Advertisement
investing

Investments With a Social Impact

Want to put your money to good work? Socially conscious investors have a variety of new investment products to choose from.

Can your portfolio make the world a better place? Major Wall Street firms as well as much smaller organizations are rolling out new investments designed to have a positive social or environmental impact. These "impact investments" range from bonds that help fund community projects in specific cities to broad stock funds holding companies that get top marks for corporate and social responsibility.

Advertisement - Article continues below

Fund manager BlackRock, for example, last year launched the Impact US Equity Fund, which holds companies scoring high on the firm's own health, environment and corporate citizenship metrics. And nonprofit financial services firm ImpactAssets recently launched "impact investment notes" focused on sustainable farming and microfinance.

Impact investing assets climbed to $109 billion in 2014, up from $86 billion in 2012, according to the Global Sustainable Investment Alliance. People are starting to "expect more from an investment portfolio than just the financial return," says Hilary Irby, a managing director and head of investing with impact at Morgan Stanley.

But there are challenges for investors. Many investments in this niche lack a long-term track record. And the definition of "impact" can be subjective. While there are efforts to standardize how impact is measured, those are still a work in progress, says Ron Cordes, co-founder of ImpactAssets. Investors should scrutinize how each manager measures and reports social and environmental benefits.

Boost Social -- and Financial -- Returns

Impact investments are part of the universe of socially responsible investments. But traditionally, most socially responsible investments simply screened out certain stocks or industries, such as those related to alcohol, tobacco or weapons. Impact investing is "intentionally looking to make an investment that has certain social or environmental returns," says Justin Conway, vice-president of investment partnerships at the Calvert Foundation, which offers impact investments.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

Socially concerned investors are gaining access to new data that can help guide portfolio decisions. Last year, for example, the Governance and Accountability Institute found that 75% of companies in Standard & Poor's 500-stock index had published a sustainability or corporate responsibility report, up from 20% in 2011. And investment-research firm Morningstar is rolling out "sustainability ratings" that grade mutual funds and exchange-traded funds on their portfolio holdings' environmental, social and governance practices.

Studies suggest socially conscious investors don't have to sacrifice returns. Analyzing seven years' worth of performance data for more than 10,000 mutual funds, a recent study by Morgan Stanley found that such funds tend to deliver slightly higher returns and lower volatility than their traditional rivals.

Fund investors can find broad impact investments, such as the new BlackRock fund, as well as funds focused on narrow themes. Both BlackRock and State Street, for example, offer ETFs tracking the MSCI ACWI Low Carbon Target Index, which overweights companies with low carbon emissions.

Fixed-income investors can choose among bonds focused on themes such as fair trade and women's empowerment. Using Vested.org, an investment platform launched by the Calvert Foundation in 2014, you can choose a specific theme, such as services for the aging. The money you invest will be lent to organizations working in that area, such as services that provide meals to homebound seniors. You'll receive annual interest payments that vary by maturity. A one-year note pays 0.5%, while a 10-year note pays 3%.

Even this relatively conservative impact investment has its risks. There's no guarantee you'll get your principal back -- although so far, the notes have maintained a 100% investor payout, Conway says.

Advertisement
Advertisement

Most Popular

Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
5 Unfortunate Estate Planning Myths You Probably Believe
estate planning

5 Unfortunate Estate Planning Myths You Probably Believe

These all-too-common misconceptions can steer your estate plans in the wrong direction right from the start. Here’s how to overcome them and tips to b…
September 17, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
The 5 Best iShares ETFs for a Core Portfolio
ETFs

The 5 Best iShares ETFs for a Core Portfolio

You can assemble a simple, diversified and dirt-cheap portfolio using just a handful of the best iShares ETFs from its 'Core' series.
September 18, 2020
Best Bond Funds for Every Need
Investing for Income

Best Bond Funds for Every Need

In a changing market, it’s important to remember why we hold bonds in the first place.
September 15, 2020
Does a 40% Bond Allocation Make Sense in Today’s Portfolios?
retirement planning

Does a 40% Bond Allocation Make Sense in Today’s Portfolios?

For many investors, the short answer is no. Here’s why, and what you might consider instead.
September 7, 2020