If you’re interested in learning more about impact investing or becoming active in the space, there are several industry terms you should be aware of. Familiarity with these concepts will provide a foundation for diving deeper into the impact investing landscape.
General impact investing terminology
Development finance institution (DFI)
A blanket term to describe varying types of financial institutions—investment banks, institutional investors, advisors—with mandates to support economic development via investment and financial service provisions. DFIs tend to target investments in emerging markets, as their support can catalyze and stimulate economic development in underserved regions.
Environmental, social and governance criteria (ESG)
A set of measurements or criteria used to evaluate a company’s environmental, social and governance practices. ESG data can be useful for analyzing risk and impact of potential investments.
Investors tend to agree that “impact” refers to the social or environmental effects generated by an investment. This simple definition has some flaws though, as impact can vary across business sectors and geographical regions. Impact is informed by the context of the stakeholders, enterprises and populations they serve, too. In developed markets, many impact investments target environmental goals, like reduced carbon emissions. In emerging markets, impact often comes in a social form, like creating jobs and providing basic services
A strategy of investing in enterprises, organizations and funds that seek to create both financial returns and measurable social and/or environmental impact. Impact investments are most commonly made through the familiar investment structure of closed-end private equity (PE) and venture capital (VC) funds.
Mission-related investments (MRIs)
MRIs are similar in theory to program-related investments (see definition below), but target market-rate returns, as they are made from the portion of a foundation’s endowment that is invested for profit.
Program-related investments (PRIs)
Investments made by private foundations whose primary goal is to advance the programmatic goals of the organization, where capital appreciation or income production is “not a significant purpose.” PRIs can be structured as direct debt or equity investments, or fund commitments.
Companies that are both financially sustainable and bring about positive social and/or environmental impact. Impact investments often support social enterprises.
Socially responsible investing (SRI)
An investment strategy whereby investors utilize screening and exclusion, divestment, positive reinvestment and shareholder activism to achieve positive social or environmental outcomes. SRI is predominantly used with public market securities and is relatively accessible to non-accredited investors.
UN Sustainable Development Goals (UN SDGs)
A collection of 17 global goals developed in 2015 by the United Nations General Assembly for the year 2030. The SDGs are “a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity.” SDGs are recognized across institutions and geographic regions, making them a popular framework for benchmarking impact.