Investing for Impact

Imagine if the businesses you decide to invest in not only help you achieve your financial objectives but also contribute towards making the world a better place. While some may perceive this as an unrealistic fantasy or the hopeful musings of a novice investor, the concept of "impact investing" has gained traction. Impact investing involves investing with the purpose of generating a positive social or environmental impact in addition to financial gains, and it is becoming increasingly popular.¹

Always keep in mind that investing comes with inherent risks, and your investment choices should be influenced by your personal objectives, investment timeline, and risk tolerance. The value of investments, both principal and returns, can vary due to fluctuations in market conditions. Consequently, when investments are sold, their worth may be higher or lower than their initial purchase price.

A (Very) Brief History

In the 1950s, American investors started to avoid publicly traded companies associated with alcohol, tobacco, or gambling, marking one of the earliest instances of impact investing. As more investors entered U.S. markets, the concept of impact investing gradually evolved over the decade. By the 1960s, some investors had moved beyond avoiding "sin" stocks and began to focus on the Vietnam War and politics. They chose to divest from companies providing weapons for the war.

The 1970s saw a significant increase in the popularity of impact investing. New funds emerged, aiming to attract socially conscious investors by combining social and environmental considerations with financial objectives. In the 1980s, concerns regarding environmental disasters such as Bhopal, Chernobyl, and Exxon Valdez drove investor interest in impact investing, leading to the establishment of the Forum for Sustainable and Responsible Investment (SIF). SIF is now one of the largest educational resources on impact investing.

Today, impact investing is more widespread than ever before. With several funds dedicated to addressing critical issues, investors can now have a more significant impact through their investments.

Investing in mutual funds and exchange-traded funds (ETFs) involves risks, and there is a potential loss of principal. The market and the risks of the underlying securities impact both mutual funds and ETFs. Both may also have a trading price that may be at a premium or discount to the net asset value of the underlying securities. The success of any investment or strategy is not guaranteed, and investors should consider the investment objectives, risks, charges, and expenses of the fund carefully 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?

You may have heard of impact investing before, possibly by a different name. Investors have used various terms over the years, including "community investing," "green investing," "socially responsible investing," "sustainable investing," and "values-based investing."

The evaluation criteria of potential investments and the basic premise of impact investing have evolved over time. Today, impact investing is a discipline that uses environmental, social, and/or corporate governance (ESG) criteria to generate long-term, competitive financial returns and a positive impact on society.

It is worth noting that there is no single way to invest for impact, as every investor has unique social and financial goals. For instance, one investor may avoid or divest from companies that manufacture firearms, while another may invest in companies that actively address systemic social issues through their business practices. Both of these examples are instances of impact investing, even though they have different goals. In a recent survey, climate change was cited as one of several factors contributing to the increased interest in sustainable investing.²

Want to Learn More?

Impact-friendly funds are now available through many major investment companies, and your investment professional can provide information on each fund regardless of where you choose to invest. For those who want to learn more, the SIF (USSIF.org) offers numerous resources and information for beginners in impact investing. Morningstar (Morningstar.com) and MSCI (MSCI.com) also provide "sustainability ratings" for funds and indices to help investors evaluate whether a company or fund aligns with their goals.

If you're interested in this investment approach, seek guidance from your trusted financial professional, who can provide personalized advice even if they don't specialize in impact investing. Ultimately, impact investing enables you to pursue your financial goals while considering the well-being of your community and the world, making it a worthwhile investment strategy.