Investing for Impact
What if the companies you choose to invest in could support your financial goals and help you attempt to make the world a better place? To many, this might sound like a pipe dream or the idealistic wonderings of a new investor. However, "impact investing," or investing with the intention of creating a positive social or environmental change, in addition to a financial return, is not only possible but also on the rise.
A (Very) Brief History
One of the earliest forms of impact investing in America occurred in the 1950s, when investors began to avoid publicly traded companies involved in or associated with alcohol, tobacco, or gambling. By the 1960s, some investors began to shift away from merely avoiding "sin" stocks, focusing instead on divesting from companies that provided weapons for the Vietnam War.
By the 1970s, it was clear that impact investing was here to stay. A growing number of new funds aimed to combine social and environmental considerations with financial objectives in an attempt to attract the socially conscious investors of the time. In the 1980s, some investors were heavily influenced by the Bhopal, Chernobyl, and Exxon Valdez disasters, which led to concerns about the environment and climate change. These events helped launch the Forum for Sustainable and Responsible Investment (SIF), which is now one of the largest educational resources for impact investing.
Fast-forward to today, and impact investing is more popular than ever. Today, with a number of funds available that focus on key issues such as the environment, health, and social justice, investors may be able to have more of an impact than ever.
What Is Impact Investing?
It's highly likely that you've heard of impact investing before, but possibly by a different name. Over the years, investors have used other terms, such as "community investing," "green investing," "socially responsible investing," "sustainable investing," and "values-based investing."
Just as its designation has changed over time, both the evaluation criteria of potential investments and the basic premise of impact investing itself have evolved as well. Put simply, today's version of impact investing is a discipline that considers environmental, social, and/or corporate governance (ESG) criteria to generate long-term, competitive financial returns and a positive impact on society.
It's important to note that there is no single way to invest for impact, since every investor has different social and financial goals. For example, one investor may wish to avoid or divest from companies that manufacture firearms, while another may decide to invest in companies that take an active role in addressing systemic social issues through their business practices. Despite their different goals, these are both examples of impact investing. However, these scenarios are more than hypothetical. In one survey, respondents identified climate change as one of several factors supporting the recent interest in sustainable investing.
Ready to Learn More?
These days, you can find impact-friendly funds through most, if not all, of the major investment companies. Your HCM Advisor should be able to provide information on each fund. For those who are curious to learn more, the SIF (USSIF.org) provides numerous resources and information for individuals new to impact investing. Additionally, both Morningstar and MSCI provide "sustainability ratings" for funds and indices, with the goal of helping to evaluate whether a company or fund aligns with an investor's objectives.
Remember that investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments fluctuate as market conditions change. And investments, when sold, may be worth more or less than their original cost.
If this investment approach interests you, look to your HCM Advisor for guidance. At the end of the day, impact investing gives you the chance to pursue your financial goals and consider the well-being of those in your community and around the world. What could be better than that?