Investing for impact
Many investors are looking to build a portfolio that reflects their socially responsible values while giving them the potential for solid returns. That’s where SRI Investing, Impact Investing, and ESG Investing may play a role.
In the past, some investors regarded these investment strategies as too restrictive. But over time, improved evaluative data and competitive returns made these strategies more mainstream. Even though SRI, ESG investing, and Impact Investing share many similarities, they differ in some fundamental ways. Read on to learn more.1
ESG (Environmental, Social, and Governance) Investing
ESG Investing stands for environmental, social, and governance investing. The model assesses investments based on specific criteria, such as ethical business practices, environmental conservation, and local community impact. The popularity of ESG investing has grown: in the United States alone, there are more than 500 ESG mutual funds and exchangetraded funds (ETFs) available. Just a decade ago, there were only 100 ESG funds.
SRI (Socially Responsible Investing)
SRI uses criteria from ESG investing to actively eliminate or select investments according to ethical guidelines. SRI investors may use ESG factors to apply negative or positive screens when choosing how to build their portfolio. For example, an investor may wish to allocate a portion of their portfolio to companies that contribute to charitable causes. In the U.S., more than $17 trillion are currently invested according to SRI strategies. This is an increase from the $12 trillion invested in SRIs by the end of 2017.
Impact Investing
Also known as thematic investing, impact investing differs from the two above. The main goal of impact investing is to secure a positive outcome regardless of profit. For example, an impact investor may use ESG criteria to find and invest in a company dedicated to the development of a cure for cancer no matter the outcome of that investment.
The biggest takeaway? There are plenty of choices to keep your investments aligned with your personal beliefs. No matter how you decide to structure your investments, don’t forget it’s always a smart move to speak with your financial professional before making a major change.
Richard H Mootz, CFP® CERTIFIED FINANCIAL PLANNER™ professional, is a Registered Representative of and offers securities through Securities America, Inc., a Registered Broker/ Dealer, member FINRA/ SIPC., Advisory Services offered through Securities America Advisors, Inc., A SEC Registered Investment Advisory firm. Mootz Financial Solutions and Securities America Companies are not affiliated. Mootz can be reached at (530) 8777007 by e-mail rick@ mootzfinancial.com or visit the website at www.mootzfinancialsolutions.com. Securities America and its advisors do not provide tax or legal advice.