The Rockefeller Foundation coined the term “impact investing” at a 2007 meeting of investors, entrepreneurs, and philanthropists in Bellagio, Italy. Fast forward two decades and we’ve seen demand for sustainable impact investments grow exponentially. 

Impact investing refers to investments that generate a measurable social or environmental impact along with a financial return. Over the years, there’s been a movement from “negative screening” of investments (avoiding investments in industries related to alcohol, guns, oil, gas, etc.) to investing based on environmental, sustainable, and governance objectives (ESG) to even more direct impact investing. 

Impact investing is attracting new investors and stakeholders, improving and standardizing data and measurement, all while achieving market-rate financial returns. According to the most recent US SIF Foundation Report on U.S. Sustainable, Responsible, and Impact Investing Trends, sustainable, responsible, and impact investing (SRI) assets now account for one in four dollars in total assets under professional management in the United States.

Why impact investments are on the rise

Before 2019, asset flows into sustainable funds had never risen above $2 billion in a single quarter. Morningstar reported that sustainable funds attracted an estimated $8 billion in net flows in the first half of 2019, vastly surpassing the $5.5 billion for all of 2018.

The impact investing market is rapidly growing because it is:  

• Attracting individual and institutional investors 

Nearly 80 percent of respondents to a recent ESG Investor Sentiment Study from Allianz Life Insurance Company of North America said that they “love the idea of investing in companies that care about the same issues” as them. 

More individual investors are interested in impact investments, especially millennials and women. According to Accenture and the Internal Finance Corporation (IFC), in the next three decades, $40 trillion in wealth will transfer to women and millennials, populations that have shown strong interest in aligning their investments with their values. 

The Global Impact Investing Network (GIIN) has reported that over one-third of organizations that manage conventional investments, such as Morgan Stanley and private equity firms, are now making impact investments. Several foundations are also making significant impact investments, including the Ford Foundation and the Michael and Susan Dell Foundation. 

• Standardizing impact measurement and management (IMM)

Although no single impact measurement has achieved mass adoption, the expanding availability of frameworks has given investors more reliable ways to gauge impact. Among the latest methodologies is the Rise Fund’s impact multiple of money that is built around calculating impact in dollars and managed by TPG Capital, one of the largest private equity giants. 

IRIS (Impact Reporting and Investment Standards) from The GIIN serves as the impact industry’s set of terms with standardized definitions that govern the way companies, investors, and others define their social and environmental performance.

Investor reviewing investments on iPad

Technology has also allowed greater ties between investment management and social and environmental impact. Technology platforms such as CNote are making it easier for individual investors to get started investing in funds that used to exclusively be accessible by  institutional investors, like Community Development Financial Institutions (CDFIs). 

• Achieving comparable returns to traditional investments 

Impact investing has performed well when compared to traditional strategies. A study by Morgan Stanley found that sustainable investments achieve comparable returns with less volatility in contrast to traditional investment products.

A meta-analysis of more than 2,000 studies compared the relationship between ESG and corporate financial performance (CFP) since the 1970s. It determined that “roughly 90 percent of studies find a nonnegative ESG–CFP relation,” with the large majority reporting positive findings.

A 2017 GIIN study that reviewed over 200 impact investors who committed billions to impact investing in 2016, found that about 91% reported that their impact investments were meeting or exceeding their financial expectations. About 66% stated that they were making market-rate returns on their impact investments. 

3 trends supercharging the growth of impact investing

Three emerging trends in the impact investing industry have tremendous disruptive potential according to Antony Bugg-Levine, the previous managing director at the Rockefeller Foundation:

1. The current urgent need to address social issues;
2. an increased interest in impact investing, especially among young people, and; 
3. structural changes within the investment industry. 

All these trends represent important paradigm shifts that are driving the growth of impact investing. 

Barriers are being broken down in public and private capital markets, promoting collaboration and engaging new investors. Meanwhile, there are more advocates for a policy environment that enables the impact investing industry to mature and grow.

How the growth of impact investing benefits us all 

The concept of impact investing as we know it now emerged in the early 2000s as investors saw the potential to receive market-rate financial returns in the global capital markets, while doing good for society. 

Investors began to consider not just investing to avoid certain negative social or environmental factors (negative screening,) but instead to purposefully choose investments that could create more social or environmental benefits. 

Today, with the global challenges facing our planet, such as climate change, inequality and social division, there’s an urgent need for impact investing to become a fundamental part of all investment decisions. Traditional sources of capital, like government aid and philanthropy aren’t enough to effect change, given the scale of the problems the world faces.

Impact investing supports a more inclusive and sustainable financial system that balances the needs of shareholders with those of stakeholders. Impact investments can also help drive the transition to clean energy, improve education, and foster innovative technology solutions to alleviate poverty and inequality.    

