The Impact Investing Guide That Every Investor Needs

When you hear the term "investing," you might imagine an individual or company putting money into an asset to generate a profit. This traditional model focuses primarily on financial gains for the investor.

In recent years, however, there's been a shift toward impact investing, an increasingly popular form of investment that prioritizes philanthropy and positive impact. It’s so popular, in fact, that it’s growing at a compound annual growth rate of 21%, according to The Global Impact Investing Network (GIIN).

Clearly, investors' priorities have changed as they've recognized the transformative power that impact investing can have on society's pressing issues. If you’re ready to hop on board, this guide is for you. We’ll unpack everything you need to know to succeed with impact investing, including:

• FAQs About Impact Investing
• How to Create an Impact Investment Strategy
• The Role of Impact Measurement & Management in Impact Investing
• 3 Impact Investing Examples in the Real World
• How UpMetrics Can Help Impact Investors

FAQs About Impact Investing 

What is Impact Investing?

Coined by the Rockefeller Foundation in 2007, the term impact investing refers to investing funds into projects, for-profit organizations, or funds that dedicate themselves to accomplishing some form of social good. Unlike normal investing, impact investing seeks to not only generate a financial return for the investor but also drive some type of positive impact for society. 

How Does Impact Investing Work?

Impact investing begins with investors choosing what they wish to invest in, focusing on a company’s commitment to one or more aspects of social responsibility.

Once an investor selects a company, fund, project, or initiative to invest in, they funnel capital (this may include equity, debt, or other assets) to those investments. From there, investors may engage with the organizations they've invested in to monitor long-term outcomes and guide the organization in scaling sustainably.

Check out this image that summarizes the process: 

What Are The Types of Impact Investments?

Impact investors are all driven by different values and priorities, so there are many different types of investment objectives and models to choose from. Whether you decide to invest based on religious beliefs or feel moved to act after observing world events, you can invest in several fields or, as they're known in impact investing, themes, such as: 

• Affordable housing
• Microfinance 
• Renewable energy
• Sustainable agriculture 
• Climate change mitigation 
• Conservation
• Social justice and equity 
• Access to education  
• Access to clean water 
• Healthcare 

For example, you might provide microloans to entrepreneurs in underprivileged communities or invest in a company that consistently innovates solutions for more sustainable farming. 

What is Impact Investing vs. SRI vs. ESG Investing?

As you dig deeper into the world of impact investing, you'll likely come across other terms like ethical investing or sustainable investing. You’ll also hear about popular frameworks that impact investors use when deciding what they want to invest in:

• The Environmental, Social, and Governance (ESG) Framework: Factoring in ESG principles enhances traditional financial analysis of an investment opportunity by identifying risks and opportunities. Although social good is part of the calculations, ESG's primary focus is economic gain. Investors may use independent ESG scores or ratings graded along an ethical curve to decide whether to add a specific investment to their portfolios. To learn more about ESG scores, check out this video from J.P. Morgan.
• Socially Responsible Investing (SRI): SRI takes the social consciousness aspect of investment evaluation one step further by defining concrete ethical guidelines and eliminating all investment opportunities that fail to meet them, regardless of financial performance.

Today, ESG investments tend to be more popular among investors, signaling the desire to balance both positive outcomes and financial returns. 

These terms have typically been used synonymously and represent a similar idea—using capital to generate a positive impact somewhere in the world. However, impact investing is starting to distinguish itself from ESG investing in particular, as ESG investing considers a broad spectrum of non-specific risk factors in decision-making while impact investing emphasizes clear and tangible results, like advancing income equality. 

Who Participates in Impact Investing? 

Anyone can participate in impact investing.

However, most experts agree that women and the next generation of wealth holders are playing a larger role in impact investment decisions, driving funds toward impact-focused organizations and projects. 

