September 26, 2022

Impact Investing

Climate change, social justice, religious freedom — these topics and more are just some of the issues that freckle the modern age. Investing has been a hot topic for decades (one of the classic investing reads, The Intelligent Investor by Benjamin Graham, was originally published in 1949). So how does the 21st century investor use their capital for good? Through impact investing. Here’s what it means to be an impact investor, how this type of investing differs from others and more.

What is impact investing?

Impact investing is oftentimes referred to as thematic investing. Whatever you choose to call it, impact investing means putting your money toward something that can lead to a positive outcome.

In other words, it’s a way to use capital toward building a better world. Money does talk, after all, so this approach makes sense.

In addition to aiming for a valuable return on your investment, you can use impact investing to achieve certain goals in an industry or sector of the economy.

For example, women and non-binary individuals in the workforce (as well as their allies) may be interested in investing in female- or trans-led companies. The goal for this would be to help close the wage and wealth gaps that exist between genders.

Another example lies in the environment. According to scientific consensus, human-induced climate change is ramping up its pace. As a result, sustainability is becoming increasingly relevant. Impact investing oriented toward the environment might avoid companies who practice fracking while focusing on companies interested in renewable energy and green technology.

These are far from the extent of impact investing, but they do help exemplify what it means to invest with a greater goal in mind.

As an investor focused on their impact, you might encounter local initiatives to help marginalized residents of your city, specially tailored index funds that suit the needs of a particular religion and more.

Examples of impact investing in action

We’re not recommending specific investments, but we do want to help you see what real impact-driven funds and stocks look like in the wild. The Pax Ellevate Global Women’s Leadership Fund (PXWEX) is a mutual fund focused on women-led organizations. Institutional investors can use the Reinvestment Fund to direct their capital toward positive community changes. The Philadelphia-based fund goes well beyond its region, and offers a diversified portfolio led by values (like job equity and affordable housing). Public has investing themes you can browse on the web or app, some of which are impactful by nature. They include a collection of stocks that adhere to an overarching value. Here are a handful:

Bottom line

US SIF (The Forum for Sustainable and Responsible Investment) released interesting research about impact-driven investing. In 2018 alone, impact investing made up $12 trillion of the American market. This equates to more than a quarter of all US investment capital for the year. Their research also showed that larger funds performed best, which comes as no surprise. Now that you know what it means to dabble in impact investing, you can look around for a portfolio addition that can help make the changes you want to see in the world.