Traditionally, investing focuses on profit and charity is about improving the human condition and world. Impact investing can be likened to a hybrid way of giving that aims to generate positive social and environmental impacts with financial returns simultaneously.

Impact Investing Versus Charitable Giving

One way to compare impact investing with more traditional charitable giving is to imagine how you might assist a community organization that needs physical space to sustain its highly successful outreach program.

With traditional charitable giving, a donor might provide cash that the organization could use to lease space. With impact investing, a donor might instead purchase or even construct a building and allow the organization to occupy the space it needs for free or at a below-market rate. In this way, the impact investor benefits from owning the real estate asset while supporting the community at the same time.

Interest in impact investing has surged across institutional investors, family offices, and individual investors, spurred by growing recognition that it’s possible and desirable to make a positive difference without sacrificing returns.

Social Impact With a Financial Return

Impact investing often funds scalable solutions with long-term potential. This could be anything from a real estate project as in the above example to a business that provides social or environmental goods in a sustainable manner. Since impact investing may not offer the same immediate financial support as charitable giving, many philanthropists combine both approaches to maximize their impact.

Impact investments span a wide range of asset classes, from private equity and venture capital to fixed income and more, allowing investors to diversify their portfolios and align their values with their financial objectives. Many impact investments target a rate of return similar to the market, although some are structured to accept lower returns if it leads to a high level of positive impact.

Impact Investing Frameworks

The UN Sustainable Development Goals have provided a global framework for impact investing by outlining specific goals related to issues such as poverty, hunger, clean water, education, gender equality, and climate action. Many impact investors reference these goals as a way to shape their strategies and share a common language with other impact investors.

There are also frameworks for measuring outcomes, including the Global Impact Investing Network standards and the Impact Reporting and Investment Standards. These standards help investors avoid “greenwashing,” where companies may falsely claim sustainability efforts without substantiating them.

Join Us to Learn More

Cumberland Foundations Circle was created to help families, foundations, professionals, and experts come together in a dynamic set of discussions to share their knowledge and experiences across an array of philanthropic topics, including impact investing.

Our next event takes place in Toronto on Tuesday, November 12th and will feature a panel of experts on impact investing who will share their insights and discuss the issues of the day. Please contact us if you and/ or your foundation are interested in attending the event, or accessing a replay after the event.