Impact Investing: Can Your Money Do Good and Still Make Money?

When we think about investing, the goal usually seems pretty simple: put your money somewhere that will hopefully grow. But what if an investment could do more than just make money? What if it could also help address climate change, improve access to education, or support communities that need more resources? That is the idea behind impact investing.

Impact investing is an investment strategy that intentionally tries to create both financial returns and measurable social or environmental benefits. Instead of choosing between making money and making a difference, impact investors try to do both.

What Exactly Is Impact Investing?

At its core, impact investing is about the intersection between financial performance and positive impact. The impact can take many forms, including climate solutions, education, healthcare, income equality, renewable energy, and international development.

The important word here is intentionality. An investment does not automatically become an impact investment just because the company happens to have a positive effect on society. The investor is specifically choosing the investment because they want it to contribute to a social or environmental goal while also generating a financial return.

For example, imagine an investor puts money into a company developing renewable energy technology. The investor could benefit financially if the company grows, while the company is also working toward reducing reliance on fossil fuels. In this situation, the financial and social goals are connected rather than completely separate.

Impact Investing Did Not Come Out of Nowhere

Although the term “impact investing” is relatively new, the basic idea has been around for a long time. One of its earlier influences was socially responsible investing, or SRI, which involved avoiding investments that conflicted with an investor's values.

For example, religious groups historically used ethical screens to avoid investments in industries they considered harmful. Quakers prohibited members from investing in the transatlantic slave trade and weapons manufacturing, and in 1928, a Boston-based religious organization created a mutual fund that excluded companies involved in alcohol, tobacco, and gambling.

Over time, investing based on values evolved. ESG investing became increasingly popular, with investors looking at companies' environmental, social, and governance practices when evaluating potential investments. Then, in 2007, a group of people involved in different areas of the field met at the Rockefeller Foundation's Bellagio Center and helped develop the modern idea of impact investing.

The Global Impact Investing Network, or GIIN, was later launched, helping establish impact investing as a more organized field with growing academic research and investment opportunities.

So What's the Difference Between ESG, SRI, and Impact Investing?

These terms can get confusing because they all involve investing with factors beyond traditional financial metrics. However, there is an important difference between them.

SRI is generally focused on investing according to your values. An investor might avoid companies involved in industries such as tobacco, weapons, or alcohol because they do not want their money supporting those businesses.

ESG is a little different. ESG looks at environmental, social, and governance factors as part of evaluating a company's risks and opportunities. For example, an investor might consider a company's treatment of workers or environmental practices because those factors could eventually affect the company's financial performance. The main objective is still financial performance.

Impact investing puts more emphasis on intentionally creating a measurable positive outcome. The goal is not simply to find companies that happen to have good ESG practices. Instead, the investor is actively looking for investments that can create social or environmental benefits while still producing financial returns.

A simple way to think about it is: SRI asks, “What don't I want my money supporting?” ESG asks, “How do these factors affect this company's performance?” Impact investing asks, “How can my investment create measurable positive change while also generating a return?”

What Does Impact Investing Actually Look Like?

Impact investing can take many different forms. Investors can put money into mutual funds, ETFs, bonds, private companies, or funds that focus on specific social or environmental goals.

One example is investing in renewable energy companies that are developing solar power, alternative fuels, or other technologies designed to reduce environmental damage. Another is microfinance, where investors provide capital that can help small-business owners in developing countries start or expand their businesses.

Impact investing can also involve education, healthcare, community development, and international development. Investors can even lend money through nonprofit loan funds, allowing their capital to support organizations while being spread across multiple projects.

This range is one of the reasons impact investing is interesting. It is not one specific type of investment. It is more of a way of thinking about where capital goes and what that capital is supposed to accomplish.

But How Do We Know the Impact Is Real?

This is where impact investing gets complicated.

It is easy for an investment to sound socially responsible on paper. A company or fund can use words like “sustainable” or “green,” but that does not necessarily mean it is creating meaningful change. This problem is often referred to as greenwashing, when investments are presented as being more environmentally or socially responsible than they actually are.

