How to Get Started With Impact Investing
If you’re looking to get in on the ground floor with impact investing, you must do your due diligence.
Individual impact investments can run the gamut from a 0 percent return to a 20 percent return. However, making the right investments can yield a return that’s comparable to traditional funds.
One study found that a sample of 51 impact funds generated a return of 6.9 percent (compared to an 8.1 percent return for the sample of 705 nonimpact funds). Another found that 70 percent of impact investments target a return of 11 percent or higher.
There are thousands of brokers in the U.S. that deal with impact investments, but unfortunately, the impact investing market lacks a centralized hub for investment data surrounding these companies.
TriLinc Global, LLC, a private investment company co-founded by Gloria Nelund, is one company working to demystify the industry. TriLinc Global is a mutual fund that invests in Main Street retail businesses in developing countries. Unlike enterprises that focus on so-called “microloans," this investment company focuses on growing the middle class, diversifying its portfolio with responsible businesses, and making these opportunities available to non-accredited investors.
If you’re thinking of building a portfolio yourself, here are a few ways to vet potential investments:
Look at metrics. Check out a company’s GIIRS Rating, and take a look at the IRIS Metrics catalog to see how its social, environmental, and financial performance compares to other investments.
Research the company’s reputation. How does the company conduct itself as a corporate citizen? This will be a good indicator as to whether the company will actually pay dividends.
Check for transparency. Take a look at the company’s sourcing, supply chains, and workforce. As Patagonia discovered earlier this year, it’s becoming increasingly difficult to police supply chains for unethical treatment of workers. Make sure the company conducts regular audits and is committed to weeding out child labor, unsafe working conditions, and other unfair labor practices.
While impact investing is still a new and exciting industry buzzword, it’s just a fresh twist on an old, deeply held desire to make the world a better place. As impact investing grows in popularity, more people will learn that individual prosperity can be good for the planet and the global economy.