Why the future of investing is impact investing

Over the last twenty years, the impact investing industry has achieved incredible growth and captured the interest of mainstream investors. In the future, it will become increasingly impractical to make investment decisions without regard for the impact on society and the planet. 

As impact investing continues to gain momentum among many types of investors, better tools are being developed to help investment professionals understand their clients’ impact goals, and measure and report on the actual impact achieved. The demand for impact investing products is also increasing as fund managers, wealth advisors see the value in providing them. 

There are also groups who have evaluated and compiled impact investments into databases so investors can easily find companies and funds that match their values, including T100, ImpactAssets50, and US SIF Sustainable, Responsible and Impact Mutual Fund and ETF Chart.  

According to the GIIN’s 2019 Annual Impact Investor Survey, the responses from organizations forecast strong future growth. In 2018, these organizations invested over 33 billion into more than 13,000 impact investments. These same organizations planned to invest over 37 billion into more than 15,000 investments during 2019. This indicates 13% project growth in the volume of capital invested and 14% growth in the number of investments.  

Impact investors are also committed to further developing the industry. Most view the impact industry as having a key role in supporting important changes in investment practice, including integrating impact considerations into all investing decisions.   

Conclusion

Not only impact investors, but many across the public and private sectors are striving towards a world where investor mindsets and conventional financial markets are fundamentally reshaped by impact investing. The progress the world needs on intense global challenges like climate change and ever-widening inequality is demanding it.    

While it may seem like a new trend, impact investing has roots that trace back centuries and it’s here to stay. But like any alternative investment strategy, public endorsement of the approach has varied. Throughout the years, hesitation stemmed from concerns about financial returns, the ability to measure social impact and stability of the markets.

Challenging skeptics’ concerns, socially responsible investments have ballooned to account for over 25%of assets under management in 2018. As today’s investors aim to align their portfolios with their morals, the resurgence of SRI revives the age-old question: Does impact investing have lower returns?

Does impact investing have lower returns?

In short, most studies report that socially responsible investments do not have lower returns than traditional investments. In fact, there is evidence of the opposite; most conclusions point to SRI having higher returns, especially when social impact is taken into account.

A comprehensive review by the Royal Bank of Canada looked into over 40 major studies and found that there was no evidence that socially responsible investing resulted in lower investment returns. This sentiment was echoed by the GIIN’s (Global Impact Investing Network) 2017 Annual Impact Investor Survey, which found that the majority of respondents achieved market-rate returns, with 91% claiming their returns met or exceeded their professional expectations. But in order to understand the full picture, we first need to explore both sides of the argument.

Concerns about impact investing

Much of the doubt surrounding returns on impact investments boils down to three major issues: the implementation of socially responsible principles, investor motivation and social impact. 

Implementation

According to a study by Morgan Stanley, 75% said that their firm practices sustainable investing. However, 66% felt that there wasn’t enough data to prove that SRI offers a solid financial opportunity. While most investors agreed that a focus on sustainability provides clear competitive advantages to a business, they didn’t believe that socially responsible behavior reliably translated into financial gains. These investors believe there is obvious potential for increased financial returns through SRI, but a lack of framework or guidelines to realize them.

Another section of the report revealed that 70% of respondents agreed that there was no industry standard definition of sustainable investments. Driven by the rapidly-growing interest in SRI, some asset managers are using the ambiguity as a marketing opportunity. Rather than selecting investments based on principles and screenings, they offer products that barely qualify as socially responsible, hoping to attract capital from bright-eyed investors. This leads to the inefficient implementation of SRI principles, which reduces the potential for financial returns. 

Investor expectations

Looking past the implementation of socially responsible principles and creation of sustainable investment products, investor expectations drive some of the concerns about impact investment performance. Some investors are not motivated by financial returns, instead choosing investments based on values or long-term goals. Critics often forget that some people intentionally invest for below-market-rate returns to align with their strategic objectives, a factor that could reduce the perceived performance of impact investments. Generally, impact investors pursue one of three scenarios:

• Risk-adjusted market rate returns. These investors want to maximize financial returns while pursuing investments that have a positive social impact.
• Below-market rate returns (closer to market rate). This group aims to achieve steady returns by investing in companies that prioritize social responsibility. 
• Below market rate (closer to capital preservation). Financial returns are not as important to these investors, who are willing to sacrifice earnings to support their beliefs.

Measuring social impact

Many people choose impact investments because they want their money to be used for good causes. While it’s inspiring to witness the shift towards sustainable investing, critics are rightfully concerned about the difficulty of measuring the social effects of impact investments. According to Morgan Stanley’s study, 70% of respondents agreed that there were no metrics to measure non-financial performance. While this factor doesn’t directly affect the financial returns of impact investments, it makes comparing overall performance to traditional markets more difficult.

