retirement

It's Giving Tuesday: How to Make Your Gift Really Count

Impact investing is a way to do more good with your money. With the season of giving upon us, here is how that works and some specific examples of how you can make a difference as you share your blessings.

Thanksgiving is a time for giving thanks, having turkey and pumpkin pie, and being with family. Shortly after the table is cleared, people bundle up and stand in line to grab doorbuster deals. That’s followed by Small Business Saturday and Cyber Monday. But right after all those crazy shopping-focused days comes a wonderful day that leads us into the season of giving: Giving Tuesday.

National Giving Tuesday (#GivingTuesday) is dedicated to giving back. On Nov. 27, companies, charities, communities and families around the globe celebrate generosity and inspire others to give. Giving can be accomplished in a big or small way, through volunteering, donating, advocating … and investing. Whatever (and however) you give, it’s appreciated, but increasingly people are turning to “impact investing” to make the most of their gifts.

What Is Impact Investing?

Impact investments strive to create positive impacts beyond financial return, such as a social benefit. It has grown into a multibillion-dollar market. J.P. Morgan and the Rockefeller Foundation’s Global Impact Investing Network (GIIN) expect the market to swell to $500 billion by 2020.

Impact-minded organizations help address some of the world’s most significant issues, including sustainable agriculture, renewable energy, conservation, microfinance and affordable and accessible basic services, including housing, health care and education. To qualify as an impact investment, an investment must meet certain criteria as outlined by GIIN:

  1. Intentionality. Impact investors strive to achieve social or environmental goals.
  2. Investment with Return Expectations. Impact investments are expected to generate a financial return on capital and, at a minimum, a return of capital.
  3. Range of Return Expectations and Asset Classes. Impact investments generate returns that range from below-market (sometimes called concessionary) to risk-adjusted market rate.
  4. Impact Measurement. An important aspect of impact investing is the investment manager’s commitment to measure and report the social and environmental performance and progress of underlying investments.

Ways You Can Get Involved and Make Your Own Impact

  • Consumers could “invest” by buying products that go toward the greater good. An example of impact investing is a lifestyle brand company named Goop, created by Gwyneth Paltrow. One of the ways the company gives back is through The Edible Schoolyard Project. The Edible Schoolyard Project is dedicated to transforming the health and values of American children by incorporating Edible Education lessons into the core curriculum of every school in the country. In addition to supporting the local community and training teachers around the country, Edible has developed an online community of Edible Educators who share curriculum and best practices.
  • Another initiative is Pencils of Promise, a global educational charity that creates sustainable programs in high-need countries such as Laos, Nicaragua and Guatemala. The organization believes education leads to higher income, improved health, gender equality and a better future.
  • TOMS Shoes is a popular company with a reputation for its various impact investments. Through the sale of shoes, TOMS provide shoes and services related to sight, water, safe birth and bullying prevention. The company works with over 100 giving partners.
  • Other examples of giving back include attending a charity event or helping to sponsor one. It is a win-win situation, as it brings exposure to your company or services and gives attention to a worthy cause.
  • People can donate a portion of their paycheck to an initiative or cause, such as the United Way or the United Nations Foundation.
  • Are these too large for your interests? Think of your community. The Greater Cincinnati Foundation (GCF) uses impact investing to bridge the market with philanthropy. “These investments use charitable assets to invest in projects that can generate revenue as well as direct community benefits,” according to its website. The GCF website explains how, through a donor-advised fund, a person can partner with GCF to help projects that are needed in the community.

Is the Investment You’re Considering Worth It?

Before you decide to invest, there are questions you need to ask yourself.

  1. Why are you investing? The intent of the investor to generate social and/or environmental impact through investments is an essential component of impact investing.
  2. Does the investment have a potential return? Impact investments, including impact investment funds, are expected to generate a financial return on capital and, at a minimum, a return of capital. Impact investment funds often have higher expense ratios, so remember to take those into account.
  3. How do the risk and return differ from what you would find in the market? Impact investments generate returns that range from below market (sometimes called concessionary) to returns that can equal or exceed the market’s, but with different risk factors than the market faces.
  4. Is there good impact measurement available? A hallmark of impact investing is a commitment by the investment’s manager to measure and report the social and environmental performance and progress of underlying investments. Measurement helps ensure transparency and accountability and is essential to building the impact investing field.

The Bottom Line

Giving back in any form is worth it, as every donation and dollar and the time spent creates a better world in the long run. Investing is another avenue for helping create change for generations to come.

About the Author

Marguerita M. Cheng, CFP®

CEO, Blue Ocean Global Wealth

Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠, Retirement Income Certified Professional and a Certified Divorce Financial Analyst. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.

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