In April 2020 during the COVID lockdowns I didn’t fully understand the difference between ESG (environmental, social, corporate governance) investing and impact investing.

As a pandemic project, I decided to do a limited series podcast promoting social enterprise and other market based approaches in addressing social and environmental problems.

One such approach is impact investing. Prior to this episode, I thought by investing in ESG funds I was using the market to create positive social and environmental change. My podcast research revealed something very different.

When I first googled impact investing the first page was filled with links to ESG funds. It appeared that Google didn’t know the difference between the two either.

ESG Investing occurs in the public market and has evolved into punishing corporations that have a large carbon footprint by divesting from them and to redirect that investment into companies that have a low carbon footprint. Specifically companies in technology, financial services and health care.

So I took a closer look at the ESG funds. A fund is kinda like everything bagel seasoning, but instead of lots of tasty seasonings in one convenient jar it’s lots of different companies in one convenient fund.

Some ESG funds are just a label, fooling consumers into thinking these investments are environmentally friendly.

Most of these funds are sincere though, managed by some of the most professional wall street investment managing firms.

The individual company I saw holding the highest concentration inside ESG funds was the Apple Corporation. Apple has great products, equal pay, low carbon footprint and provides extensive charitable disaster relief. They also have all their manufacturing outsourced to China and are known tax dodgers. They also make products that become obsolete in a few years making it necessary to consistently buy new ones over time. This is not impact investing, right?

In health care I saw Johnson & Johnson. The pharmaceutical giant does have a low carbon footprint but come on impact investing, not a chance, right?

Johnson & Johnson finally agreed in early 2024 to pay a $700 million settlement to resolve the claim that it knowingly omitted cancer risks when marketing their talcum powder.

In financial services there was JP Morgan Chase Bank. Again, Chase has a very low carbon footprint. However, in 2023 they settled for $290 million for its alleged role in the Jeffery Epstein case. Chase is the 2nd most penalized corporation in the US.

This is ESG investing, as long as companies have a small carbon footprint and are traded in the public market it’s ESG.

But at least these investments are helping with reducing environmental pollution, right?

Fast forward three years to a very well researched paper by Yale economist Kelly Shue.

This paper concludes that ESG investing is counterproductive, pushing polluters to emit more greenhouse gasses in order for them to continue to be profitable.

What a total bummer.

Back to 2020 while researching for my podcast, I also found myself on the Global Impact Investing Network site, which states a very clear definition.

Impact investing has the intention to generate positive, measurable social and environmental impact alongside a financial return.

This was more like it. I saw investments that brought needed healthcare infrastructure to sub-Saharan Africa, wind farms to Mongolia and financial services to low-income disenfranchised communities in the United States. The cherry on top was that 67% of the time impact investments delivered a risk-adjusted market return.

A risk adjusted market return is kinda like finding the right balance walking on a tightrope. Too much risk, and you might fall or lose your investment; too little, and you won't reach the other side of the rope or your financial goal.

I was feeling it until I saw that impact investments were only available in the private market to accredited investors (people exceeding certain wealth thresholds, such as having $1 million in liquid assets).

In other words, impact investors were the philanthropic elite.

It was like I got punched in the stomach. Here I was with the intention of telling everyday people how they could become impact investors and it turned out that regular people are locked out.

I remember the next day after this discovery feeling defeated and wanted to give up on the entire podcast but felt the need to go back on the GIIN site one more time.

The site was featuring awards it gave out to a number of impact investments that year. Scrolling down the award category list, one immediately popped out at me. Best impact investment for retail investors.

I clicked the link with excitement welling up inside and saw the Calvert Community Note. This is an investment where everyday people can go onto their site and invest in community development with a low minimum entry requirement which as of today is only $20. This was a crowd investing platform.

What is the significance of crowd investing platforms?

In 2016 the general public was given access to the private market via Regulation Crowdfunding.

That is when everything clicked for me. The pieces of the puzzle all fell into place. The general public has access to the private market via crowd investing and impact investments are only available in the private market.

In other words, the only way the average person can become an impact investor is by becoming a crowd investor.

Total game changer.

Last year Calvert Impact Capital was tasked with deploying a $7 billion grant from the Inflation Reduction Act. This money will be invested, not donated. That money is in good hands.

I am a crowd investor and I can make a positive environmental impact alongside a financial return by investing in the Calvert Community Note and so can you.