What is the Spectrum of Impact Investing Approaches?
Given the field’s growth and increased number of actors, the last ten years have also seen a proliferation of definitions and terminology related to impact investing. In fact, strong opinions prevail regarding whether or not the term “impact investing” is the best to capture this field. While some prefer mission-related investing or sustainable/responsible investing, still impact investing is most commonly used.
Rather than arguing about the terms, let's discuss three approaches and one overarching strategy to describe impact investor practices. Depending on who you are—and your goals and capacity—you may have the resources and willingness for some but not all of these approaches. See the image of the home as a good metaphor for describing these approaches to managing and being accountable for your assets.
Clean Up: This approach reflects the belief that your assets should align with your values, and by holding or divesting specific assets you can increase that alignment and express your values. For example: Clean and remove toxins.
Renovate: In this approach, you select assets based on specific investment criteria that define eligible and ineligible investments with the goal of incorporating the positive and negative externalities into your investment decision. For example: Paint your house.
Add a Room: By picking a specific theme, you are using your capital to drive the generation of a specific environmental or social impact. For example: Add a new addition to your house.
Manage and Measure: This overarching strategy is to continuously measure and manage the positive and negative impact of your assets and respond to new data and events. You will track the emergence of new environmental and social movements, as they become impact investment products. For example: Maintain and repair your roof.