Investing for Impact

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After years of mockery and marginalization, socially responsible investing has started getting some well-deserved credit as a viable investing strategy. Even the big money has recently begun to back this more benevolent approach. But simply making money may not be enough for a new breed of investors. They're seeking even more aggressive ways to create positive change in the world through the power of their investments.

When dollars make a difference
Imagine if your next donation to charity also yielded an investment-like return. That's the core concept behind "impact investing," which directs dollars into investments that generate profits while specifically working to address social and environmental problems. That diverges a bit from socially responsible investing, which often simply involves avoiding stocks perceived as harmful to the broader world.

Uniting philanthropy with private equity, impact investing is gathering a following among wealthy individuals who want to score big investment returns, but also make the world a better place. Real-world examples of impact investing include funds that provide capital for green energy startups, build affordable housing in emerging economies, or provide microloans to people in the developing world.

Only a few funds represent this very new concept. The Global Impact Investing Network's data last year estimated current impact investments at $50 billion -- but also guessed that the area would increase to $500 billion, or 1% of all managed assets, by 2014.

For regular-Joe investors, impact investing may seem a bit out of reach, even if it sounds like an attractive new spin on socially responsible or ethical investing. Making a major impact takes money, after all; according to a New York Times article last year, "Most investors need to have a net worth of at least $10 million to participate in a meaningful way in impact investing."

Impact investing, one stock at a time?
Those of us who aren't quite there yet can still make a difference on a smaller scale, by investing in businesses that aim to make profits while benefiting society. Here are just a few examples of public companies' meaningful philanthropic moves:

  • Google (Nasdaq: GOOG  ) has made major investments in green technologies; it formed a subsidiary, Google Energy LLC, last year. Google also has its own philanthropic arm to combat societal problems. It extended more than $145 million in funding to nonprofits and academic institutions in 2010.
  • Timberland (NYSE: TBL  ) has a long history of integrating environmental consciousness into its business. It recently announced initiatives to combat deforestation.
  • Chipotle's (NYSE: CMG  ) Food With Integrity mission seeks to fill its burritos with natural, sustainably raised ingredients.
  • Whole Foods Market (Nasdaq: WFMI  ) has done a lot to increase the profile of the organic and natural product movement. It also works to improve the world and communities through initiatives such as its thrice-annual 5% Days, on which individual stores donate 5% of all sales to local nonprofits or educational organizations.
  • Panera Bread (Nasdaq: PNRA  ) donates its unsold bread to local homeless shelters at the end of every business day.

When companies innovate with moves like these, they pressure their rivals to do the same. Wal-Mart's (NYSE: WMT  ) recent attempts to clean up its act, regarding both in its environmental practices and its shoppers' health, could make a huge difference for the better. You can easily argue that the Bentonville Behemoth would never have tried such an initiative if companies like those listed above hadn't done so first.

Prepare for impact!
The time is ripe for more people to realize that their investing profits don't have to come at the world's expense. Take a moment to think about what kind of effect your investments have made on the world. It never hurts to own a company that's made a positive difference for both your portfolio and the people and planet around you.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Google is a Motley Fool Inside Value recommendation. Chipotle and Google are Motley Fool Rule Breakers picks. Panera, Timberland, and Whole Foods are Motley Fool Stock Advisor recommendations. Chipotle is a Motley Fool Hidden Gems selection. The Fool owns shares of Chipotle, Google, and Timberland. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Whole Foods Market. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 11, 2011, at 5:42 PM, 123spot wrote:

    OK, Alyce-How long before you concede that WMT's efforts are not recent. This company was feeding and giving jobs to the rural poor while you were still in diapers. Yes, they continue to move forward. CMG would have no one to sell to if Sam had not envisioned a future for people who had little. Piss on your elders a little more if you forget who stands on the shoulders of giants. In Arkansas we have an old saying. When you see a turtle on a fence post, you know it didn't get there by itself. Cheers!

  • Report this Comment On February 11, 2011, at 5:52 PM, 123spot wrote:

    Noticed the disclosure above no longer shows the Fool owns WMT. Has it sold or am I just mistaken that the Fool ever owned it? TIA>

  • Report this Comment On February 16, 2011, at 7:40 AM, lemoneater wrote:

    We stop at our local Panera every Wednesday morning. The warm, friendly service and delicious muffins are a great way to start the day.

    I'm glad to know that they don't throw out their day old bread, but donate it to charity.

    Happy hump day to you!

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