Three Reasons Why Impact Investing is a Complement to Traditional Philanthropy

Though it has become a popular buzzword in recent years, impact investing is an ancient concept dating back to biblical times. In the United States, the concept of “doing well by doing good” came into favor in the 1960s, during the Vietnam War, and gained strength through the anti-apartheid movement in South Africa. Today, investors have a whole host of ways to put their money to work for the social good—everything from environmental causes, to affordable housing, food and agriculture.

But impact investing shouldn’t be thought of as substitute for philanthropy. Ideally, investors are turning to impact investing—also known as socially responsible investment (SRI)—as a tool to be deployed alongside traditional philanthropy.  Here are three reasons why impact investing is an ideal complement to charitable giving.

Wave of the future.

Impact investing is on the rise. According to a survey by the Global Impact Investing Network (GINN), impact investment activity among repeat respondents grew by 15% between 2015 and 2016, to $22 billion. And those numbers are expected to increase by 20% once all 2017 figures are tallied. One reason: market returns. According to the survey, 91% of respondents said returns either met or exceeded expectations.

With young people leading the charge toward socially responsible investment,the movement will only grow in the coming years when millennials begin to inherit some $41 trillion in wealth. What’s more, many financial advisors view giving as a stepping stone to impact investing, meaning both strategies will become even more critical—and intertwined—in the years ahead.

Measurable and self-sustaining.

Investors want to put their charitable dollars where they’ll do the most good. However, philanthropy doesn’t always provide a consistent way to measure results. By giving investors incentive to do good and earn financial rewards at the same time, socially responsible investment provides a necessary benchmark.

Like investing in general, impact investing isn’t designed to be a one-size-fits-all strategy. Some investors fall into the financial-first category while others, like foundations, may use impact investing as a way to generate consistent, if sometimes modest, revenue streams to help fund critical efforts.

Embraced by top philanthropists.

Investors would be wise to borrow a page from the world’s leading philanthropists who are increasingly using impact investing as an effective way to further their goals.

In 2016, Microsoft founder Bill Gates teamed up with fellow high-profile business leaders and philanthropists like Amazon CEO Jeff Bezos to launch Breakthrough Energy Ventures, a $1 billion fund aimed at reducing greenhouse gas emissions to almost zero by financing emerging clean technology.

With Breakthrough Energy Ventures Fund, Gates and his fellow investors are tackling some of the world’s most challenging areas of energy technology, including energy storage, liquid fuels, off-grid microgrids, low-carbon building materials and geothermal.

By emulating the billionaires’ approach to giving and investment, philanthropists will go a long way toward fueling their preferred initiatives and making the change they want to see in the world.