As the problems societies face become more entrenched and complex, it’s clear that government and philanthropy can’t solve them on their own. In the U.S., philanthropy is approximately $390 billion, government spending is $3.9 trillion, and capital markets encompass $65 trillion. On a global scale, total investments are estimated at $300 trillion. Thus, a 1% shift in global capital markets towards impact investing or investments that work toward social good could cover the estimated outstanding $2.5 trillion annual funding gap to achieve the United Nations’ Sustainable Development Goals.
Impact investing is the act of purposefully making investments that help achieve certain social and environmental benefits while generating financial returns. It’s a broad term that refers to everything from investing in companies with an explicit mission aligned with your values to avoiding investing in companies that do not meet those criteria.
This strategy is based on the idea that you can align your investments with your personal and philanthropic values while realizing financial returns. So, for example, if you were interested in reducing the use of fossil fuels, you might invest in funds focused on companies that develop innovative renewable energy solutions.
Growth in impact investing has been driven in large part by interest among the wealthy and among women, but a generational shift is increasing interest in the approach even more. More than 40 percent of Millennials say they have engaged in impact investing, compared to only 20 percent of Baby Boomers. These trends, as well as increasing numbers of institutional investors incorporating impact into their approach, have been accompanied by a growth in options for investors who want to participate in impact investing.