When you make an investment, it has an effect — either good or bad. But with impact investing, you can intentionally seek a social or environmental benefit in addition to a financial return.
“There’s growing interest in using impact investing as a complementary strategy among our donors and our peers,” said Bert Feuss, senior vice president of investments at Silicon Valley Community Foundation.
Essentially, impact investing gives companies and individuals a wide range of possibilities whether they’re focused on the return (while taking social impact into account) or the social benefit (while paying less attention to potential profit and capital risk). The idea is simple, but the way it plays out can be complex. “I like to think of it as an umbrella term that includes a number of strategies,” Feuss explains.
If you’re considering impact investing, make sure you know your options, which include:
ESG or Sustainable Investing
In this scenario, you make conventional investments while taking into account a company’s environmental, social and governance (ESG) qualifications.
“It’s still intentionally investing in companies that are ideally doing at least no harm and hopefully having some positive impact on the world,” Feuss says.
At SVCF, two of our investment pools available to our donors are focused on sustainable investing:
Social Impact Pool
This long-term, globally diversified investment option incorporates double-bottom-line investments and investment managers that integrate ESG factors into their decision-making process. Some examples of investments made in this pool include benefit corporations and fair trade certified import companies.
Capital Preservation Pool
This short-term investment option holds cash equivalents and FDIC insured bank deposits. A portion of the pool is allocated to Community Development Financial Institutions (CDFIs) that lend to nonprofits, small businesses and individuals in low-income communities.
With this option, you’re still aiming to earn a return, but you’re investing in companies with missions that align with your values, such as combating pollution or poverty. These investments could include direct private equity, venture capital funds or loan guarantees.
A program-related investment is an IRS term that is defined by three criteria: It has to further the charitable purpose of the foundation; it can’t be primarily for investment gain; and it can’t influence legislation or political campaigns.
“For a private foundation, this type of investment — because it’s for charitable purposes — also qualifies against their 5 percent minimum annual payout,” Feuss says. “And SVCF has a program in place where we can facilitate that.”
One SVCF client that has focused on program-related investments is the Peery Foundation. Learn more about their work in the community and with SVCF.
Whether you’re looking to invest in companies you feel good about or you want to empower charitable organizations through grants, SVCF offers impact investment opportunities that address social good in a variety of ways.