFrog Investments has raised over $1.6 billion from institutional and individual investors, and has invested in over 30 companies that reach over 200 million people. LeapFrog Investments has generated an average internal rate of return (IRR) of over 20% for its investors, and has created over 130,000 jobs and improved over 100 million lives .
  • Generation Investment Management: This is an asset management firm that invests in public and private companies that are driving the transition to a low-carbon, sustainable, and inclusive economy. Generation Investment Management has over $25 billion in assets under management, and has invested in over 50 companies that operate in sectors such as technology, health care, consumer, and industrial. Generation Investment Management has delivered an annualized return of over 15% for its investors, and has supported the growth and innovation of the companies that are addressing the global challenges .
  • Acumen: This is a nonprofit organization that raises philanthropic capital to invest in social enterprises that provide essential goods and services to the poor, such as water, energy, health, education, and agriculture. Acumen has raised over $125 million from donors, and has invested over $135 million in over 130 social enterprises that operate in Africa, Asia, and Latin America. Acumen has recovered over 70% of its invested capital, and has impacted over 300 million lives .

Risks and Challenges

Impact investing is not without risks and challenges, both for the investors and the investees. Some of the risks and challenges that impact investing faces are :

Balancing Impact and Returns

One of the main challenges of impact investing is to balance the impact and the returns of the investments, and to align the expectations and interests of the different stakeholders involved. Impact investors may face trade-offs or tensions between achieving their financial and impact objectives, such as :

  • Choosing between investing in high-impact but low-return opportunities, or investing in low-impact but high-return opportunities.
  • Choosing between investing in early-stage but risky ventures, or investing in mature but saturated markets.
  • Choosing between investing in local but unfamiliar contexts, or investing in global but competitive sectors.

Impact investees may also face trade-offs or tensions between delivering their social and environmental missions, and satisfying their financial and operational needs, such as :

  • Choosing between scaling up their impact but compromising their quality, or maintaining their quality but limiting their reach.
  • Choosing between serving their target beneficiaries but excluding other segments, or serving other segments but diluting their focus.
  • Choosing between adhering to their values but facing resistance, or adapting to the market but losing their identity.

To overcome these challenges, impact investors and investees need to have a clear and shared vision of their impact and return goals, and to communicate and collaborate effectively to achieve them. They also need to have a flexible and adaptive approach to deal with the uncertainties and complexities of the impact investing landscape.

Regulatory and Market Risks

Another challenge of impact investing is to navigate the regulatory and market risks that may affect the performance and sustainability of the investments. Impact investors and investees may face various risks, such as :

  • Regulatory Risks: These are the risks that arise from the changes or uncertainties in the legal, political, or institutional environment that may affect the operations or outcomes of the investments, such as tax policies, subsidies, incentives, or regulations.
  • Market Risks: These are the risks that arise from the changes or fluctuations in the economic, social, or technological environment that may affect the demand or supply of the products or services that are delivered by the investments, such as competition, innovation, consumer preferences, or market trends.

To mitigate these risks, impact investors and investees need to have a thorough and updated understanding of the context and the conditions that they operate in, and to have a robust and resilient strategy to cope with the changes or shocks that they may encounter. They also need to have a diversified and balanced portfolio that can reduce their exposure and increase their opportunities.

Impact Investing Platforms

One of the opportunities and resources for impact investing is to use the impact investing platforms that are available and accessible for anyone, especially for students, who want to start or expand their impact investing journey. Impact investing platforms are the online or offline platforms that provide the information, education, tools, and services that can help impact investors to find, evaluate, execute, and manage their impact investments. There are different types of impact investing platforms, such as :

Online Platforms and Funds

These are the online platforms and funds that enable impact investors to access, invest in, and monitor various impact investment opportunities, across different asset classes, sectors, and geographies. These platforms and funds can offer different features and benefits, such as :

  • Ease of Use: These platforms and funds can simplify and streamline the impact investing process, by providing user-friendly interfaces, automated processes, and digital solutions.
  • Affordability: These platforms and funds can lower the barriers and costs of entry, by offering low minimum investments, low fees, and high liquidity.
  • Diversity: These platforms and funds can increase the options and exposure, by offering a wide range of impact investment opportunities, from individual stocks and bonds, to funds and portfolios, to direct and co-investments.
  • Transparency: These platforms and funds can enhance the visibility and accountability, by providing clear and consistent information, data, and reports on the impact and the returns of the investments.

