Impact Investing: Benefits Beyond Returns (Do Well by Doing Good)
Impact investing, related to socially responsible or ethical investing, conscious capitalism, and sustainable investing, is defined by the Global Impact Investing Network (GIIN) as investments “made into companies, organizations and funds with the intention to generate a measurable, beneficial social or environmental impact alongside financial return.”
The Myths and Realities of Impact Investing
So, impact investing allows you to do well by doing good — earn returns on your money while supporting a social or environmental cause that is important to you. Originally impact investments were focused on helping investors avoid companies involved in things they were against: tobacco or child labor for example. Nowadays it is more common to invest in companies or funds trying specifically to make a positive impact or build something socially responsible.
Sounds great, what’s the catch?
There is no real downside to impact investing although risk should be thoroughly vetted. Here are a few things to consider — 6 myths and realities of impact investing:
1. Return Rates?
Like most other investments, impact investments can sometimes return below market rates and other times beat the market. Do research carefully and it might be prudent to expect lower than average returns.
You do not necessarily want to invest the money you need for retirement in an impact investment. Be crystal clear about the objectives for your money.
2. Progressive Causes?
The majority of impact investments are for causes that might be considered “progressive.” However, it is entirely possible to find funds that uphold specific religious or conservative values.
For example, the Eventide Gilead Fund is a religiously grounded fund whose mission statement is to “honor God.” There is even a MAGA exchange traded fund.
3. Fee Structures and Minimum Investments?
Different companies will have different ways of charging fees and will have different thresholds for minimum investments. Some will charge an annual fee based on a percentage of assets under management. Others will charge a flat fee or trading fees.
Impact investing has historically been for the very wealthy, but more options are becoming available to more average investors and millennials in particular are embracing this way of putting money to use.
4. Tax Advantaged Money?
The ability to make an impact investment with money from an IRA or 401k will depend on how and with whom you invest.
5. Rapid Growth?
Impact investing is growing very rapidly which should mean an ever growing number of choices.
GIIN estimates that in 2018 there was $228 billion in impact investing assets — roughly double that of the previous year.
Knowing your rate of return on an investment is easy. Understanding the impact — if your cause is being furthered in a meaningful way — can be more difficult to measure.
Ideally the fund or company you are investing in has published their goals with regards to your cause and they update investors regularly as to their progress.
However, this self reported information can often times be misleading.
One thing to look for is if companies engage in Environmental, Social and Corporate Governance criteria (ESG). This is a set of standards to help figure out a company’s positive impact on society.
How to Participate in Impact Investments?
The majority of impact investments are made by institutional investors — organizations that trade securities in large quantities. However, there are a growing number of ways that individuals can participate in impact investing:
Research Individual Stocks
A growing number of public companies regularly issue social impact or corporate responsibility statements.
These reports detail social and environmental factors influenced by the company. They might also list charitable giving, volunteer activities, energy consumption, worker benefits and more. You can review these statements and look for companies that are interesting in forwarding a cause that interests you.
Invest with a Impact Investing Platform
Here are a handful of companies that are very focused on impact investments:
Wealthsimple: Wealthsimple is a RoboAdvisor from Canada that helps you invest in different types of funds. They offer six different impact investments, each with a different focus: Low carbon, gender diversity, clean technology, local initiatives, social responsibility and affordable housing.
Swell: Swell (from Pacific Life) is an impact investing platform. They let you invest in portfolios of publicly-traded companies innovating in high growth industries, including: renewable energy (wind turbines and solar panels), clean water (water filters and pipe repairs), green technology (electric cars and LED lights), disease eradication (immunizations and research), zero waste (recycling and repurposing) and healthy living (nutritious foods and health products).
Motif: Motif is another investing platform. They offer 3 impact-based portfolios: Sustainable planet invests in companies that actively practice sustainability to reduce their carbon footprint. Fair labor invests in companies that promote fair wages, safe working conditions and job security. Good corporate governance invests in businesses with strong ethical track records.
OpenInvest: OpenInvest is a largely progressive investment platform that allows you to mix and match companies representing different values to create a portfolio that represents what is important to you. Choose from investments in healthy hearts, women’s rights in the workplace, ethical supply chains or companies supporting refugees. Or, find investments that keep your money away from investments in dark money, carbon emissions, the Dakota Access Pipeline, deforestation, fossil fuels, gun violence, the prison industrial complex, big tobacco or anything associated with Donald Trump.
Coin: Coin is another sustainable investment platform. They offer investments in causes that include: gender equality, climate action, health, clean water, waste reduction, sustainable and inclusive workplaces, modern cities and shared prosperity.
WeFunder: WeFunder allows investors to put small amounts of money directly into start up companies. You can think of them as the “kickstarter for investing.” These are typically high risk investments, but you can find a wide range of interesting companies — many who are trying to improve the world.
Find a Fund Focused on Sustainability
There are many mutual and exchange traded funds traded on the regular exchanges with a focus on sustainability.
Here are two lists of mutual and exchange traded funds that would be considered impact investments:
- Investopedia lists 2018’s top performing socially responsible ETFs.
- Charles Schwab has published a socially conscious funds list based on data from Morningstar, Inc. It lists hundreds of mutual funds that identify themselves as selectively investing based on certain non-economic principles.
What Impact Will You Have with Retirement?
Retirement is a wonderful time to take a step back and consider what is important to you.
Start by creating a detailed retirement plan with the comprehensive and easy to use NewRetirement Retirement Planner. As part of this exercise, get really serious about your priorities in life and make sure that both your money and your time support what you think is important.