Measuring impact can also be difficult because investors are often several steps removed from the actual company or community receiving the money. Investors may give their money to a fund manager, who then invests in other companies, meaning the original investor can have a hard time seeing what is actually happening on the ground.

This creates an important question: How can investors prove that their money is actually creating the impact they were promised?

One solution is better and more frequent measurement. Instead of relying only on annual reports, investors can work with companies and fund managers to set specific goals at the beginning of an investment and regularly track progress toward those goals.

Investors Can Actually Help Measure the Impact

Interestingly, investors do not always have to sit back and wait for companies to provide impact data. They can sometimes help companies develop better ways to measure what they are accomplishing.

For example, investors have worked with companies to create systems that measure carbon emissions and compare the environmental benefits of different technologies. In one example, an investor helped an electric coffee roasting company develop a way to calculate the emissions savings from switching away from natural gas.

Other companies have used researchers and third-party organizations to measure things like carbon emissions, electricity savings, and the environmental performance of new products. This is especially useful for younger companies that may have a strong mission but do not yet have the time or resources to build sophisticated impact measurement systems.

Not every type of impact is equally easy to measure, either. It is much easier to count the amount of clean energy produced than to measure the long-term effects of an education or healthcare program. But some of the hardest impacts to measure can also be some of the most meaningful.

Could AI Make Impact Investing Better?

As impact investing grows, technology could make measuring impact easier.

AI and machine learning can process huge amounts of information and identify patterns that would be difficult to track manually. One example from the research is a company called Airspace, which uses AI to calculate enormous numbers of shipping routes and help customers optimize their deliveries based on factors including carbon emissions.

The bigger idea is that AI could make impact reporting more detailed, trackable, and transparent. If investors can get better data about exactly what their money is accomplishing, they may be able to make better decisions about which investments are actually creating meaningful change.

The Margin: Can Impact Investing Still Be Profitable?

This is probably the most important question for investors: Does investing for impact mean giving up financial returns?

Not necessarily.

Research cited by Fidelity found that investments focused on sustainability have generally met, and sometimes exceeded, the performance of traditional investments. In a 2024 Global Impact Investing Network survey, 94% of impact investors reported that their investments met or surpassed their financial expectations.

At the same time, impact investing is not guaranteed to outperform the market. One study cited by Chen found that the median impact fund had a 6.4% median internal rate of return compared with 7.4% for non-impact-seeking funds.

So the reality is more complicated than saying impact investing is always just as profitable or more profitable. Some investments may perform extremely well, while others may produce lower returns. The important point is that pursuing social or environmental goals does not automatically mean sacrificing financial performance.

There is also evidence that impact funds can provide portfolio benefits beyond their social goals. Research from Cornell found that private-market impact funds can be less sensitive to market movements and may help investors reduce their exposure to market risk.

Why Does Impact Investing Matter?

The growth of impact investing means that more capital is being directed toward companies and projects designed to address social and environmental problems. Estimates cited in the research put ESG and impact investing at around $9 trillion in public markets and more than $1 trillion in private markets.

And it is not just wealthy individuals who are participating. Pension funds, foundations, family businesses, endowments, sovereign wealth funds, and public agencies have all become part of the broader sustainability investment market.

When investors put their money into a company, they are doing more than buying an asset. They are also providing capital that can help determine which businesses grow, which technologies get developed, and which ideas have the resources to become successful.

That is what makes impact investing so interesting. It turns investing into more than a question of “How much money can I make?” It also raises the question of “What am I helping build with my money?”

The Bigger Picture

Impact investing is not perfect. Measuring impact is difficult, greenwashing is a real concern, and financial returns are never guaranteed. But the growth of the industry shows that investors are increasingly interested in connecting their money to outcomes that matter to them.

Ultimately, impact investing is about recognizing that financial returns and positive change do not necessarily have to be opposites. The challenge is making sure that the “impact” is intentional, measurable, and real.

That is where the future of impact investing gets especially interesting. As investors gain better data, companies develop stronger measurement systems, and technology makes it easier to track results, the line between making money and making a difference may become less of a line at all.