Some examples of the online platforms and funds that can help impact investors are :

  • Swell Investing: This is an online platform that allows impact investors to invest in thematic portfolios of publicly traded companies that are aligned with the SDGs, such as clean water, green tech, healthy living, and more. Swell Investing has a minimum investment of $50, a 0.75% annual fee, and a quarterly rebalancing of the portfolios .
  • Calvert Impact Capital: This is an online platform that allows impact investors to invest in notes that support various social and environmental projects and enterprises, such as affordable housing, renewable energy, microfinance, and more. Calvert Impact Capital has a minimum investment of $20, a range of interest rates and maturities, and a quarterly interest payment .
  • Wunder Capital: This is an online platform that allows impact investors to invest in funds that finance solar energy projects in the US, such as commercial, industrial, and community solar. Wunder Capital has a minimum investment of $1,000, a range of returns and terms, and a monthly distribution .
  • Kiva: This is an online platform that allows impact investors to lend money to low-income entrepreneurs and communities around the world, who are working in various sectors, such as agriculture, education, health, and more. Kiva has a minimum investment of $25, a 0% interest rate, and a repayment schedule .

Opportunities for Students

These are the opportunities and resources that are specifically designed and tailored for students who are interested in or involved in impact investing. These opportunities and resources can offer different features and benefits, such as :

  • Education: These opportunities and resources can provide the knowledge and skills that are necessary and relevant for impact investing, such as the concepts, frameworks, tools, and best practices.
  • Experience: These opportunities and resources can provide the exposure and practice that are valuable and useful for impact investing, such as the case studies, simulations, competitions, and internships.
  • Network: These opportunities and resources can provide the connections and collaborations that are essential and beneficial for impact investing, such as the mentors, peers, experts, and partners.

Some examples of the opportunities and resources that can help students are :

  • Coursera: This is an online platform that offers various courses and programs on impact investing, such as the “Impact Investing” course by the University of Cape Town, the “Social Impact Strategy” course by the University of Pennsylvania, and the “Impact Investing and Innovation” course by the University of Michigan .
  • Net Impact: This is a global network of students and professionals who are committed to using their careers to make a positive impact on the world. Net Impact offers various programs and events on impact investing, such as the “Invest for Impact” competition, the “Impact Investing Forum”, and the “Impact Investing Career Accelerator” .
  • Toniic: This is a global network of impact investors who are supporting and promoting the growth and development of the impact investing ecosystem. Toniic offers various programs and resources on impact investing, such as the “Toniic Institute”, the “T100 Project”, and the “Toniic Impact Portfolio Tool” .

Making a Positive Impact

Impact investing is not only a way of making money, but also a way of making a positive impact on the world. By doing impact investing, you can not only achieve your financial and impact goals, but also inspire and influence others to do the same. There are different ways that you can make a positive impact through impact investing, such as :

Encouraging Ethical Practices

One of the ways that you can make a positive impact through impact investing is to encourage ethical practices among the companies or entities that you invest in or that you are interested in. Ethical practices are the behaviors and actions that reflect the values and principles of the investors and the stakeholders, and that contribute to the social and environmental good. You can encourage ethical practices among the companies or entities through different means, such as :

  • Rewarding: You can reward the companies or entities that demonstrate ethical practices, by investing in them, supporting them, or promoting them.
  • Educating: You can educate the companies or entities that lack ethical practices, by providing them with information, guidance, or feedback on how to improve their ESG performance and impact.
  • Challenging: You can challenge the companies or entities that violate ethical practices, by divesting from them, boycotting them, or exposing them.

Advocating for Change

Another way that you can make a positive impact through impact investing is to advocate for change in the policies, systems, and norms that affect the impact investing ecosystem and the social and environmental issues that it addresses. Advocating for change is the process of influencing and persuading the decision-makers and the opinion-leaders to adopt or support the changes that are needed or desired for the common good. You can advocate for change through different means, such as :

  • Lobbying: You can lobby the policymakers and the regulators to enact or amend the laws, rules, or incentives that can enable or enhance the impact investing practice and impact.
  • Campaigning: You can campaign the media and the public to raise awareness and generate support for the impact investing cause and impact.
  • Collaborating: You can collaborate with other impact investors and stakeholders to form coalitions, networks, or movements that can amplify the impact investing voice and impact.

Conclusion

Impact investing is a form of investing that aims to generate positive social and environmental impact along with financial returns. It is a way of aligning your investments with your values and making a difference in the world. Impact investing is not a new concept, but it has gained more attention and popularity in recent years, especially among young people who are more conscious and concerned about the issues facing our planet and society.

As a student, you may think that impact investing is something that only wealthy individuals or institutions can do, or that it requires sacrificing returns or taking on more risk. However, this is not the case. In fact, impact investing can be accessible, affordable, and profitable for anyone, including students, who want to make a positive impact with their portfolios. In this article, we have explored what impact investing is, how it differs from other forms of investing, what strategies and platforms are available, and how you can get started as a student.

We hope that this article has inspired and informed you to explore impact investing for yourself and to discover the opportunities and benefits that it can offer. Impact investing is not only a way of making money, but also a way of making a positive impact on the world. By doing impact investing, you can not only achieve your financial and impact goals, but also inspire and influence others to do the same. Impact investing is not only a choice, but also a responsibility and a privilege. Impact investing is not only a trend, but also a future and a legacy. Impact investing is not only an investment, but also an impact.

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