Investing for Impact

Impact investing relates to investing with the goal of creating a positive change in the environment, which some companies will support you financially.

Investing will always have risks, but with impact investing, you might get some additional help.

 

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.¹

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.

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. Over the decade, as new investors entered U.S. markets, impact investing evolved gradually. By the 1960s, some investors began to shift away from merely avoiding "sin" stocks, focusing instead on the Vietnam War and the politics of the time. For example, some investors chose to divest from companies that provided weapons for the 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, investors may be able to have more of an impact than ever.

Investing in mutual funds and exchange-traded funds (ETFs) is subject to risk and potential loss of principal. Both mutual funds and ETFs are subject to the market and the risks of their underlying securities. Both may have a trading price, which may be at a premium or discount to the net asset value of the underlying securities. There is no assurance or certainty that any investment or strategy will be successful in meeting its objectives. Investors should carefully consider the investment objectives, risks, charges, and expenses of the fund before investing. The prospectus contains this and other information about the funds. Contact the fund company directly or your financial professional to obtain a prospectus, which should be read carefully before investing or sending money.

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.²

Ready to Learn More?

These days, you can find impact-friendly funds through most, if not all, of the major investment companies. Wherever you are investing, your investment professional 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 (Morningstar.com) and MSCI (MSCI.com) provide "sustainability ratings" for funds and indices, with the goal of helping to evaluate whether a company or fund aligns with an investor's goals.³

If this investment approach interests you, look to your financial professional for guidance. Even if they don't directly specialize in impact investing, they can still offer you the most personalized 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?

For more information on investing, feel free to contact our team, California Retirement Advisors, at cradvisors.com or call at 888-643-7472 to request a meeting with one of our licensed advisors.

By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors