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 Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.