Additionally, most impact investors fall under the institutional investor definition, such as:

• Banks
• Pension funds
• Hedge funds
• Private foundations
• Fund managers

However, many micro-investment networks and online platforms are increasingly opening the sector to small businesses and individual investors. This move allows organizations large and small to accomplish even more good without relying on traditional investors.

What is The Current State of Impact Investing? 

Here are some impact investing trends to keep an eye on:

• Impact investing will continue to distinguish itself from ESG, emphasizing tangible results rather than a broad spectrum of non-specific risk factors in decision-making. 
• Impact measurement and management are becoming increasingly important as investors track progress toward impact goals, drive value for portfolio companies or funds, and build trust with their stakeholders and the organizations they invest in. 
• There has been a surge in investors using thematic impact funds, specifically across themes like climate resilience, social equity, and economic inclusivity. 
• There is a growing global urgency to combat climate crises and increase social equity, which will push businesses to adopt more socially and environmentally responsible practices. This will create more opportunities for investments in these areas.

In short, the future of impact investing is bright! If you're looking to get involved, now is the time.

Why Does Impact Investing Matter?

While investing in a socially-responsible company has clear benefits for the direct beneficiaries and community at large, other benefits also return to investors and investment recipients alike.

Benefits for Investment Recipients

• Enhanced capacity: Impact investors typically provide more than just capital to the funds, companies, or projects they invest in. They might offer expertise, strategic guidance, and networking opportunities that help investment recipients improve their operations and grow sustainably over time. 
• Improved reputation: A recent Givsly report found that 88% of consumers buy from brands whose values align with their own. Consumers increasingly pay attention to how for-profit companies behave and make their purchase decisions accordingly. 
• Increased innovation: Funding provides freedom and flexibility. Organizations and funds that receive impact investments will likely find they have the space to innovate and experiment with new approaches to solve complex social problems.
• Boosted bottom line: One study from Moore Global indicated that businesses worldwide had generated a collective $3.1 trillion in revenue from embracing ESG principles in their actions!
• Ability to attract additional investments: When organizations, initiatives, or projects demonstrate the impact they're making with various investments, they can attract even more support. According to the Moore Global study, 84% of companies embracing ESG principles found it easier to attract external investments.

Benefits for Investors 

• Alignment with personal values: Impact investing allows investors to use their capital to enact positive change for issues or causes they care about. It also adds a layer of personal fulfillment that investors may not experience with traditional investments.
• Market rate of return: There is less of a performance difference between profitable traditional investments and impact investments than many initially expect. Research shows that the median impact fund yields a 12.5% rate of return compared to 9.2% for non-impact investment funds. (Plus, impact investing comes with extra benefits and personal fulfillment from doing good!)
• Stabilized portfolio: Volatility can make any investor feel nervous. However, according to research by Morgan Stanley, impact funds experience less volatility than non-impact funds.
• Diversification: Diversification future-proofs and balances your investment portfolio. Investing in social good provides a new avenue of diversification for your efforts.
• Enhanced reputation: Impact investing can boost an investor's reputation as they enact their values and actively pursue socially responsible goals, helping stakeholders and partners see them as forward-thinking and charitable.

How to Create an Impact Investment Strategy

As an emerging investment niche, impact investors must have a clear strategy in mind before committing their funds.

Click through each of the steps below to learn how you can create your own impact investment strategy:

Tips for Managing Your Investing Strategy 

If you are new to social impact investing, you may find it challenging to decide which cause is worthy of your funds or how to proactively drive impact. Get it wrong, and you could lose stakeholder and public trust.

Here are some extra tips to help you manage different aspects of your impact investment strategy:

• Deploy the three I's. Defined as intention, influence, and inclusion, the three I’s will enable you to rule out various less-than-ideal investment opportunities in favor of others you're excited about and feel will drive positive results for the themes you care about.
  
  
• Focus on the doers. Using investment signals—some of which are provided by significant investment platforms—you can measure genuine real-world impact for different investments.
  
