Beyond Philanthropy: The Art of Impact Investing

The term “impact investing” was born out of the idea that charitable giving or investing should not only be measured by financial returns, but rather should also consider the social and environmental impact the investment will make on the community.

Impact investing is a growing sector with assets worth $502 billion in 2019, according to Campden Wealth.[1] The increasing popularity of impact investing is in part due to the Next Generation’s growing interest in being conscientious when it comes to evaluating where they put their money and how they make more of it, compared to more traditional ways of engaging in philanthropic work or evaluating investment opportunities. According to a recent survey by Credit Suisse Groupe AG and Young Investors Organization, almost 90% of next gen heirs wanted to make impact investments.[2]

In an increasingly interdependent world, impact investing is a way to go beyond one lens of success. While true, it measures the direct effect the investment can have on the intended recipient over the long term from a financial standpoint, it also ensures that from every angle, the organization or company being invested in is beneficial to the community around it, and contributing to society in a positive way. For the philanthropically inclined, impact investing should not only be considered when building a sustainable charitable strategy, but also integrated into an investment strategy as well. The sticking point in selecting impact investments is in choosing which criteria are measurable and dovetail with your personal values. First determining which causes you want to support or align with may help in your investment selection. While some organizations make it very obvious how they measure their Environmental, Social and Governance (ESG) progress, and/or are forthright in outlining how their companies work towards moving the needle on one or some of the UN’s Sustainable Development Goals, for example, others may measure impact on a smaller, more locally-focused scale, or through other ways if they align with a singular cause.

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Mindy Mayman, partner at Richer Family Office (RFO), says decision-making depends on the causes you support: “If families are working with certain organizations with knowledge of impact investing, these organizations may often provide reports to the families providing statistics and measures to quantify or describe their impact. We can also work with our families to determine the best metrics and key performance indicators (KPIs) to evaluate their impact over a determined period, so they can make the right choices of the type of organizations they would like to work with or support.”

There are no “all-encompassing” metrics to measure impact investing. However, that being said, IRIS+ has put together a non-exhaustive list of different types of references and actions that can be used by organizations to measure impact investing. In collaboration with the World Economic Forum and the University of Zurich, Harvard offers a program on Impact Investing for the Next Generation, which consists of two workshops and assignments over a six-month period, to help the next generation explore impact investing and get their older family members more on-side with perusing this type of investment.

See also: Family Foundations: the Why, Who and How of Impactful Giving.

Whether families pursue impact investing out of a passion for the causes they support and want to ensure maximum impact of their investment; or because it makes sense when considering their portfolio strategies; or simply as due diligence from a brand-protection point of view, impact investing can be a means for families to invest in the future and contribute to lasting change.[3] Impact investing is also an avenue to consider alongside a family foundation – or, it can be one of the pillars of the family foundation, meaning the family mandates that impact investing be considered a requirement of any future gifts or portfolio reorganizations.

Especially during times of great needs,when family and private foundations are highly solicited, it can be difficult to seek out the organizations which are ‘right’ for you and your family. At Richter Family Office our professionals can assist in ensuring that your philanthropy will have maximum impact by helping you connect with the right organizations or discussing the best ways in which your charitable giving and investing can have a lasting impact.

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[1] Campden Wealth. “How families can make positive impact investments and get results.”

[2] Bloomberg. “Harvard Course Teaches Rich Millennials How to Do Good (and Make Money).”

[3] Campden Wealth. “Will the coronavirus crisis make or break impact investing.”