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How to make your philanthropic impact right now

Whether you have $1 or $100 million, you can be an impact investor

Jonathan Firestein //April 5, 2017//

How to make your philanthropic impact right now

Whether you have $1 or $100 million, you can be an impact investor

Jonathan Firestein //April 5, 2017//

These days, it’s not how you’re using philanthropy to better the world, but your style of giving. Some families set up foundations or estate plans to support the issues and organizations they hold dear. But a modern investment known as “impact investing” is making waves in the philanthropic world. And, what’s better, is we all have the opportunity to be impact investors and join the ranks of Mark Zuckerberg, or eBay auction site founder, Pierre Omidyar.

In Colorado, the state launched its first private equity fund specifically designed to provide growth capital to entrepreneurs who drive both social and financial returns in 2014.

Impact investments are true investments where you are not only trying to make a positive difference in the world, but the objective is to earn return on your assets as well. Whether you have $1 or $100 million, you can be an impact investor.

There are plenty of opportunities to pursue impact investing.

For example, global population growth presents the planet and institutions with mounting social and environmental challenges. Poverty and inefficient markets have created quality-of-life issues in all corners of the world, and finite natural resources are increasingly strained from overuse.

As the United Nations projects the global population to grow to 9.7 billion by 2050, up from 7.14 billion today, these challenges are likely to expand if not effectively addressed.

Can government and philanthropy alone solve these problems?

The answer is no.

Impact investing provides an opportunity for individuals and families to use their money to nourish a community or a cause they care about. For many, their passion stems from a personal experience – perhaps a family health issue, overcoming a particular challenge, or witnessing human injustice or environmental degradation. They can support local projects or international organizations. Just like philanthropy, private capital and capital markets can have a tremendous, positive impact on economic, social and environmental conditions that challenge our world today.

This route provides an onramp for families to come together to discuss shared values.

Those who embrace impact investing are often already engaged in some form of charitable giving.

To switch this philanthropic mindset into an impact investing strategy, one should embrace the passions and interests of all family members, while also providing a measurement of accomplishment. It is important at the outset to ask:

What will impact look like?

How will we measure it?

How often?

Some initiatives lend themselves to metrics (e.g.: How many people were served? Did test scores go up? Did the incidence of disease decline?) In other cases, the evaluation of impact may be less metrically driven or specific.

Unlike socially responsible investing (SRI), which attempts to avoid certain unwanted investments; impact investments are made with the dual goal of positively addressing social or environmental challenges while, simultaneously, pursuing a financial return.

Impact investments can be made in several ways:

  • Directly through one's regular investment portfolio
  • Within a few donor advised funds
  • Within a private foundation.

This last option was confirmed in a late 2015 ruling by the IRS allowing foundations to apply their full range of available capital to support their missions. For example, a foundation established to bring clean water to the developing world could focus their 5 percent donation in the form of direct cash grants to nonprofits on the ground in Africa. The foundation could then leverage the rest of its assets by investing a portion of its endowment in for-profit organizations developing new clean water technologies, thereby making a much larger impact toward its mission.

Seeing the fruits of your labor in your lifetime

Impact investors embrace acting today, rather than waiting for a death to trigger a philanthropic gift. The traditional model says to accumulate wealth while you're alive, and then the money you leave behind can be used to make an impact. As an impact investor, you can exert influence during your lifetime and, with earnings your investments may provide, potentially increase the future impact you can make.