Exploring criticisms of impact investing

At the end of the day, the notion that there is a tradeoff between financial performance and sustainability is an outdated myth. While concerns about impact investing are valid, critics suggesting that it has lower returns neglect to mention how poor implementation and profit-seeking behavior can negatively affect financial outcomes. Socially responsible investments and principles should prioritize the underlying cause, not the potential for financial returns.

Morgan Stanley’s study highlighted that most investors understood that SRI provides competitive advantages but didn’t think it translated into financial gains. However, research from Harvard revealed that the relationship between ESG and corporate performance is shaped by willingness to address sustainability issues that are relevant to company operations; when comparing financial returns, it found a difference of nearly 9% between companies that focused on sustainability factors that were fundamental to their industry and those who didn’t. Understanding and implementing ESG and socially responsible principles are key to financial performance. 

Asset managers who use ESG principles as a marketing tactic (greenwashing) often miss the point of socially responsible investing. Their use of exclusionary screens to create sustainable investments loosely qualifies as impact investing, as there is little economic rationale behind the decisions. For example, an exclusionary screen in the car manufacturing industry would exclude all companies, while a proper ESG integration approach would consider firms that are investing in increasing fuel efficiency, electric vehicles, and extending life cycles. This mindset can lead to inefficient investment decisions and jeopardize returns in the process.

The main point of the above examples is that advisors and investors can make a larger impact when they understand how to properly implement investment screens. A 2016 study by Statman and Glushov found that screening methodology can directly impact performance. This finding implies that SRI reduces performance when investors use negative screens to exclude companies, but improves performance when investors use positive screens to select companies with high ratings on ESG indicators.

How do impact investments perform financially?

There have been plenty of attempts to prove that socially responsible investments have lower returns, but most of them come up inconclusive. This study, for example, found that socially responsible investments slightly underperformed, but admitted that there was uncertainty that may have influenced the outcome. The vast majority of evidence we’ve come across suggests that impact investments perform as well – or better – than traditional investments. 

According to the GIIN’s 2017 study, “Evidence on the Financial Performance of Impact Investments,” socially responsible funds generated aggregate net returns of 5.8%. Based on a study of 71 market-rate-seeking private equity impact funds, it found that the top 5% achieved annual rates of return of 22.1% and above and the bottom 5% achieved -15.4% or lower. The report states that this range is similar to that of conventional investing, insisting that fund managers are key to strong performance. 

Performance of impact investments holds stable even in smaller or volatile markets. The GIIN report found that funds investing in emerging markets generated a pooled return of 6.7%, compared to 4.8% for funds with a developed market focus. Bouncing back to Morgan Stanley’s report, evidence suggests that sustainable funds may also offer lower market risk. Of over 10,000 funds analyzed, sustainable funds experienced a 20% smaller downside deviation than traditional funds, even in turbulent markets. Data from 2008, 2009, 2015 and 2018 reveals that the downside deviation of sustainable funds was significantly smaller than that of traditional funds. 

Case studies

Now that we’ve established that impact investments do not have to equal lower returns than traditional investments, we wanted to analyze a few situations to get a better look at how the two compare. To do this, we’re going to consider three case studies:

1. Index comparisons
2. Mutual fund comparisons
3. ESG and credit portfolio performance

Case study #1: Index comparisons (MSCI KLD 400 vs. S&P 500)

Going beyond individual funds, indices can provide a more general look at stock performance over time. The MSCI KLD 400 (formerly the Domini Social Index) (USA) and the Jantzi Social Index (Canada) are two major indices that track performance of socially responsible companies. We can analyze their performance by comparing them to traditional stocks as found on the S&P 500 and the TSX 60 indices.

The MSCI KLD 400, which was founded as the Domini Social Index, was established in 1990 and consists of 400 companies that meet rigorous standards for environmental excellence and social responsibility. Over the past 30 years, it has tracked performance of these companies against the S&P 500. As you can see, the social index has consistently outperformed traditional stocks for the past 25 years. With socially responsible investing gaining more momentum every year, the gap between the MSCI KLD 400 and the S&P 500 continues to grow.

The Jantzi Social Index was founded in 2000 in partnership with Dow Jones Indexes. Like the MSCI KLD 400, it’s a socially-screened, market capitalization-weighted common stock index. It consists of 50 Canadian companies that meet ESG criteria such as community involvement, corporate governance, the environment and human rights. While this index hasn’t been around as long as the MSCI KLD 400, it implies a similar outcome. Companies on this index have generally outperformed traditional stocks, especially after 2012.

In conclusion, the analysis of these two indices suggests that socially responsible investments outperform traditional investments, with a growing disparity in the late 2010s.

Case study #2: Mutual fund comparisons

From an investor perspective, mutual funds are one of the easiest ways to get involved in socially responsible investing. In order to determine whether SRI results in lower returns for retail investors, we are going to refer to a 2019 report by RBC.

