Interest in impact investing is growing within the asset management industry, but there is still some confusion about it. We view impact investing’s defining feature as the explicit intention to generate positive, measurable social and environmental outcomes alongside a financial return. In the first of a three-part series, our Franklin Real Asset Advisors team, in collaboration with consulting firm Tideline, provide an overview of what impact investing is—and isn’t.

Impact investing is a form of responsible investing with the explicit intention to generate positive, measurable social and environmental outcomes alongside a financial return.

It is distinct from other sustainable and responsible investing strategies, including the exclusion of certain investments based on an investor’s ethical or religious values; thematic investing, which focuses on sectors or trends that affect society, but does not intentionally seek impact outcomes; and environmental, social and governance (ESG)-tilted strategies, which focus on selecting companies based on their ESG practices and potential.

Each of these strategies may also incorporate material ESG factors (ESG integration) into fundamental research to provide a comprehensive view of an investment’s value, risk and return potential.

The impact investing market is growing in both size and diversity. According to Global Impact Investing Network (GIIN) estimates, more than 1,340 organizations currently manage US$502 billion in impact investing assets worldwide.1