Introduction

Despite the growing media coverage of impact investing, and that coverage's increasingly sophisticated character, there continues to exist a widespread misperception that impact investing is a single type of investing and not a broad approach. It is easy for those considering impact investing to conclude it is similar to, say, venture capital investing—direct, volatile, high risk and a strategy available only to high net worth individuals. This perception was underscored when influential organizations initially made the mistake of labeling impact investing as an “emerging asset class,” implying that impact cannot be achieved across all asset classes.

While understandable as a “way into” a discussion of how capital may be invested for financial return with the generation of social/ environmental impacts, such an approach initially segregated impact investing within a single category of capital as opposed to laying the foundation for exploring how investors might manage all their assets for impact across an entire portfolio. In point of fact, impact investing is broad and nuanced. One may look at impact investing as both a “sleeve,” which is to say as a discrete strategy within a larger portfolio of investments, or as a “lens” through which one looks at an entire portfolio. For the purposes of this chapter, we will operate at a portfolio level and take the “lens” approach. When adopting such a total portfolio perspective, impact investors seek to achieve an appropriate financial return for any given investment instrument, fund or strategy under consideration within their portfolio while simultaneously asking,

When one takes this perspective, impact may be pursued across an entire portfolio with appropriate consideration of various risk, impact and financial return objectives for the allocation of philanthropic, near-market and market-rate capital. Developing this understanding of how best to incorporate impact within portfolio construction is especially timely for individual investors interested in taking a more holistic approach to their investment strategy as well as financial advisors who receive growing numbers of client requests to consider the social and environmental impacts of their portfolio as well as structure capital investments to advance positive impact.