RSF’s mission is to change finance and finance change. Financing change looks like using our money to support causes we care about, like building more sustainable food systems, expanding the use of renewable energy, and supporting educational models that promote whole-child development. And changing finance looks like innovating the ways we use our money so that finance truly works for everyone.
RSF and the supporters who make our work possible are practicing impact investing – creating positive outcomes for people and planet, while still earning financial returns.
But what is impact investing, exactly? How is it different than traditional investing or philanthropy? And what does it look like in practice?
Let’s answer some of these common questions about impact investing together!
Understanding Impact Investing
Impact investing is a way of investing money to generate positive social and/or environmental outcomes alongside financial returns. It’s about directing capital to businesses, projects, or funds that aim to solve critical challenges like hunger, poverty, or climate change, while still receiving a financial return on investment.
The Core Principles of Impact Investing
Impact investing is grounded in a few big ideas:
- Impact: It may seem self-explanatory, but impact investors are motivated to achieve a specific, positive social or environmental outcome – alongside or above their financial return.
- Returns: Unlike philanthropy, impact investing generates returns for the investor. This allows them to achieve the impact they seek, then reinvest their principal and any interest they earn back into causes they care about.
- Measurement: Impact investors often want to track the social or environmental impact of their investments alongside their financial performance. By measuring and reporting social and environmental impact, recipients of impact investments can let their investors know that their investment is achieving the desired outcome.
Impact Investing vs. Traditional Investing
The key difference between impact investing and traditional investing is… well, the impact! While traditional investing typically focuses only on financial gain, impact investing has the dual goal of creating positive change and earning a financial return. It’s about putting your money to work in a way that aligns with your values.
Impact Investing vs. Traditional Philanthropy
Philanthropic donations aim to achieve impact, but without any expectation of a financial return. In contrast, impact investing circulates money so that it can be used again in the future.
Both types of capital have their place in the impact ecosystem. That’s why RSF offers its clients avenues to support the causes they care about through both impact investing and philanthropy.
RSF clients can practice impact investing through our Social Investment Fund, which directly supports loans to social enterprises vetted and selected by RSF. They can practice traditional philanthropy by establishing a donor-advised fund, which earmarks a portion of their money for giving and offers them full control over where their donations go. And they can even do both at once, through our Double DAF Impact program.
How Does Impact Investing Work in Practice?
Let’s take a look at a few real-world examples of impact investing in action:
- Renewable Energy: Investments in solar, wind, and other renewable energy projects can reduce greenhouse gas emissions, bring sustainable energy to communities, and lower people’s energy bills. For a great example of how impact investments can support non-extractive, climate-friendly power, read this story of RSF’s partnership with Sunwealth.
- Regenerative Agriculture: Impact investments in regenerative agriculture support sustainable farming practices that minimize the harm of food production and exist in harmony with the natural world. To learn more about how impact investments help farmers move from extractive to regenerative practices, read this story about RSF’s partnership with Mad Capital.
- Revitalized Communities: Many impact investors fund nonprofits or mission-driven businesses that are focused on solving social problems and building stronger communities. Find out how impact investments can scale solutions to hunger and food waste in this profile about RSF’s partnership with Goodr.
Why Impact Investing Matters
For investors interested in supporting social change, impact investing offers a way to make their money work for good while preserving their capital and generating a financial return.
By embracing impact investing, we can unlock new sources of capital, amplify the efforts of the change makers we support, and create lasting transformation for communities.
Want to learn more about impact investing with RSF? Visit the Social Investment Fund section of our website!
