Understanding Impact Investing And How To Get Started

What is impact investing, and how can investing in impact-conscious companies and firms help you make a positive social, environmental, and economic impact with your investment dollars? Impact investing describes an investment strategy that aims to create lasting good across the planet and society at large while also generating positive financial returns.

In effect, impact investors aim to make green while also going green by investing in firms that create positive change for the environment, for society, and for the general economy. As a general strategy, this means that impact investing is all about creating winning outcomes at every turn in a fiscally responsible way that creates ongoing opportunities to do good for planet Earth.

Wondering what it takes to get started with impact investing? Let’s take a closer look at how impact investing strategies can help you build out your financial portfolio, generate healthy returns, and do your part to support positive changes around the globe. Read on to find out what it takes for a socially conscious and green-minded financial investor to get started.

What Is Impact Investing?

Impact investing is an investment strategy that sets out to not only create positive financial returns for investors and companies, but also create a positive impact on society and on the planet. Impact investment plans typically focus on promoting social or environmental good and addressing issues that affect the local or global community.

Impact investing has grown increasingly widespread in recent years. That’s because it allows companies and investors to better align their overall incentives not just with opportunities for financial gain, but also opportunities to uphold company values and promote initiatives that champion a better future for all.

From non-profit ventures to private and public enterprises, you’ll be pleased to know that a number of entities now offer impact investing opportunities. Likewise, a variety of potential asset classes can be invested in, depending on what form of investments you’re interested in pursuing.

Impact Investing Vs. Socially Responsible Investing

While it may seem somewhat hard to spot at first glance, there’s a difference between impact investing vs. socially responsible investing.

Impact investing is a form of investment strategy that’s targeted at helping businesses, non-profit organizations, and other legal entities produce works with environmental or social benefit. On the flip side, socially responsible investing speaks to the practice of selecting or opting out of specific investments based on ethical guidelines or criteria.

In other words, impact investing is about actively looking for ways to do good in the world around us. Socially responsible investing is about making sure you’re putting your money where your mouth is − and only standing behind those companies and organizations that align with your personal mission and values.

Types Of Impact Investing

Naturally, doing social, environmental, and corporate good can fall under a host of categories. For example, you might elect to invest in initiatives that help fight climate change, promote more sustainable farming, champion the rise of renewable energy sources, or aim to provide equitable healthcare or financial resources for all.

Impact Investing Firms

Many impact investing companies and socially-conscious investment firms have popped up with an eye towards helping investors channel their financial efforts towards promoting environmental and social good at every turn. Both individual impact investors and institutional investors now enjoy the opportunity to help promote positive change with every dollar. Some sample impact investing firms of note follow.

Wealthsimple

Wealthsimple is an online investment management firm that can help you automate and make impact investing simpler … all while spreading your investments across a well-diversified portfolio of options. Sums invested can be peppered across individual stocks, or a variety of low-cost exchange traded funds (ETFs) comprised of companies that have been screened and vetted to ensure that they’re making an environmental and social impact while also exhibiting financial growth.

OpenInvest

A J.P. Morgan company, OpenInvest allows you to track a variety of values-based metrics and invest in firms that actively promote inclusivity, LGBTQ rights, racial justice, access for disabled citizens, and other worthy causes. Using its online financial tracking and management tools, you can steer investment dollars towards companies that are working to curb climate change and promote a fairer, more equitable business world for all.  

Earthfolio

Provide answers to a few questions (age, financial goals, risk tolerance, etc.) and this ESG (environmental, socia, and governance)-minded online platform will start building a portfolio of investment options that matches you with socially conscious firms. Professionally managed accounts many types are available, allowing you to pursue impact investing via IRA, 401(k), or even joint or trust account vehicles. 

Investing with Impact

Morgan Stanley also offers investment options under its Investing with Impact framework that allow investors to screen firms for environmental impact, inclusivity, and diversity and prioritize where they place their funds accordingly. Across a variety of different asset classes, you can now customize funding allocations to align with firms that share your sense of purpose and values.

CapShift  

CapShift’s online platform and planning tools help financial and philanthropic institutions better their leverage capital for ESG efforts and put it towards companies that promote environmental and social change. Investors could put money towards initiatives like increasing global access to health and sanitation facilities, offer more life-saving medical supplies to underserved populations, and promote equal housing access for all.

Why Is Impact Investing Important?