The report analyzes 36 SRI fund studies from over 10 countries to compare SRI and non-SRI mutual fund performance. While evidence was mixed, a number of those studies support the conclusion that positive screens can be used to improve portfolio performance; after a certain number of screens have been applied, the companies remaining in the portfolio are lower risk and higher performance than non-sri counterparts. Another major finding was that the aggregate performance of SRI funds could be affected by the labeling (or lack thereof) of SRI funds, since the definition for SRI is so vague.

Overall, there is limited evidence to suggest that SRI funds systematically underperform traditional mutual funds. And while there is considerably more evidence that suggests that SRI mutual funds outperform traditional mutual funds, the results are not unanimous.

Case study #3: Barclay’s impact of ESG on credit portfolio performance

The final case study we want to explore measures the impact of ESG on credit portfolio performance, which is largely dominated by institutional investors. Based on a study done by Barclay’s in 2016, we aim to answer the following question: Does the incorporation of environmental, social and governance criteria in the investment process improve the financial performance of a bond portfolio or hurt it? A finding of that study was that, “a positive ESG tilt resulted in a small but steady performance advantage.”

Like many other forms of socially responsible investing, it can be difficult to measure the relationship due to the many aspects of ESG criteria. Results vary depending on geography, industry and market, but a survey in the Journal of Sustainable Finance & Investment draws a firm conclusion: Aggregating results from over 2,200 primary studies, the report states that roughly half of the published studies show a positive link between corporate social responsibility and corporate financial performance, while less than 10% report a negative link. 

Based on the report from Barclay’s and the summary from the Journal of Sustainable Finance & Investment, we are confident that ESG can improve the performance of a bond portfolio.

Bottom line

In conclusion, there is overwhelming evidence to support the idea that socially responsible investments do not have lower returns than traditional investments, and very little evidence to support the opposing view. However, the guidelines for what makes a company or investment socially responsible are vague, making it tough to draw a fair comparison between SRI and non-SRI investments. However, many studies make it clear that it is possible to invest sustainably without sacrificing financial returns.

We’ve rounded up some of the largest Impact Investing events around the United States for institutions and those in financial services that are interested in learning more about effecting change with their dollars. These events afford great opportunities to learn from and collaborate with like-minded investors in an inspiring setting. We hope to see you there!

January

• Corporate Investing for Impact – TechSoup – January 30, 2020 San Francisco, CA

Join the Impact Finance Center and TechSoup for an evening of conversation and networking and learn how impact investing can help corporate social responsibility leaders better support their communities through innovative finance models.

February

• Investing for Impact – The Economist – February 13, 2020 NYC

Investing for Impact ‘2020 vision’ will explore how after years of advocacy to become mainstream, the impact investment community now faces a different challenge: as more institutions and actors pile in, there is a growing fog and confusion about what impact investing really means, and how it intersects and overlaps with other linked domains like sustainable finance. Network with more than 200 leading financiers, institutional investors, policymakers, academics, impact investors and philanthropists.

• Confluence Philanthropy’s 10th Annual Practitioners Gathering – February 25-27, 2020 San Juan, PR 

As we look toward a climate-impacted future and the social, political, and financial challenges we face over this next decade, we must move beyond dialogue to tangible action. The 2020 Gathering will be pivotal. For this special Gathering, we will host day-long field trips and a track of outdoor sessions to indulge in deeper strategic engagement. The Gathering will be organized in a retreat-style format to foster more connection and real outcomes.

• Nexus 2020 USA Summit – Nexus Global – February 26-28, 2020 Washington, D.C.

The Summit is an exclusive gathering of 450+ leading next-gen philanthropists, impact investors, and social innovators that will convene to discuss key issues facing our country including opportunity zones, climate solutions, blockchain, immigration, impact investing, family prosperity, smart cities, public-private partnerships, philanthropy & natural disasters, wellness/bio-hacking, future of work, film & media for change, gender equity, conscious parenting, justice & equality, sports for good, education, human trafficking, refugees, music & arts for impact, indigenous rights and more.

March

• Women’s Private Equity Summit – Falk Marques Group – March 11-13, 2020 Dana Point, CA

Attendees can expect to gain perspective on how leading institutional investors view alternatives, hear from industry experts about the regions and investment sectors to watch in 2020, take away insights on successful strategies for fundraising, deal sourcing, portfolio management, firm management, exits, and more. Participants will have the opportunity to engage in forward-thinking discussions focused on issues of intellectual business interest. In short, Summit participants are successful women from across the spectrum who want to see other women succeed, who have profound industry experience and information to share, unique stories to tell and lessons to teach.

