Insight
If you’re looking to do good for both society and your bank account, consider impact investing. No matter the cause, investors are increasingly connecting their wealth with their social consciousness.
“The world is going toward a cleaner, more socially responsible society,” said Cody Willard, a hedge fund manager and publisher of Trading With Cody.
According to the Global Impact Investing Network, impact investments generate social or environmental impact that is both positive and measurable, in addition to a financial return.
You can think of impact investing as an umbrella term for a variety of investing styles that follow a similar mindset with subtle differences, including:
In the past, socially responsible investing often meant not investing in companies in certain industries, such as firearms, tobacco, gambling and nuclear energy. Oil and gas companies have more recently joined the “don’t touch” list for many investors who are concerned about fossil fuels’ contribution to climate change.
“Tech companies often have high ESG rankings because their impact on the environment is relatively low. But rising concerns about consumer privacy and the sale of personal data may cause some socially conscious investors to rethink their appeal.” Cody Willard, hedge fund manager and publisher of TradingWithCody.com
Today impact investing isn’t just about what investments to avoid. Socially conscious investors can choose from a wide variety of investment vehicles that follow standards developed by the Organisation for Economic Co-operation and Development, which has 36 member countries. The United Nations publishes a similar guide in the Principles for Responsible Investment. These standards remove some of the historic uncertainty over what is and isn’t a socially responsible investment and cover issues such as environmental protection, human rights, labor standards and good corporate governance.
Meanwhile, MSCI, a major provider of global stock indexes, has incorporated these standards into its ESG Ratings, which are “determined by the degree to which [companies] reflect socially conscious values with regard to the environment, society and corporate governance.”
Those seeking to support causes through their investments have an array of options. Here’s a look at a few core investment choices and how they differ:
Companies that typically have high ESG ratings include electric utilities that make significant investments in solar, wind and battery technologies.
“A good portfolio of utilities that are not coal-fired is a fantastic idea, and they don’t get the respect they deserve” from investors in general, said Jon Markman, founder of Markman Capital Insight in Seattle.
On the other hand, Cullen Roche, founder of Pragmatic Capitalism, writes that individuals can have a greater impact on corporate behavior by boycotting their products instead of trying to influence them through investing. In other words, you can hamper the fossil fuel industry more by driving an electric vehicle or using mass transportation than through ESG investing.
While that may be true, there will always be those who will want every dollar spent or invested to benefit companies whose values that match their own. Through impact investing, people can create a stable financial future for themselves while also promoting ideals that are close to their heart.
Originally published at Forbes.