  
• Ease into the market. It's age-old investment advice: Never put all your eggs in one basket. Start small, increase your knowledge base, and adjust accordingly to ensure consistent impact growth.
  
  
• Go deep. Dig deep into different investment opportunities to find hidden gems that truly align with your goals.
  
  
• Stay flexible. Goals, markets, and the state of the world change constantly. Being flexible allows you to pivot as needed to avoid wasting your time and capital. 

Over time, you will gain more experience in the sector, making you more proficient in using your time, human resources, and money for good. 

One of the best ways to level up as an impact investor is to adopt impact measurement and management as a core part of your investment strategy. 

The Role of Impact Measurement & Management in Impact Investing 

What if there were a way for you to collect data that showed you the progress you're making toward your investing goals and to communicate the impact of your investments? Better yet, what if you could empower the companies or funds you invest in to measure and report back on their own impact? 

Good news—there is a way to do this, and it's called impact measurement and management (IMM). And adopting this process as part of your investment strategy will allow you to maximize the good that your investments do. 

Using the right technology, such as a dedicated IMM platform like UpMetrics, will be essential to gaining the insights you need to make the most of your investments. Let's walk through how technology-fueled IMM works!

1. Create Your Impact Framework

Think of an Impact Framework as a tool that helps you take a structured approach to measuring and evaluating the outcomes of your investments. 

There are a variety of established frameworks out there that you can use to build your own. These include: 

• Theory of Change: This framework helps map out the activities or interventions a program or organization enacts to achieve a desired goal. 
• Social Return on Investment (SROI): SROI is a method of assigning monetary value to specific projects or programs in order to evaluate the social, economic, or environmental value generated by them. 
• Collective Impact Model: This framework focuses on bringing organizations and stakeholders together to address complex social issues on a large scale. 

Though you can use any of these frameworks, one of the most helpful and straightforward frameworks for thinking about impact and how to maximize it comes from UpMetrics. 

Our Impact Framework simply asks you to define your impact objectives and select key impact indicators (KIIs) that will help you measure progress toward your objectives. 

Objectives are the smaller, more manageable goals you (or the organization you're funding) want to achieve that will get you closer to accomplishing your big-picture impact goals. 

KIIs are similar to key progress or performance indicators (KPIs) and are the measurable values that illustrate how much progress you've made toward a specific objective. 

Let's say you're an impact investor and have invested in a company focused on developing renewable energy solutions. Together, you decide it would be helpful to measure the organization's impact. Here's an example of an objective you might set within your Impact Framework: 

• Increase the adoption of solar energy solutions in underserved communities. 

To measure progress toward this objective, you and the organization you invest in might decide on these KIIs: 

• Number of solar installations
• Cost per installation
• Referral rate
• Market penetration rate
• Carbon emissions reduced (in metric tons) 

Of course, you'll likely determine several objectives to work toward, along with a number of accompanying KIIs. In the end, your Impact Framework may end up looking something like this: 

The process of creating your Impact Framework is the first part of UpMetrics' larger DeCAL methodology for IMM. DeCAL stands for: 

• Define: Create an Impact Framework that helps you accurately measure performance and community contribution across different impact areas. 
• Collect: Collect, consolidate, clean, and manage the data that will help you understand the progression of your impact. 
• Analyze: Look at your data to identify patterns and trends that tell the story of your impact. 
• Leverage: Put impact insights into action by creating an impact report and planning out improvements for either:
  • You as an investor, to optimize your strategy and see greater impact from your investments
  • Your portfolio companies or funds to generate more impact in their specific impact area 

As we continue walking through the IMM process, you'll see how each part of the DeCAL methodology can be applied to help you understand and maximize your impact. 

2. Gather Data 

To actually put your impact framework to good use, you'll need to collect data that tells your impact story. This can be challenging, especially as an investor operating in private markets—you may find that the data you need is dispersed across multiple systems or lacks standardization. 