Financial investors typically like to see a profit on their investments. At the same time, they’re increasingly prioritizing opportunities to do social and environmental good. Aligning these incentives allows investors to create positive change in the world by leveraging their dollars to impact positive change.

Normally, institutional and retail investors focus purely on variables like financial returns, financial performance, market rates, and other factors when weighing investments. But under an impact investing strategy, they also take other factors − like how hard a company is working to promote environmentally  and socially responsible business practices − into account when considering which firms to back.

In essence, impact investing challenges investors to think about the impact their efforts are having for good or ill on the planet and those who inhabit it. By looking at bigger issues than how we can make a profit alone, it asks us to consider how we can all be more responsible and better contributors to society.

Better yet, as a widely-adaptable way of thinking that’s applicable to an equally wide-ranging spectrum of asset classes, impact investing isn’t confined to one single industry or sector of the economy either. Put simply: If you’re looking to do more good in this world, there are many ways to do so in many spaces that also add to your bottom line.

How To Start Impact Investing

If you’re looking for investment tips, you’ve come to the right place. There are several items to keep in mind if you’re looking to be a more effective impact investor.

Tips On Being A Responsible Shareholder

Besides investing with companies that offer better impact investing platforms, here are a few ways that you can ensure your money is put to work for socially and environmentally responsible companies.

Do Your Homework

One very important point to keep in mind as you begin researching various green- or socially minded companies is to see what literature and insight these firms are sharing. Case in point: Your first stop should be to swing by the firm’s website and see if it engages in widely-accepted ESG criteria. This set of standards can help you get a better sense of a company’s positive impact on society and its financial impact. One thing you’ll also want to look out for is community investing, which is investing in projects or organizations that help underserved populations.

Think Long-Term And Big Picture –

Likewise, you’ll want to keep an eye out to see if the company has published a green roadmap that outlines specific objectives, dates, and milestones it’s working toward in pursuit of its socially conscious or green-minded efforts. Publishing a green roadmap not only helps firms provide investors with a better sense of where their strategic efforts are headed, and how well current projects align with their vision. It also helps these companies provide a greater sense of oversight and accountability, as they’re typically held accountable to these benchmarks.

Engage In Shareholder Advocacy –

If you want to go beyond investing in companies that rank high on the ESG index, you can be a shareholder advocate by doing your part towards encouraging companies to change their business practices. You can file a shareholder resolution, whereby you can call for corporate responsibility and discourage unethical practices. To file a resolution, you’ll need to hold at least $2,000 worth of stock in a publicly traded company for at least one year prior to the filing deadline. As you might imagine, this is pretty advanced stuff. If you’re someone who gets deep in the weeds with investing, being a shareholder advocate is something that may interest you.

On the bright side, you’ll be pleased to note that there are more options for impact investing sprouting up with each passing day now − and in the years ahead, options will continue to increase. By doing your research and taking time to ensure that companies are living up to current best practices and environmental and social standards, you can line up your values and what you care about the most while also growing your money.

Where To Start Your Impact Investing

Even better for those interested in impact investing, there are many ways to get involved. As noted earlier, both a growing mix of traditional and online investment entities (sometimes referred to as “fintechs,” or financial technology firms), now make it possible to engage in the practice. In fact, with public support for green businesses and sustainability efforts growing by leaps and bounds with each passing day, look closely, and you may find that even your local bank or credit union offers impact investing options today.

In short, there are many pathways and solutions to getting involved with impact investing, just as there are many types of asset classes that you can invest in and causes you can support. No matter if you’re an investor looking to help provide communities around the globe with better access to fresh air and clean water, or looking to stamp out world hunger, a host of investment choices are now available. Some of these investment solutions will come in the form of new programs offered by traditional investment firms, while others may take the form of websites, apps, or even automated “robo investment” platforms powered by artificial intelligence and smart technology.

Ironically, as an impact investor operating in a world of growingly ESG-minded interests and solutions, your biggest challenge may be choosing which platform, provider, and investment opportunities most align with your personal values and interests, and make the most sense for you.

The Bottom Line: Should You Become An Impact Investor?

If you’re interested in investing in positive global change, impact investing could be right for you. It’s all about finding balance and creating positive results for both the world at large, and your financial portfolio. In fact, one could even argue that the practice is all about achieving sustainability from top to bottom: In effect, supporting today’s most socially and environmentally minded firms in ways that also prove financially sustainable on a long-term basis helps create a virtuous circle for years to come. We also recommend connecting with a financial advisor to determine the right investment strategy for your unique financial situation.

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