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Investments cause a ripple of consequences not only for the investors themselves, but for communities and economies as well. In the same manner, these effects come in the form of money as well as social benefits, such as the creation of jobs and additional provisions that ultimately lead to the betterment of society.

However, not all investments have positive outcomes. Some leave unpleasant — or even devastating — consequences for society and the environment. For this reason, there is now a heightened interest in socially conscious investing to bridge the gap between investment and philanthropy.

Impact Investment and Philanthropy

Impact investing is a type of investment that empowers individuals, companies, organizations and other entities with enough financial capital while keeping in mind the business’s socio-economic and environmental impact on top of financial returns.

When a company engages in an impact investment venture, they commit to their duty (also known as corporate social responsibility) to make their investments count for society to develop for the better. Typically, such companies invest in environment-friendly practices or engage in charitable acts that help the underprivileged.

The Legatum Institute, a London-based independent educational charity, considers philanthropic opportunities as the best way to practice corporate social responsibility while maintaining their goal to make the world a better place. In their search for investment opportunities that have a positive impact on society, they engage in thorough research — like creating the 2018 Prosperity Index — to highlight not just the best of the best, but also how well a nation can improve with the help of investors.

This approach considers lifting people up a priority and looks for investment opportunities in programs that supplement government policies, and support entrepreneurship, free enterprise, and programs that contribute to a nation’s overall prosperity.

Philanthropic Investment: 3 Core Areas

Philanthropic investments that made the most impact in society provide support to entities under three core areas:

1.    Entrepreneurship

Entrepreneurship can bear positive results not just for the individual engaging in the practice, but for his nation and society as a whole. It is instrumental in the creation of jobs, improving the economy and, ultimately, initiating a societal transformation for the greater good.

Entrepreneurship works as a bridge as well as a destination that helps a society establish sound judicial policies, improve property rights protection, and promote order. For instance, programs that offer funding, community resources, and education for aspiring entrepreneurs helped protect them from unhelpful legislation, over-regulation, over-taxation, and large firms that monopolize the market.

2.    Development

Although the battle against poverty appears to have no end, forward-thinking philanthropic organizations still put the development of societies in their core areas of focus. Cause-oriented groups have reported how people — even those who are considered the poorest of the poor — can flourish when given ample aid from private investors and a supportive government.

Taking that into consideration, charitable organizations that engage in philanthropic investment, offer financial support to programs and policies that tackle the major hindrances to development such as modern slavery and Neglected Tropical Diseases. These are then sustained through multi-level Strategic Initiatives that last from three to five years.

3.    Policies and Ideas

To ensure that entrepreneurship and development both prosper through impact investment, it also pays for organizations to direct their lenses towards policies and ideas within communities and nations. Under this core area, the Legatum Institute, for instance, invests in knowledge and research to measure an economy’s status in prosperity and how it can improve through the Prosperity Index.

Rather than focusing on the cash flow, the Index underscores that a nation’s wealth involves numerous aspects, with major consideration for Economic Quality, Business Environment, Governance, Education, Health, Safety and Security, Personal Freedom, Social Capital, and Natural Environment as the main pillars of prosperity.

Investing in Philanthropy

Investment and philanthropy, while seemingly unrelated, should remain the focus of private investors to ensure that the society grows with the entity they are investing in. Programs with such a perspective offer good examples of how this can be achieved by focusing on entrepreneurship, development, policies and ideas.