Impact Investing: Aligning Your Investments with Your Values
Impact investing might seem like a new buzzword, but it has deep roots in history. In the U.S., it dates back to at least the 1700s, with various religious groups setting specific investment mandates for even longer.
Many investors today want their investments to reflect their values. This approach has gained significant traction recently. However, it's crucial to maintain core investing principles like diversification, risk management, and fee management. Fortunately, the growing number of options makes it easier to align investments with personal values.
Common Impact Investing Strategies
Most investors use mutual funds and ETFs for broader diversification than individual stocks or bonds can provide. Impact investing is a broad term encompassing various strategies to achieve desired impacts.
Socially Responsible Investing (SRI): This strategy often uses negative screens to exclude industries like alcohol, tobacco, and gambling. Some screens also exclude firearms or weapons production. Positive screens might focus on companies with strong worker policies or human rights commitments. For example, you can check if a fund invests in firearms at goodbyegunstocks.com.
Sustainable Investing: This approach targets businesses promoting environmentally friendly practices, preservation, or sustainability-aligned governance. It includes companies offering carbon offset credits, those with sustainable timber harvesting practices, or those advancing solar, wind, or water energy technologies.
Navigating the Choices
Today there are more choices than ever before, which can be both good and bad. Good, because more specific screens can be applied to reveal investments that are aligned with specific values. Bad, because it can be difficult to decode all the language different investment companies use to develop those screens.
Each fund manager can choose how they develop the appropriate screens for their fund, so it’s important as an investor to understand the differences of philosophy on how companies are included or excluded. For example, one fund has decided to base their screens on percentage of revenue derived from the exclusion list parameters. So, if a company still sells the offending item, but derives less than 10% of revenue from it, the company may still pass the test and be included in the fund.
We work closely with our clients to build the best portfolios for their needs. While not all portfolios will include impact investing options, we ensure a good match when they do.