Put in the work to secure the data you need. When you rely on investees for data, be transparent about how you're going to use it or what their team needs to do with it for it to be useful to your IMM efforts. 

As you gather information, pay attention to both quantitative and qualitative data. The former is often considered the gold standard of data since it is more objective and easier to analyze. But qualitative data, such as personal stories, photos, videos, or feedback from the communities portfolio funds or companies operate in, is essential for getting a full picture of your organization's impact. 

Also consider industry benchmarks and public data, which can provide important context for the internal data you have access to. For example, census data may help you better understand the community a portfolio company operates in and how the company can take action to better address the community's needs. 

Once you have all relevant information gathered, ensure you apply data hygiene best practices to clean, standardize, and maintain that data for use in your IMM platform. 

3. Analyze Your Impact Data 

Next, analyze your data. You can do this by using a robust IMM tool or by working with a data scientist, or both. The main idea here is not just to look for changes in numbers but patterns and trends that paint a full picture of your impact story. 

Note that you may not always see upward progress when analyzing your data, and that's okay. Perhaps the renewable energy company you invested in hasn't been able to increase solar energy adoption in underserved communities, for example. Instead of viewing this as a failure, look at it as an opportunity to collaborate with the organization and discover opportunities for improvement in its operations. 

In addition, remember that you're playing a long game. Stand-alone numbers or observations will not be as valuable to you, stakeholders, or investees as progress that is monitored on a regular, ongoing basis. Allow some breathing room in your IMM efforts to see change over time instead of jumping to conclusions prematurely. 

4. Communicate Impact and Take Action on Your Insights  

When it comes to communicating impact insights, you (or your portfolio companies or funds) will do this by creating an impact report. These reports can take many forms, from formal written documents that share your impact story to visually engaging infographics that provide a quick overview of your impact insights. 

More important than what your impact report looks like is the information it provides. Prioritizing transparency helps to maintain trust both between you and your stakeholders and between you and your portfolio organizations. Ensure that everyone is kept in the loop about successes and challenges alike. More importantly, ensure everyone knows the next steps that will be taken to improve and maximize impact. 

Taking action on impact insights will look different for every investor and organization. As an investor, you may find you need to take actions like forming strategic partnerships with other organizations, refining your KIIs, or even reallocating capital. Organizations you invest in may see they need more strategic direction in order to scale up their operations, or that they need to focus invested funds into a certain area for a while to resolve a specific issue. No matter the specifics, ensure that you quickly make and stick to a plan for taking action!

Examples of Successful Impact Investing in the Real World from UpMetrics Clients

Lime Rock New Energy

Lime Rock New Energy (LRNE) is an investing firm that focuses on driving growth equity capital to businesses and entrepreneurs tackling the world's pressing climate crisis. 

LRNE views its IMM strategy as a critical component of its investment strategy, one that helps the organization understand the impact that portfolio companies have on the environment and how to grow that impact over time. Originally, LRNE managed all its IMM work via email outreach and Microsoft tools, a system that became difficult to manage and maintain.

That's when the firm turned to UpMetrics! Now, LRNE can gather comprehensive data on each portfolio company, create insightful impact reports, and see better results for the environment. 

“For Lime Rock New Energy, streamlining our data collection process has not only saved time and energy for our team, but also improved the quality and depth of our reporting. We would recommend organizations prioritize measuring and managing impact within their organization, strive for continual improvement, and consider partnering with UpMetrics!” - Mark Lewis, Managing Director of LRNE

Sonen Capital

Sonen Capital provides impact investment and advisory services to families, foundations, institutions, and advisors focused on social and environmental impact. 

Prior to working with UpMetrics, Sonen Capital had a tremendous amount of data that it struggled to manage effectively through spreadsheets. This resulted in a manual and cumbersome reporting process, one where Sonen Capital and its stakeholders struggled to understand the non-financial results of investments. 

