Margaret Mead once famously said, “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.” And while history says not a whit about this anthropologist’s finances, it’s quite possible she’d approve this revision: “Never doubt that a small group of thoughtful, committed investors can change the world…”
The question is, how?
Here’s where impact investing comes into play. It’s known by many other names and likewise has many cousins, all ending in the word investment: mission-related; thematic; socially responsible; ESG (environmental, social and governance); and sustainable among them.
At its core, the objective is simple. Investors put money into companies, organizations and funds that generate a measurable, beneficial social or environmental impact — and of course, portfolio impact as well.
[See: 7 of the Best Stocks to Buy for 2018.]
“Impact investing sits at the intersection of philanthropy and capitalism,” says Andrew Wetzel, senior vice president and portfolio manager at F.L. Putnam Investment Management Co. in Wellesley, Massachusetts. “While this may seem foreign to some, the idea of recycling capital to help scale impact is quite powerful and is clearly gaining traction.”
How much? Wetzel points to the latest annual survey by the Global Impact Investing Network. Repeat respondents reported a 15 percent increase in deployed capital for 2016 over 2015 — and expected a 20 percent increase once 2017 figures are tallied.
At this point, let’s pause to consider to the philanthropy-versus-investment divide. At its core, philanthropy means giving money away, even if it might produce certain tax advantages (such as with donor-advised funds).
But with impact investing, financial return remains crucial for several reasons. First, greater-good investments that fail to turn a profit drain the till of money needed to make a difference. And second, who doesn’t want to do well while they’re doing good?
“Our clients are expressing a growing interest in investments that can deliver both returns and impact, as opposed to investments that sacrifice one for the other,” says K. Brigid Peterson, endowments and foundations advisor at Brown Advisory in Baltimore.
Brown Advisory started a large-cap sustainable growth strategy almost a decade ago that holds a select set of companies “that use sustainable thinking to drive their business strategies,” Peterson says. “It has delivered strong risk-adjusted returns for clients.”
Patient Capital Collaborative ’13, co-managed by Investors’ Circle and SustainVC, has been a leader in leveraging business to solve social and environmental problems. The Global Impact Investing Rating System (GIIRS) recently ranked it 28th in its list of Best for the World Funds.
“I like the PCC ’13 because they invest in early-stage, high-growth companies with the goal of achieving a positive rate of return and a significant social and environmental impact,” says Keith Baker, a professor of mortgage banking at North Lake College in Irving, Texas.
Some PCC ’13 investments include Transplant Connect, “which is creating new software technologies that have the possibility of transforming organ, tissue and eye donation and transplantation,” Baker says. “I also like their proven track record of successful exits from the businesses they have funded.”
[See: These 7 Funds Make You Feel Good About Investing.]
Yet it’s too easy in a do-gooder quest — and the good feeling it generates — to lose sight of robust financial returns that can, indeed, sustain a sustainable investment. In fact, this gives an entirely new and literal meaning to the old saying “money doesn’t grow on trees.”
“I always try to educate my clients about the reality of going either socially conscious or sustainable,” Brent Lindell, market director and a financial advisor with Savant Capital Management in Madison, Wisconsin. “The problem is that with screening out a certain holding, you may forsake some pretty good returns.”
Screening also suggests some fascinating dimensions that, for example, can dovetail nicely with taking communion. The U.S. Conference of Catholic Bishops has approved many of the socially conscious funds Lindell uses. But if you want to get more granular, then the Ave Maria Growth Fund ( AVEGX) — tailored for practicing Catholics — approves investments even more selectively than the bishops.
You can also pick your stocks one at a time, a road that proves simpler for many novice impact investors.
“A popular impact stock is Safaricom, a mobile and financial services company in Kenya,” Sarah Norris, investment manager at Aberdeen Standard Investments and based in Edinburgh, Scotland.
“Safaricom offers cellular and internet access as well as mobile wallet services, which is a means to drive financial inclusion for unbanked members of society,” Norris says. The importance of that mission can’t be stressed enough; without mobile access to banks, Kenya would by and large be reduced to a financial wasteland for those in or near poverty.
“Safaricom also demonstrates an awareness of the importance of financial literacy,” she adds.
This is boots-on-the-ground stuff; a recent suite of apps enables low-income owners start to save toward health care.
“It also launched an initiative that uses its mobile wallet platform to help refugees access food distributions in various refugee camps,” Norris says. The goal: Reach 3 million refugees by the end of 2020.
Now for millions of another kind: If you bought just $1,700 worth of Safaricom shares on the Nairobi Stock Exchange in 2012, by 2017 your holdings were worth in excess of $1 million.
So far as doing good goes, not bad at all. And this is still capitalist, for-profit business we’re taking about.
“Corporations participate in a number of economic markets,” says Claire Veuthey, investment research analyst for Wells Fargo Private Bank’s Social Impact Investing Group. “They do so in hiring employees, procuring materials from suppliers, and engaging with customers and shareholders. Companies that manage those key relationships with a long-term perspective are more likely to grow their businesses. To us, those are better investments.”
[See: 7 Socially Responsible ETFs for Investors of All Stripes.]
And so goes the bottom line, fiscally, socially and environmentally.
“The desire to make a difference and a profit,” Veuthey says, “are not at odds.”
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How Impact Funds Make a Difference and Profit originally appeared on usnews.com
