How to Increase Your Investment Impact
The past decades have seen major shifts in the worlds of investment and philanthropy, with the impact investing trend bringing those two worlds closer together. Traditionally, investors sought to maximize profits while philanthropists made donations. Now, the ranks of the socially-conscious with capital are starting to invest in companies with the stated intention of forwarding their goals. Philanthropists must now decide if the best way to support a charitable organization is through a donation (as in traditional philanthropy) or through investment (in the spirit of the new impact investment phenomenon).
There are several factors philanthropists should consider while deciding between a donation/grant and an investment in a particular organization. First, they should determine whether the cause merits a long-term commitment. If a philanthropist is sure that an organization will always need and warrant their financial support, then a grant is appropriate. If, on the other hand, the organization might soon no longer need funding or match the donor’s interests, then an investment is a better strategy because it can be revoked at any time.
Philanthropists should also consider whether an organization’s profitability could enhance its social function. If greater profits would result in greater social beneficence, then an investment might be a good option to help the organization boost its bottom line. Again, the ability to revoke capital and allocate it to another organization is a benefit of investment over donations; if the organization fails to use its profits for the socially-impactful purposes the philanthropist had in mind, then the capital can be taken back and set to another purpose.
This revocability of capital is crucial to impact investors because it gives them the ability to “recycle” their funds. Capital can be invested in one organization and then, once the capital is no longer needed or the organization is no longer serving the same social function as before, that same capital can then be revoked and put to good in another organization.
Investment also gives philanthropists a greater say in the management of organizations, because they have become part-owners. This means they can take an active role in promoting profitability that can then be requisitioned for greater social impact. This ultimate results in a greater societal impact.