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How to Invest with Impact



Impact investing is an approach to investing that intentionally seeks both financial returns and social impact. As part of a broader, aligned strategy around allocating your assets to the issues you value, impact investing can direct capital to local or international investment opportunities that aim to address specific social or environmental issues.

While foundations, governments and high-net-worth individuals are often the most prominent examples of impact investors, there is increasing appetite and demand from the average retail investor seeking to align their assets with their values, and more and more opportunities— from community bonds to crowdfunding—are being created to satisfy this demand, in effect democratizing the investment landscape.

Here are a few points to consider as you explore how to invest with impact.

1. Know Yourself

The financial industry uses the phrase “Know Your Client” to describe the set of processes to capture the preferences of their clients, such as risk tolerance, investment horizon, etc. For your own impact investing, this concept also implies understanding what you care about, including the issues, sectors, geographies and target populations that are most aligned with your values. For example, what impact are you most interested in, and what goals would you want to target? Some sectors, such as affordable housing and primary health care, offer multiple pathways for impact on individuals, families and communities. How much do you know about the targeted issue or sector, and what is the best way to improve your knowledge of the critical needs and opportunities? As you build an informed strategy, working through these types of questions in a systematic and diligent way can help guide your choices.

2. Know Your Portfolio

One of the easiest ways to get started is to find out what’s in your portfolio today. Your advisor or financial institution should be able to provide this information, so ask them! Specifically, ask about the Environmental, Social and Governance (ESG) data for your specific investment holdings. Whether you realize it or not, your investments already have some type of impact on the issues that matter to you, whether it’s positive, neutral or negative. This assessment of what your money is already doing will undoubtedly raise some questions and issues to consider. For example, are you opposed to investing in any companies in the resource extraction sector, or would you consider those that are leading the way in sustainability efforts? A guiding principle is to ensure that you are “doing no harm,” meaning that your money is not currently harming causes close to your heart. A common strategy is to exclude any companies that that are making the world less healthy (alcohol and tobacco producers) or less secure (weapons manufacturers).

3. Use a Portfolio Perspective

As an investment approach, impact investing can be applied across a range of asset classes, sectors and regions. Just as in conventional investing, there will not be one “perfect” impact investment that will check off all your boxes with regards to your beliefs and the financial return/risk profile you seek. Having the right mix of investments to balance your specific risk/return/impact factors requires an iterative and informed approach. Recently, divestment from oil and gas holdings to create a “fossil-fuel free” portfolio has become a popular strategy for the “do no harm” camp. Beyond doing no harm, your investments can also be intentionally deployed towards creating social impact in the areas you care about most. Popular examples include the Calvert Community Investment Note (U.S.) or CSI’s Community Bond (Canada). The goal is, over time, to get closer to your ideal asset mix at the portfolio level, and everyone has to consider their unique circumstances around how to best do this.

4. Be Informed

As a relatively new field, impact investing is still dealing with some challenges around improving the range of opportunities, availability of data, and how to measure impact. There are a number of structural barriers and myths that continue to persist, such as the notion that adding impact to the traditional risk/return equation will require sacrificing some financial returns. There is now a range of academic and market data to show that this simply isn’t true. On the contrary, there is some evidence that business models that integrate a broader range of social and environmental considerations can be better businesses relative to their peers, and less prone to the volatility of traditional markets. Whether you are keen to get started or just to earn more, sites such as the Responsible Investment Association, the U.S. Social Investment Forum, the Global Impact Investing Network, and all offer a wealth of information and guidance.

Whether you realize it or not, your existing investment portfolio is having some type of impact on the causes that matter to you. You’re likely already spending a significant amount of time and effort in deploying your time, knowledge and experience towards the issues you care about most. Impact investing is an approach that brings intentionality to how you align profit and purpose. So the next time you walk into your financial institution or sit down with your investment advisor, ask them how you can put your capital to work in a way that considers people, planet and profit.

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