Maximizing Impact: Investing for Financial and Social Returns

When you shop at a local small business, you're supporting your community. Buying from a neighborhood store strengthens your community by keeping money circulating locally. In fact, for every $100 spent at a local business, $68 remains in the community. If you shop at a chain retailer, only $43 of each $100 continues circulating locally. Main Street businesses create the distinctive character of your neighborhood. They hire locally, have social connections to their community, and support local causes. 

Did you know you can align your investing with your community-minded values? It's called impact investing. Impact investments typically weigh the performance, risk, and the impact achieved by your investment. Investments are aligned to create positive change, but without leaving financial gain behind. The Rockefeller Foundation first coined the term in 2009. Impact investing harnesses the power of the market to benefit society.

Impact investing is different from SRI (sustainable and responsible investing) or ESG (environment, social, and governance) investing:

• SRI funds typically use screening and exclusion to avoid investments in public companies that might have negative social or environmental exposures, such as tobacco, firearms, or alcohol. 

• ESG evaluates a public company's environmental, social, and governance risks and practices. 

• Impact investments create both financial returns and measurable social and/or environmental impact. Investments are most commonly made through private market investments. Impact investments are in keeping with SRI and ESG principles. However, impact investing seeks to make investments that benefit society, creating measurable and positive social outcomes.

Under the impact-investing umbrella are community economic development, revitalization, growth, and sustainability. Community impact investors include government, foundations, pension funds, financial institutions such as banks, faith-based organizations, and individual investors like you.

A community impact investment can provide much needed capital to help finance commercial loans to start or expand small businesses. The community benefits from the jobs local businesses create and retain, the growth of the economy, and the taxes the companies pay to support schools, roads, and other services. For the investor, the investment usually provides competitive, stable, low-volatility returns. 

These days, many investors are demanding more than profit from their investment portfolios.

They don't just want investments to do well financially. They want them to do good. If you are among those who want to create a more equitable and sustainable world, impact investing is a good option.

This is particularly true for millennials and Generation Z, who are passionately committed to using the power of money to effect social change. For years considered to be fringe, impact investing is now mainstream. Many wealthy investors choose to allocate a portion of their overall portfolio holdings to make an impact. Now, you can, too. New laws and a surge in interest are generating a wave of new community focused products to invest in.

During hard times such as the coronavirus pandemic, new sources of mission-driven capital are stepping up to support small businesses as traditional sources of financing, like bank loans, withdraw. Your investment dollars could go a long way towards meeting the investment needs of Main Street businesses. So when you are next seeking investments to grow your portfolio,  consider steering your capital to places that can provide both a financial and a social return!