NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Shall we pause for just a moment to define impact investing?

The term impact investing, I’ve realized, is new enough that even professional investors aren’t yet familiar with it, let alone the typical investor. Impact investing refers to the idea of investing in businesses that will cause a social benefit. Most liken it to philanthropy but with the added benefit of a financial return. An easy example is to consider my 2013 article about Vital Capital, which invested in a community Agribusiness, moderate income housing and a medical center in Angola. Charities also engage in providing food, housing and health care in Angola, but Vital Capital invests in those activities—earning high returns along the way.

The Securities and Exchange Commission requires that investors in certain investments be “accredited.” Although that word connotes a skill or knowledge-based screening, it is a simple test of income and/or assets. Investors with consistent personal income above $200,000 per year or a net worth, excluding a primary residence, of $1 million are considered accredited.

It is important to note that many impact investments are effectively open only to institutional investors and people or families of such high net worth that they invest at institutional scale.