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Ask Mosaic: What is the Difference Between Impact Investing and Socially Responsible Investing?

This post is the first in a series of a weekly “Ask Mosaic” column that will feature our take on questions from the Mosaic community. To ask a question, simply tweet to @solarmosaic or post to our Facebook page. Today’s question comes from social impact investment pioneer @LaurenOPV who asked us how we differentiate between #impinv and #SRI.

Emerging innovations are often difficult to explain. As we discovered while characterizing the movement of money into investments that create social & environmental change, they are even more difficult to hashtag.

Whether you refer to it as #impvinv (impact investing), #SRI (socially responsible investing), #SoCap (social capital markets), #SocInn (social innovation) or #SoFin (social finance), it’s undeniable that this idea is trending, and not just on Twitter.As the Atlantic pointed our in a recent article, if big banks can use newfangled investment vehicles like credit default swaps to help blow up our financial system, why can’t the rest of us develop financial innovations to create massively positive impacts on our world toughest social and environmental challenges?

We can. And, we are. Under the broad theme of impact investing are new ways of leveraging private capital across multiple asset classes to create positive change.

Governments are experimenting with social impact bonds–a bond that invests in people, instead of infrastructure, and where the return is based on the success of programs that reduce prision recidivism rates and decrease homelessness. New “social venture capital” firms are popping up to invest in early-stage social enterprises. And an increasing numbers of individuals are putting their money into investments that create positive change AND generate a return on investment.

As @LaurenOPV pointed out on Twitter, all of these new exciting ways to invest make for some serious hashtag confusion. Impact investing (#ImpInv) and Socially Responsible Investing (#SRI) in particular are often used interchangably. #ImpInv is generally used to describe a new form of equity investing that targets environmental and social improvements while seeking financial return for investors whereas #SRI refers more to funds that screen for publicly traded companies that make positive contributions to society.

Hashtag and vocabularly quizzes aside, what is clear is that we need more of this. Just imagine a day when you can open up the business section of the paper and instead of reading about the latest interest rate manipulation or massive trade gone sour, you’ll see stories on how financial innovations are creating more clean energy, better healthcare, smarter children and greater equality.

Now that’s an idea worth tweeting about.