As impact investing moves into the mainstream, how do you know what’s relevant and important? At Swell, we believe impact investing should be accessible and clear to everyone. That’s why we’ve prepared a quick guide to help you navigate the world of impact investing.
1. The U.S. market is worth $8.72 trillion dollars.
That’s the amount invested in some type of impact investing strategy in the U.S. That’s more than $1 out of every $5 under professional management.
2. It's a solution-based approach.
Impact investors focus on the world’s most pressing social and environmental issues and drive capital into the companies that produce products and services that are addressing those issues.
3. You don't have to sacrifice returns.
On average and in the aggregate, impact portfolios have performed comparably to conventional strategies.
4. It's not bad for diversification
Diversification refers to the number of securities available, the correlations among those securities, and their individual volatility. Impact investors employ a wide array of strategies that enable them to maintain portfolio diversification.
5. It aligns economic activity with ecological limits.
The global economy is powered by the Earth’s natural resources and ecosystem services. These resources are also indisputably finite. Impact investors understand this and use strategies to mitigate resource constraint risk in their portfolios.
6. It can identify unpriced risks and opportunities.
This is because impact investors consider the materiality of so-called non-financial information in their analysis and how this information impacts corporate behavior.
7. It is represented across asset classes.
There are public equity, private equity, fixed-income, and community investment strategies available in the impact investing space. Swell focuses on public equities.
8. It’s bolstered by specialists’ expertise.
The effect of Environmental, Social, and Governance (ESG) factors on company performance are industry and sector specific. Impact specialists are able to assess the risks and opportunities that may arise in specific industries and individual companies.
9. It can shift corporate behavior.
Impact investors do this by allocating capital to companies that are developing solutions-based strategies to societal problems and engaging in shareholder advocacy to improve the social policies of public companies.
10. There’s a great deal of diversity.
The terminology in the impact investing world varies. It’s often called ESG Investing, Socially Responsible Investing (SRI), Sustainable Investing, etc., and nuances between strategies abound. What unifies this part of the financial markets is a focus on marrying positive financial returns with social objectives.
Information was obtained from third party sources, which we believe to be reliable but are not guaranteed for accuracy or completeness. Nothing is this article should be construed as tax advice, an offer, solicitation or recommendation to purchase or sell any security. This article is not intended as investment advice, and Swell does not represent in any manner that the circumstances described herein will result in any particular outcome. Investment advisory services are only provided to investors who become Swell clients. Any past performance provided is for illustrative purposes only and is not indicative of future investment results. As with any investment, there is the potential for profit and the risk of loss.
SEE THE RESEARCH ON IMPACT INVESTING
1US SIF, Report on US Sustainable, Responsible and Impact Investing Trends, 2016. http://www.ussif.org/files/SIF_Trends_16_Executive_Summary(1).pdf
2 Gladman, Kimberly. “Ten Things to Know about Responsible Investing and Performance.” GovernanceMetrics International. 2011.
