Impact investment is like socially responsible investment: investment strategies which are aligned with social or environmental concerns. Impact investments are made into companies whose core mission and vision are to have a positive social or environmental impact while also being profit-driven and aiming to bring strong financial returns to their investors.
Impact investors will consider similar non-financial factors to social investors in their evaluation of an investment opportunity. Both types of investor remain focuses on generating returns on their investment.
However, social investors’ non-financial framework is simply to avoid investing in companies which have a negative social or environmental impact. This process is called ‘negative screening’.
Impact investors use a framework called ‘positive screening’. This means that they seek to invest in companies which have an active, positive impact on social or environmental challenges.
In summary, impact investors want to receive a financial return on capital invested into companies that focus on positive impact creation rather than simply negative impact avoidance. In line with this, they are often committed to measuring the performance of a company’s intended environmental or social impact.
What is impact entrepreneurship?
It follows then, that impact entrepreneurship is where a company and its founders are focused on creating positive and sustainable social or environmental impact as well as on profit.
The attractiveness of an impact investment to investors is, principally, its chances of achieving profitability and producing returns for their capital invested. But the socially conscious element will have an important role in attracting the right sort of investor.
The president of the First Affirmative Financial Network (FAFN), a States-based advisor on socially conscious investments, says that an impact business, first and foremost, has “got to have a good business model. It’s got to have a good operating team. It’s got to be financially sound” and that the socially-conscious side is important “but the impact itself is not going to sell the business”.