• Women in Leadership Conference – UC Berkeley Haas School of Business – March 14, 2020 Berkeley, CA

At “Building What’s Missing” the 24th annual Berkeley Haas Women in Leadership Conference, we are highlighting stories of people and organizations that have identified gaps when it comes to gender equity and are doing the hard work to build what is missing. We will hear and share stories about how women and allies can create impact at any level, starting with ourselves, to our organizations, to our broader society.

• Investment Institute 2020 – The Jewish Federations of North America – March 24-26, 2020 Palm Beach, FL 

Join influential stakeholders from Federations and private foundations—representing collectively over $80 billion in Jewish communal philanthropic assets—for informative presentations by top industry professionals, informal peer-to-peer learning, and networking. Enhance your ability to make prudent investment decisions and position your Jewish Federation, community or private foundation as the preeminent steward of endowed funds.

• Impact Investing Forum – Opal Group  – March 29-31, 2020 Palm Beach, FL

Opal Group is happy to announce its 5th annual Impact Investing Forum. Today, we see an increase in companies proving that mission-driven and communication-based strategy, can attract value-based workforce, investor base, and like-minded consumer. Impact investing strategies are also proving to be able to generate returns in line with their traditional counterparts. Themes of defining impact investing, portfolio construction, asset class opportunities, and the role of the investor are just a few of the stimulating topics to be covered at this event.

• Impact Capitalism Summit – Big Path Capital – March 31-April 1, 2020 Denver, CO

Impact Capitalism Summits offer a curated, thought-provoking, and actionable agenda designed to facilitate peer-to-peer learning and encourage collaboration in a unique environment that captures the imagination and inspires participation. Participants hear from prominent family offices, institutional investors, and influential foundations about what is driving their impact investment decision-making

April

• Women in the World Summit 2020 – Women in the World – April 2-3, 2020 NYC

The Women in the World Summit, presents powerful new female role models whose personal stories illuminate the most pressing international issues. They range from CEOs and world leaders to artists, activists, peacemakers, and firebrand dissidents. The Summit’s vivid journalistic narratives, high-impact video, and fast-paced staging have made it the premier platform to showcase women of impact. Increasingly, Women in the World also includes the participation, onstage and in the audience, of men who champion women. The 2020 Summit is generously supported by leadership sponsors Boston Consulting Group, Mastercard, P&G, The Rockefeller Foundation and UBS; supporting sponsors AARP,  Ford Foundation, Thomson Reuters, Walton Family Foundation.

• CFUnited Conference 2020 – Council on Foundations – April 5-7, 2020 Detroit, MI

Designed as an immersive experience for all professionals within the community foundation field, the CFUnited 2020 conference creates the space to dig into the unique role you and your organization play in harnessing the power of place. The goal of the conference is to provide an experience for community foundation professionals where we are both encouraging and facilitating dialogue amongst peers that enables you to innovate, lead, collaborate and engage. The conference will address a myriad of topics within the theme of power of place, all of which will provide practical support for you and your foundation to drive operational excellence within today’s rapidly evolving community.

• Invest in Women Conference – Financial Advisor Magazine – April 27-29, 2020 Atlanta, GA

Invest In Women 2020 is the leading forum nationwide to explore, discuss and learn about issues that are meaningful for women financial advisors and female clients. Both male and female advisors are invited to this event that promises insight and networking to help practices grow. Take the opportunity to be inspired — and have fun — at a conference you won’t want to miss.

May

• Inclusiv Conference – Inclusiv (formerly National Federation of Community Development Credit Unions) – May 4-6, 2020 San Juan, PR

The Inclusiv Annual Conference is the largest gathering of credit unions with a mission of financial inclusion in the country, with plenaries and sessions that focus on innovative products and services for empowering low-income consumers.

• EMERGE – Financial Health Network – May 5-7, 2020 Atlanta, GA

When EMERGE launched 15 years ago, improving financial health for all was the dream of a few bold thinkers. Fast forward to today, and leaders across industries and sectors are embracing financial health as a new opportunity to better serve their customers, employees, and communities. As we reflect on the organizations and innovators who have helped develop best practices for financial health, we also look ahead to the trends and tools that will move us closer to financial security for all.

• MIE 2020 National Conference – Mission Investors Exchange – May 11-13, 2020 Atlanta, GA 

Foundations are making unprecedented commitments to impact investing, putting more of their capital to work to challenge inequity, stem climate change, and drive other social and environmental impact. As the field continues to rapidly grow, what will it take to ensure that the impact investing movement remains laser-focused on impact? We look forward to tackling these issues with you at our upcoming National Conference — Amplifying Impact. As a Conference led by and for foundations and their partners, Amplifying Impact will explore the unique leadership role of philanthropy, focusing on our four Conference themes:

• Global Private Equity Conference – International Finance Corporation (IFC) – May 11-14, 2020 Washington, D.C.

