Bridging the Opportunity Divide

Build Your Nest Egg, Support an Organic Farm

December 15, 2017
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Build Your Nest Egg, Support an Organic Farm
Some of the most common sectors for impact investment are sustainable agriculture, conservation and microfinance. Photo by Subman/Getty Images

Making money and doing good aren’t mutually exclusive.

When it comes to investing, earning a significant profit is typically the No. 1 goal. For stockholders looking to do more than simply earn financial returns, impact investing can allow them to generate social and environmental impact while increasing the balance of their portfolio.

With 85 percent of Millennials stating that it’s important for their values to align to their investment decisions, impact investing is growing in popularity. A recent poll finds that more than half of Americans ages 18 to 34 plan to put money towards socially responsible and impact investments in the future but haven’t done so yet, while 24 percent already own socially responsible investments.

Here’s how to sink some cash into the companies, organizations and funds that are doing good and providing a financial return for their efforts.

1. Know your values.

Investors can make a difference in a number of different areas.

Some of the most common sectors for investing include sustainable agriculture, renewable energy, conservation, microfinance, and affordable basic services including housing, healthcare and education, according to the Global Impact Investing Network, a nonprofit dedicated to increasing the scale and effectiveness of impact investing around the world.

Nonprofits are also open for investment dollars. “The nonprofit sector has [previously] been excluded from impact investing where the focus is investing in for-profit social enterprises or rebranding past investments with an impact lens,” says Catarina Schwab, NationSwell Council member and co-founder and co-CEO of NPX, a company that partners with clients to pioneer new ways of financing impact. “Until recently, the financial products that enabled investment in a nonprofit organization were largely limited to loans.”

2. Understand potential returns.

Impact investments aren’t more volatile than traditional investments — but there are inherent financial risks involved. As with all portfolio holdings, diversifying is the best way to minimize your exposure.

According to GIIN, most investors pursue competitive market-rate returns, although some intentionally invest in causes that align with their values but will likely deliver returns below market rate.

Impact investors also have access to another type of return not available with traditional holdings: the social performance and progress of their investments. Values-based investments measure these in several ways, including the setting of performance metrics and targets, monitoring and managing the performance of investees against those targets and reporting on the social and environmental accomplishments that stakeholders establish as relevant to their goals.

3. Choose your investments

In the U.S., responsible investing assets have more than doubled to 8.72 trillion from 2012 to 2016, reports the Forum for Sustainable and Responsible Investment.

Because of this, investment options are plentiful.

You can opt to invest in a socially responsible mutual fund or an ETF sold by an investment firm, such as Fidelity, Vanguard or Merrill Lynch. Or you could purchase individual stock in, say, a sustainable farm or a wind power project. The app Stash allows investors to choose from more than 30 ETFs to create a portfolio that reflects their beliefs.

Tools like NPX’s Impact Security, as well as Social and Development Impact Bonds, provide new ways to invest in nonprofit organizations.

Impact investments can also be made through specific companies that specialize in socially responsible investing. One such organization, Wunder Capital, connects individuals, institutional and corporate investors with commercial scale solar energy projects across the U.S. To date, it’s completed more than 120 financings in 18 states.

“In most cases, the businesses who are transitioning to solar have in the past exclusively bought their energy from the local utility,” said Ilyas Frenkel, director of growth for Wunder Capital. “The local utility in most cases burns fossil fuels — natural gas or coal — to create that power. When a business is able to add solar to their energy mix, they’re reducing their reliance upon fossil fuels.”

For investors, this means their money is helping small businesses transition off fossil fuels and reduce greenhouse gas emissions, all while making up to 7.5 percent annually on their investment.

If you’re not sure where to start, check out GIIN’s ImpactBase. Potential impact investors can use the searchable, online database to learn more about the businesses and organizations working to create a better future.

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