Impact Investing: Going Beyond the Ticker

Jun 26 2018

Impact investing, it’s just what it sounds like, but is it really making an impact?

It takes years to acquire the skills needed to analyze extensive amounts of market data. Investors who wish to invest responsibly can now increasingly take advantage of the hard work and insights of analysts and portfolio managers who are bringing a range of compelling investment products to market.

Exchange traded funds (ETFs) are marketable securities that track an index or fund. More simply, it is a basket of companies that are grouped together under a unified label that states its investment goals, strategy or characteristics.

They can range from generating wealth rapidly with higher risks to securing retirement with a stable, long-term investment that will produce fewer profits but also experience less volatility.

ETFs are hardly a new concept for the financial markets, but the outpour of products focused on impact and cause-based investing is walking lock-step with the greatest generational wealth transfer in American history.

Impact investing is exceedingly popular among millennials. According to a Morgan Stanley report, 84 percent of millennials are interested in sustainable investing. Along with a wide range of new products, there has been a wave of investing technology platforms with rock-bottom fees and microscopic barriers to entry that makes it easier for millennials to invest.

Seismic Shift

Investor and consumer markets are demanding unprecedented transparency from companies and an increase in ethical and sustainable practices, forcing companies to prove their impact bona fides and earn the money from an increasingly scrutinous investor base.

What good is investing if your money is being given to companies that pollute, unethically trade and mistreat their workers? That’s where impact investing comes in.

Impact creates more value than the dollar amount seen on the ticker to influence larger, systemic changes.

For instance, investing in companies that promote gender equality. These stocks include companies with a history of equal opportunity employment for women and have a balanced workforce ratio. And it’s not all marketing speak from a “granola-brained” hippie with no regard for performance. Companies with boards that include 3 or more women report higher earnings than those without.

Throw your capitalist weight behind ESG investing which now boasts over 450 portfolio options tailored to different standards regarding, environmental, social and governance factors (ESG).

Despite doubt from Wall Street investors that you can only have greater social change at the expense of low returns, research from “Where and When Does it Pay to be Good” shows that North American ESG portfolios show a significant financial outperformance in the long run. Ethical investing doesn’t mean a loss on returns for the good of the planet.

Companies’ branding, ethical record and social standing are top-tier factors for long term growth in today’s economy. Companies positioning themselves as leaders in the ESG movement space are building an image that aligns with the shifting ideologies toward a future that still has outdoor parks and the polar ice caps.

For the many people who want to reduce their ever-growing carbon footprint, investing has become another way to assert their status as an environmentalist and activist. Impact investing will help shape companies that aren’t evolving with the times and promote those that are ahead of the game. Take a breath of fresh air while you can, perhaps bottle it and keep it as an investment. It is sure to hold value someday.

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