The Global Private Equity Conference (GPEC) is the world’s leading event dedicated to exploring private investment opportunities across emerging and frontier markets, convening over 900 industry professionals from more than 70 countries annually. The conference brings together practitioners from a broad array of institutions—from family offices, endowments, pensions, sovereign wealth funds, experienced fund managers and new investment teams to private equity consultants and advisors, academia, multilateral organizations and governments—for thought-provoking discussions, debates and networking opportunities organized around topics and themes that are top-of-mind for today’s finance and industry leaders.

• P&I ESG Investing Conference – Pensions & Investments – San Francisco, CA – May 12, 2020

True long-term investing, like the type of institutional asset allocators, requires many different value considerations when it comes to risk and return. ESG investing has been positioning itself as a way for investors to mitigate risks and still generate returns that meet fiduciary obligations in the long term. The conversation around ESG has reached the “how-to” phase as strategies abound, and many allocators are starting to approach this space for the first time or refine their existing practice. Join your institutional peers to discuss how to best utilize an ESG strategy to attain investment goals.

• Total Impact Conference Philadelphia 2020 – Total Impact and ImpactPHL – May 13-14, 2020 Philadelphia, PA

In its third year, Total Impact Philadelphia will convene investment advisors, and investors who want to gain actionable and executable information on impact investment across asset classes. In addition, in partnership with key Philadelphia stakeholders, we will highlight place-based opportunities and the impact success stories of the greater Philadelphia area.

June

• Annual Conference on Legal Issues in Social Entrepreneurship and Impact Investing—in the US and Beyond – NYU School of Law – June 2-3, 2020 NYC

This annual conference brings together leading minds to explore new legal and policy developments in the fields of social entrepreneurship and impact investing and to discuss how lawyers and the law can most effectively serve social entrepreneurs and impact investors. The conference is attended by over 400 participants from across the globe (including lawyers, academics, policymakers and other professionals working in the fields of social entrepreneurship and impact investing) for a series of panels, plenaries, discussions and workshops geared toward sharing knowledge and building a legal community of practice in these fields.

• Social Innovation Summit – Landmark Ventures – June 2-3, 2020 Washington, D.C.

The Social Innovation Summit is an annual event that represents a global convening of black swans and wayward thinkers. Where most bring together luminaries to explore the next big idea, we bring together those hungry not just to talk about the next big thing, but to build it.

• US SIF 2020 Annual Conference – The Forum for Sustainable and Responsible Investment (US SIF) – June 8-10, 2020 Arlington, VA

US SIF: The Forum for Sustainable and Responsible Investment is the leading voice advancing sustainable, responsible and impact investing across all asset classes. Its mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts.

• Forbes Women’s Summit – Forbes – June 15-16, 2020 NYC

The 2020 Forbes Women’s Summit brings together a community of inspiring and innovative visionaries whose ambitious actions are changing the world with unprecedented scale. Across industries and generations, the gathering spotlights how leading women are navigating monumental change to rearchitect industries, spark major movements and unlock opportunities for others. Featuring keynote conversations and dynamic panel discussions, the Forbes Women’s Summit will convene a diverse range of female luminaries from the worlds of business, media, entertainment and politics.

July

• United Philanthropy Forum  2020 Annual Conference – July 20-22, 2020 Seattle, WA

#ForumCon20 will bring together the leadership and staff of all PSOs working to advance, inform and support the nation’s philanthropic sector. It’s the only conference where we can delve into our unique role as CEOs and staff of regional and national PSOs, connect with others in similar roles, and explore how we can work together to increase philanthropy’s impact. The conference will be a unique opportunity to reach key decision-makers with direct access and connections to the largest and broadest range of philanthropic organizations across the country.

August

• Christian Investment Forum Leadership Summit – August 19-20, 2020 Ashville, NC

The CIF Leadership Summit brings together investment and financial thought-leaders to learn more about Christian Faith Driven Investing, engaging with one another in an inspiring mountain retreat setting. A collaborative experience, the Summit provides a unique platform to learn from Christian investing experts and truly grasp the available benefits for organizations, investors and their advisors.

September

• Stanford PACS Philanthropy Innovation Summit – Stanford – September 2020 Santa Clara, CA

The Philanthropy Innovation Summit is a biennial event that convenes individual and family philanthropists to discuss strategic and impactful giving in a non-solicitation environment. The 2019 event was the fourth Philanthropy Innovation Summit hosted by Stanford PACS, and included panel discussions, armchair interviews and intimate philanthropy salons.

October

• Kayo Women’s Credit Summit – Kayo – October 12-13 2020, Boston, MA

Join 250 leading women investors in alternative debt, including direct lenders, mezzanine investors, institutional investors, company executives, private equity investors, and finance, legal, and consulting advisors for two days of networking, dealmaking, and professional development.