Now that Sonen Capital leverages the UpMetrics platform, the organization has a streamlined approach to data collection and management. And, with the help of Impact Frameworks and intuitive dashboards designed specifically for each client, Sonen Capital can highlight proof points around its investments to communicate insights with ease. 

"Some people think proving investment impact must be simple, but it’s not. If you’re going to make an intentional effort to create a specific change, it takes a thoughtful strategy coupled with robust impact reporting capabilities. UpMetrics has been a true partner in helping us simplify our impact data collection practices, and visualize our growing body of impact data - and thus measure the extent to which we’re achieving our intentions." - Will Morgan, Head of Impact at Sonen Capital 

National Bankers Association Foundation 

The National Bankers Association Foundation leverages capital, shares resources, and works to address the underlying causes of the racial wealth gap to advance the mission of minority depository institutions (MDIs). 

The National Bankers Association Foundation relied on spreadsheets to organize its data and its banks' data, but this meant the organization missed out on opportunities to better leverage that data to understand and improve its impact. 

After partnering with UpMetrics, the foundation improved IMM and transparency for all parties involved in its investing work. Now, their partner MDIs use the UpMetrics platform regularly to leverage data for compliance and tell their stories of impact. Institutional investors also use impact data to understand the good their investments are doing. And the foundation itself is using its data to quantify the impact of its mission and drive attention to the MDI sector. 

"This partnership with UpMetrics addresses several pain points simultaneously and provides a seamless path to robust data reporting and compelling data visualization." - Nicole Elam, President and CEO of the National Bankers Association 

How UpMetrics Can Help Impact Investors

As you can see, a lot goes into implementing a strong IMM strategy. It can quickly become overwhelming without the right tools and resources on your side. 

That's where UpMetrics comes in!

We offer an all-in-one IMM platform for impact investors that allows you to: 

• Collect and analyze impact data both pre- and post-investment 
• Empower portfolio companies or funds to better understand their individual impact and areas for improvement
• Visualize and present real-time impact updates to stakeholders to foster accountability, continuous learning and collaboration, and market-building 

Here are just a few features our software offers that can help you accomplish these goals: 

• An Impact Framework builder with customizable templates that allows you to quickly map out your objectives and KIIs related to your impact themes
• Simplified data collection through integrations and custom surveys 
• Ability to integrate third-party data and public data sets 
• Tools to gather, organize, and analyze qualitative data 
• Benchmarking tools to compare progress against regional data, industry standards, or past performance 
• Dynamic dashboards that allow you to analyze data in real-time

Additionally, we also offer two professional services packages: 

• Define+: This consulting service helps your organization quickly and strategically establish its Impact Framework and kickstart its IMM journey. Over two months, we’ll work with you in virtual sessions to learn how to implement a robust, fully customized IMM strategy.
• Managed Services: With this three-year package, our team will support your organization across all the aspects of creating and implementing your IMM strategy. By the end of our engagement, you'll have a strong IMM approach and system that is easy to maintain and evolve moving forward. 

UpMetrics works primarily with institutional impact investors who invest capital into for-profit organizations driving social good. If your organization is an investment firm or you're a portfolio manager looking for ways to better understand and communicate your impact, UpMetrics may be a great fit for you! 

UpMetrics also offers solutions for nonprofits and grantmakers. Contact our team to learn more about how we can help your unique organization! 

Wrapping Up

Impact investing allows investors to bring together philanthropic goals and the desire for financial returns. In this guide, we've covered everything you need to know about impact investing and the importance of weaving impact measurement and management into your strategy. Use this information to get started measuring your impact and making positive changes to your investment strategy so that you can do more good. And remember, UpMetrics is here to help! 

Interested in exploring the world of IMM further? Check out these additional resources: 

• Impact Investing in 2025: Trends, Opportunities, and a Path to Measurable Change
• How to Measure Social Impact Like a Pro: A Full Guide
• Impact Reporting: 6 Steps to Creating an Exemplary Report