By Thomas Kostigen for IRIS.xyz

Impact investing is a fast-fast-growing trend that will have long-term effects on money management and the financial services industry in general. It’s a field that investors, both professionals and individual, should know about and come to understand.

The Global Impact Investing Network estimates the amount of money in impact investments stands at $502 billion, which is about double last year’s estimate.

According to a recent Fidelity Charitable report, some 70 percent of wealthy Millennials and Gen-Xers have made at least one impact investment. That means younger generation investors—those who will shape the financial markets of the future—are interested in investing in companies that make a difference in the world.

Impact investing is the practice of seeking out ventures that positively affect the environment, social issues, or how employees are treated. This differs from socially responsible investing (SRI), which screens portfolios for companies that do not abide by an investors’ principles. As a general rule, impact investing is proactive in its approach, whereas SRI is reactive in its methodology.

To be sure, there are lots of questions about the definition of impact investing, what it entails, and how to seek out and measure investment opportunities. Financial advisors can really live up to their names in the impact investing arena, offering financial advice on what can be tricky investments to identify, evaluate, and monitor. It should be noted that many impact investments are private equity securities (although they can be devised as private debt instruments, too). Many are located overseas. And many impact investments do not have a readily identifiable exchange of or liquidity mechanism. Investors can therefore find themselves owning a risky investment with no means to cash out.

Even if an impact investment is doing right by the world, its fundamental construct as an investment may be flawed, or be too complicated to include in, say, portfolio accounting programs. This can corrupt a portfolio’s total value. In turn, investors may not be able to accurately calculate their net worth.

Investors and financial advisors can utilize professional know-how and software tools to assist.

Firm-wide impact investing programs and training programs are being offered at broker dealers. Advisors are getting savvy about the impact investing space.

Impact investing was born in 2007 when a group of wealthy individuals decided that instead of doing more charitable giving, they wanted to get a return with their investment. This, they figured, would allow them to be more closely connected to their investments and create a sustainable, ongoing program for reinvestment and for investment recipients to become self-sustaining, much like the old adage of teaching someone to fish as opposed to just giving them a fish.

“In fact, 79 percent of consumers who have made an impact investment rate charitable giving as ‘very important’—which underscores the link between philanthropy and impact investing,” Fidelity observes. The lessons of impact investing are not exclusive to the wants of the wealthy. Impact investing is going mainstream because of investor demand from all stripes.

And the financial markets will soon be impacted by this socially impactful ethos, as new ventures grow into recognizable companies that attract more capital to grow and expand their missions.

Impact investing is worth better understanding.

Thomas Kostigen is a contributing writer to www.MyPerfectFinancialAdvisor.com. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues. MyPerfectFinancialAdvisor was founded by Nicholas Stuller.

Original article at IRIS.xyz

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Equities Contributor: IRIS.xyz

Source: Equities News