• SOCAP 2020 – Social Capital Markets – October 20-24, 2020, San Francisco, CA

SOCAP is the largest and most diverse impact investing community in the world. We convene a global ecosystem and marketplace – social entrepreneurs, investors, foundation and nonprofit leaders, government and policy leaders, creators, corporations, academics and beyond –  through live and digital content experiences that educate, spur conversation, and inspire investment in positive impact. Our mission is to unlock the potential of markets to accelerate impact and, in pursuit of that goal, we have convened more than 20,000 people since our first event in 2008.

• Philanthropy Southwest 2020 Annual Conference – Philanthropy Southwest October 20-22, 2020

Philanthropy Southwest’s Annual Conference consistently draws several hundred trustees and staff attendees from grantmaking organizations of all types and sizes. Registration is open to trustees and staff of grantmaking organizations and provides the opportunity to connect with fellow philanthropists located or making investments in the Southwestern United States.

• Money 20/20 – October 25-28, 2020 Las Vegas, NV

Money20/20 has always given audiences the clearest, sharpest view of the disruption agenda – it’s what’s made us the world’s most potent blend of people, tech, money and ideas. We stimulate new connections, new insight and new growth – at speed. From our starting point of payments, we bring together the money ecosystem. From in-depth analytics to inspirational speakers, our world class insight and networking opportunities help our customers stay ahead – powering strategies and relationships and switching mindsets.

• VERGE Conference – VERGE – October 27-29, 2020 San Jose, CA

The VERGE 20 conference and expo is the largest platform for accelerating the clean economy. Join more than 4,000 leaders — from the private and public sectors, utilities, solution providers, investors, and startups — advancing systemic solutions to address the climate crisis through five key markets: clean energy, electrified transportation, the circular economy, carbon removal and sustainable food systems.

November

• OFN Conference – Opportunity Finance Network – November 9-12, 2020 Los Angeles, CA

OFN (Opportunity Finance Network) Conference brings together CDFIs and thought leaders from across the country together for one of the largest impact-centric events of the year. With more than 1,000 CDFI practitioners, funders, investors, policy makers, and other supporters in attendance, the learning, networking, and business opportunities will be incredible.

• Women’s Alternative Investment Summit – Falk Marques Group – November 12-13, 2020 NYC

A conference to enhance networking, fundraising, and deal-making opportunities for senior-level women across the broad spectrum of alternative investments. Join us for informative sessions and essential networking with senior-level women in private equity and alternative investments. The highly interactive conference features moderated panel discussions, facilitated roundtable conversations, and keynote dialogues followed by discussion. The Women’s Alternative Investment Summit is unique in its commitment to helping women build networks and to promoting the advancement of women in private equity, venture capital, and alternative investing in general. 

Fall 2020

• SRI Conference – Folio Financial – Fall 2020

For 30 years, The SRI Conference has been the most important annual gathering for investors, asset owners, asset managers, financial advisors, researchers, academics, mission-driven organizations, and enterprises who share the common goal of deploying private capital to address some of our most pressing environmental, social, and economic challenges.

Social investment, also known as socially responsible investing, social investing, and impact investing, allows investors to align their values with investment strategies that positively impact social issues while generating a financial return.

Social problems such as natural resource preservation, better education and healthcare, animal welfare, corporate responsibility, inequality, and climate change are attracting those that want to invest in effecting social change.

The growth of social investment

In the past, the social investment market suffered from a lack of interest largely due to its association with lower financial returns.

Measuring the impact of social investment was also challenging without systematic reporting standards and the confusion around sub-optimal offerings that conveyed a false impression of creating real social progress (also known as greenwashing).

In recent years, social investing has increased in popularity as the scale of the funding needed to improve the world’s social issues has outpaced traditional sources of capital, mainly government aid and philanthropy. The growth of socially responsible investing is also being driven by Millennials, women, and an ever-increasing global economic inequality that promotes an increased interest in values-based investments.

Now we are experiencing an explosion of new products, tools, and strategies that are contributing to the disappearance of the stigma around social investment while helping to establish it as the future of profitable investing with a conscience.

The different types of social investment

Within the social investing space there are many specialized approaches to achieving economic, social, and environmental goals. Some of these include impact investing, socially responsible investing (SRI), social enterprise investing, CDFI investing, and much more.

Impact investing

Impact investing seeks to generate positive social and environmental impacts and a financial return that is intentionally measured. Typically, investors require that projects or companies report evidence that the intended impact has been generated. This investment space is focused on efforts to build markets in renewable energy, sustainable agriculture, cleantech, and other important sectors that demonstrate a direct impact on society. These investments are run by a range of specialized asset managers as well as mainstream financial institutions.

