The different types of Social Purpose Organisations (SPO’s) are as follows: charities, revenue generating social enterprises, socially driven businesses, and traditional businesses. The first and last are self-explanatory, but the difference between a revenue generating social enterprise and a socially driven business is that the former creates social impact through its operations, whereas the latter creates impact in the distribution of its profits.
Charities are purely philanthropic both in their ultimate aims and their operations, and investors, whether institutional or individual, naturally do not expect anything in return for their donations, other than the optimal usage of it towards the achievement of its manifest purpose.
Impact Investing vs. Venture Philanthropy
Impact investing is broad in scope, and covers essentially any investment made with the aim of creating social impact. It includes anything from the purchase of shares in traditional, publicly owned businesses that make efforts to reduce their environmental impact or create social impact, to direct investment in a social enterprise that incorporates the goal of social impact into its operations. Investment horizons and minimums can vary depending on the investment vehicle involved, with publicly listed companies being the most accessible to the typical individual constrained by limited funds and repulsed by a dyssynchronous investment horizon.
Venture philanthropy is a subset of impact investing, and it typically involves investment of capital in privately owned social enterprises, and for that reason, a much more intimate, and collaborative relationship between the investor and the firm. Due to the greater demands on the investor’s time, requisite expertise, and the size of the investment involved, it is typically limited to institutions, funds, and wealthy individuals.
If the purchase of shares of a publicly listed company counts as a form of impact investing, then every holder of the company’s shares would equally be an impact investor, unless we wish to disqualify them on the basis of an absence of any intention to create social impact. But the problem then arises: how are we to qualify an investment as being impactful? If the qualification lies in the intention, then even an investment that had no positive social impact would count, so long as it was made with the intention of creating it. If the qualification lies in the results, on the other hand, a failed social enterprise wouldn’t count as an impact investment, leaving the issue in the uncertain realm of extraneous circumstances.
Which is for me?
In most cases, the possibilities open to someone looking to make a positive impact are immediately obvious. It might seem that there is a plethora of choices available, but most of these options are not available to the typical investor in the first place. The amount of funds available to invest, the investment horizon, and the accessible vehicles, all of which should be easily and immediately known by the investor prior to researching his options, greatly narrows the universe of possibilities down to a digestible set.