GIPHY / istock / getty

What Is Impact Investing?

Impact investing aims to achieve social and/or environmental goals while reaping financial rewards. This strategy is often linked to SRI or ESG investing. 

Understanding impact investing

Impact investing puts your investment capital to work producing positive social and/or environmental benefits. For instance, you might invest in firms or funds that emphasize fair labor practices, charitable outreach or using/producing renewable energy

Because this strategy encompasses so many potential paths, you can choose from a range of assets and themes. Some investors focus on industries like health or clean energy, while others target emerging markets

Impact investing: ESG and SRI principles

Impact investing often goes hand-in-hand with ESG and SRI investing. While both strategies generate positive benefits (or reduce negative ones), they take slightly different approaches.  

ESG investing

ESG (environmental, social and governance) investing focuses on assets that actively:

  • Encourage social responsibility
  • Reduce or prevent environmental harm
  • Practice positive corporate governance and transparency

For example, an ESG fund might concentrate on assets that generate or use renewable energy or champion fair labor practices. 

SRI investing

SRI (socially responsible) investors put capital into companies that align with their values, like:

  • Excellent environmental stewardship
  • Fair labor practices
  • Protecting human rights 
  • Encouraging diversity

SRI investing often relies on ESG principles or an investor’s personal, political or religious values to select investments. (Such as excluding “sin stocks” and oil firms or including companies with a history of charitable outreach.)  

How does impact investing affect you?

Historically, impact investing is the realm of big investors like banks, hedge funds and private foundations. Examples include the Gates Foundation, the Soros Economic Development Fund and the Rockefeller Foundation. 

But more and more, investment firms and online platforms offer individual investors the chance to make an impact. The niche has become especially popular with millennials and younger investors looking to give back to society. 

Benefits of impact investing

Impact investing allows you to:

  • Invest with your conscience
  • Support sustainable societal and environmental practices
  • Choose from a wide range of assets and industries
  • Generate returns while making a difference 

And you don’t have to compromise your profits. A 2020 Global Impact Investing Network survey found that nearly 90% of impact investors reported performance that met or exceeded expectations.

Risks of impact investing

Like all investments, some impact assets carry more risks or fewer rewards than others. (For example, the emerging market can carry higher volatility risk.) 

Additionally, some “impact funds” claim the name without living up to its stated values – which is why you should always vet your investments. 

And sometimes, returns take years or decades to materialize, particularly in newer industries and markets. 

How to start impact investing

Impact investors can take several paths to success, including:

  • Picking individual stocks or bonds that align with your goals
  • Buying into funds that explicitly target ESG or SRI principles
  • Investing in private projects that require more capital
  • Avoiding investments whose practices you disagree with

Or, you can take the easy way with Q.ai’s AI-backed Investment Kits

Every Kit puts your dollars to good use targeting a range of themes, industries and goals. Take our Clean Tech Kit, which focuses on assets that look to power a cleaner, greener future. 

Best of all, you can start investing and building wealth without ever leaving your couch. 

Disclosures

Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of Q.ai's investment advisory services.

Hands-free approach to investing

Our AI manages your money with commission-free, institutional-grade, AI-powered investment kits.