“Impact investing is a major topic on investors’ radar screen, boasting huge growth, and widespread acceptance among those seeking to align their portfolios with their personal values. But impact investing has always been more than a fad.” writes James Lumberg for Investopedia.
Impact investing, or socially responsible investing (SRI), has been around for longer than you might think. The Jewish concept of Tzedek, referred to in the earliest books of the Bible, aimed to correct imbalances between people, and referred to the benefits derived from ownership. Included were criteria for the rights and responsibilities of ownership and for generating financial returns ethically and sustainably. A few hundred years later, the Qur’an also established guidelines. These have evolved to become Sharia-compliant standards which prohibit the use of money for profit or exploitation.
In the United States, socially responsible investing began with 18th Century Methodists. They renounced the slave trade, smuggling and blatant consumption and they resisted investing in liquor, tobacco and gambling. The Quakers also forbade investment in slavery and war and founded the first publicly offered fund, the Pioneer Fund, with similar restrictions. These early investing strategies were intended to eliminate “sin” industries.
Leap forward to the 1960s when Vietnam War protesters demanded that University endowment funds stop investing in defense contracts. And in 1985, apartheid protestors demanded that Universities no longer invest in South Africa. These student protests along with environmental disasters brought the issues of the day to the attention of investors and pressure from those investors led to institutional and legislative change. In 1977, the United States Congress passed the Community Reinvestment Act which prohibited discriminatory lending practices in low-income neighborhoods; in 1984 the U.S. Sustainable Investment Forum (US SIF) was founded; and from 1985 to 1993, $65M of investments were redirected from South Africa.
While socially responsible investing in the United States began by focussing on eliminating investments in products that conflicted with personal beliefs, impact investors of today are most concerned with environmental and social issues and proactively seek investments that create positive change.
Image by David Wilson via Wikimedia Commons CC BY 2.0