Investing with Impact
Make a difference in the world while investing in your future.
What is Impact Investing
Every client at Impact Capital Strategies (ICS) has a unique set of priorities to consider when making investment decisions. In the past, those who wanted to align their investment with their social or environmental values had far fewer choices, most of them poor. That has changed with the rise of socially responsible investing, environmental, social and governance criteria (ESG), and impact investing—all of which let investors leverage the power of their investments for social good.
Since 1995, when the US SIF Foundation first measured the size of the US sustainable investment universe at $639 billion, assets have increased more than 25-fold, a compound annual growth rate of 14 percent. The most rapid growth has occurred since 2012. (See Figure A. below)
At ICS, we specialize in several investment strategies that allow our clients to make a meaningful difference in the world while investing in their financial future.
- Socially Responsible Investing (SRI): SRI strategies have been driven by investors' wishes to avoid companies that participate in activities that they feel are unethical (such as traditional "sin stocks": alcohol, tobacco and weapons manufacturing), and to increase their investment in companies that have a positive social impact. In response to this demand, many funds have been developed with various portfolio screens, including carbon-free, "best-in-class," and gender-focused funds.
- ESG Investing is a newer investment strategy wherein investors examine a company's environmental, social and governance practices to evaluate each investment decision. Our clients increasingly demand that ESG factors, such as climate change, human rights, biodiversity, and corporate governance, are factored into their portfolios. This has prompted many companies to proactively improve their leadership in environmental, social and governance criteria. From an investment perspective, ESG factors, particularly those related to climate change, are potentially important drivers of portfolio risk and return. We have found that companies that score highly in their ESG ratings generally are outperforming their lower-ranked peers.
- Impact Investing is an investment strategy that directs assets toward products, services and companies that generate positive social and environmental impact. Impact investing focuses on both for-profit companies that have an explicit intent to do well by doing good, as evidenced by their business plan or business model, and enterprising non-profits with revenue and earned income streams. In doing so, there is the potential to create meaningful value and sustained change for both investors and for society.
An investment’s social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors or regions of the economy which could cause it to underperform similar investments that do not operate under a social policy. Risks associated with investing in ESG-related strategies can also include a lack of consistency in approach and a lack of transparency in manager methodologies. A socially responsible investing style may shift in and out of favor.