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The Nomenclature of Impact Investing

Sep 8, 2015 - Impact Investing by

The nomenclature of impact investing may sometimes feel like an ever-changing conundrum of words, acronyms and mysterious sounds. Confusing is probably an understatement. In an effort to help sort out SRI to ESG to MRI, we are devoting this blog to the cacophony of names surrounding impact investing. We can’t promise we included them all because the list is quite long so let’s begin…

  • Socially Responsible Investing (SRI): at its most simplistic definition, SRI considers both the investor’s financial needs and an investment’s impact on society through screening (negative and positive), shareholder advocacy, and community investing.
  • Impact Investing: The Global Impact Investing Network (GIIN) defines impact investing as investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return. They can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on the circumstances.
  • Place-Based Investing: a site-specific subset of impact investing defined by Confluence Philanthropy as “committing capital to local businesses, financing institutions, infrastructure, or nonprofits, with an expectation of financial return.”
  • Mission-Related Investing (MRI): mission-related investing proactively seeks investments based on their potential to advance progress and deliver financial returns that align with a specific mission of an organization. Most commonly used by foundations.
  • Environmental, Social and Governance (ESG) Investing: integrating ESG factors into fundamental analysis to the extent that they are material to investment performance. According to US SIF, examples of ESG incorporation strategies can include: positive/best-in-class; negative/exclusionary screening; ESG integration; impact investing; and sustainability themed investing.
  • Responsible Investing: similar to impact investing, responsible investments are intended to generate both social and financial returns.
  • Faith-Based/Biblical Investing: a form of socially responsible investing in which investors choose their stocks, bonds or other assets based upon principles related to a religion.
  • Values-Based Investing: according to Merrill Lynch, values-based investing takes a longer-term approach toward investment by marrying one’s personal values, one’s family values with long-term investment returns.

Perhaps in the future and as the practice continues to progress, there will be greater uniformity in the lexicon. It’s not an easy task but an important one as impact investing, ESG, SRI and MRI move mainstream.