What is Impact Investing?
Impact investing is the process of aligning various preferred values with the generation of financial returns. There are a number of ways investors choose to approach impact investing, all largely dependent on what values investors choose to align with. While the most commonly understood use of impact investing is an emphasis on support for environmentally-friendly investments, other themes include:
- Negative investment screens to avoid companies conflicting with an investor’s personal values, such as companies that use harmful labor practices
- Incorporation of shareholder engagement that allows investors more of a say in how companies are run
- Integration of Environmental, Social, and Governance (ESG) factors that review what policies companies have adopted across assets classes, such as diversity in hiring processes or work in underserved communities.
How Do I Start Impact Investing?
Once you choose the values you wish to align your investing decisions with, you can next decide how to find the appropriate investments. A financial planner can help you understand choices that exist based on your values and also guide you towards investment decisions that align with your long-term financial goals. A number of investment vehicles are also available for individual investors to purchase that include stocks from various companies based on common impact investing themes.
Is Impact Investing Effective?
Though many in the past believed that impact investing delivered returns below the rest of the market, this myth has been debunked in recent years as Roughly 90% of studies find a non-negative ESG-CFP relation.