Socially responsible investing (SRI)

SRI investing is an umbrella term for any investment strategy that seeks to generate a financial return while using environmental, social, and corporate governance (ESG) criteria to fund sustainable and ethical businesses. SRI is also referred to as sustainable, responsible and impact investing by US SIF. Usually, SRI investing rules out investments in companies that produce and sell harmful substances (such as tobacco) and those that take part in detrimental activities (such as environmental pollution and human rights abuses).

An example of the kind of activities that may be excluded through an exclusionary screen

SRI includes an ever-widening range of products and asset classes such as stocks, cash, fixed income, private equity, venture capital, and real estate. Investors can invest in individual companies or socially conscious exchange-traded funds (ETFs) and mutual funds.

Social enterprise investing

Social enterprise investing gives capital support to socially conscious nonprofit and for-profit businesses, for example in renewable energy, to generate returns that blend social benefit with financial revenue. It often involves short-term loans to early-stage businesses and individual entrepreneurs along with grants and other forms of philanthropic support. Like traditional businesses, social enterprises need to make money to sustain themselves but they measure success by more than just profits.

CDFI investing

CDFIs offer investors the chance to directly invest in the small businesses of “Main Street America.” CDFIs are lenders that provide business or development loans to women and minority business owners, small businesses, affordable housing development projects, not-for-profit companies, and local governments.

Most often a CDFI investment is placed in a community development loan fund. Loan funds pool capital with other investors and spread risk across a diversified portfolio of community-centered loans from small business to affordable housing. CNote makes it easier for individuals and institutions to invest in loans issued by community development financial institutions (CDFIs).

How social investment works

For many investors, socially responsible investing is now a fundamental imperative along with the expectation of a competitive financial return. How an investor chooses to invest will depend on what type of investor they are, their goals and return expectations, and their acceptable level of risk exposure.

For example, social investing allows foundations to leverage their assets in ways beyond traditional grants and to support markets underserved by the private financial sector. They can accelerate change by expending capital to borrowers doing business in economically-distressed communities, encouraging growth, public services, and innovation.

Social Investment provides an opportunity to help bring millions of people out of poverty.

As an individual investor, social investment can help increase portfolio stability with mutual funds that may have lower volatility than comparable non-impact based funds. And financial advisors can add impact investment strategies to the offerings available to their clients, guiding them with investing in specific mutual funds, exchange-traded funds (ETFs), or private funds that invest in companies based on social, environmental, or governance criteria.

The benefits and challenges of social investment

Those who take part in social investing want to know that they’re making a difference. But like the private investment market, social investment is refining its practices and standards as it grows. Some of the issues that highlight the current benefits and challenges of social investment are the rate of return, how easy it is to invest, and consistent measurement standards.

Rate of return

Social investors generally aim to preserve capital across their portfolio in order to move it through different investments. Based on the level of risk adopted, a social investment return will be below, above, or on par with various market benchmarks, such as the Impact Investing Benchmark.

But many social investors are driven by the societal impact of the social enterprises they support and not only by financial returns. Therefore some investors may tolerate a below-market rate of return. For investors who want market-rate returns or better, there are ways to invest that ensure the social investment makes sense for their goals.

Ease of investing

Some organizations have their own retail platforms where individuals can invest directly, like CNote, while many others are only available through brokers or direct offerings. And with all the new products available it can sometimes be difficult for individual investors to understand what solution makes the most sense for their needs.

Simple access to social investments is critical to scaling efforts

This is where a qualified advisor can step in to help with an individual’s choice of investment products, whether that’s mutual funds, ETFs, fixed income, or other offerings. And with the rising interest in social investing, it’s important to investigate funds to make sure that they’re credible and truly committed to increasing social impact.

Measuring impact

Measuring an investment’s social impact is important and can help organizations make better decisions and communicate their value. But there are many specific methodologies that are used to measure different objectives in different parts of the investment cycle.

In the years ahead, as socially responsible investing becomes the mainstream investing standard, the continued development of impact measurement frameworks and consistent reporting standards, such as the Global Impact Investing Network’s (GIIN) Impact Reporting and Investing Standards (IRIS) metrics will help to unify how the effectiveness of a social investment approach is measured.

The future of social investment

According to the most recent US SIF Foundation Report on U.S. Sustainable, Responsible, and Impact Investing Trends, sustainable, responsible, and impact (SRI) investing assets now account for one in four dollars (26%) in total assets under professional management in the United States.

In the first half of 2019, an estimated $8 billion in net flows have gone into sustainable funds, massively outranking the $5.5 billion for the entire year of 2018. Institutional and individual investors alike are realizing that the quickly maturing social investment market is an essential way to finance social ventures that support global and local economic prosperity for everyone while making a solid return on their investment.

Besides rational arguments of benefit and return, more investors are also adopting the moral justification that investing sustainably is ethically the right thing to do. With a growing emphasis on the value of not only shareholders but also stakeholders in shaping the distribution and utilization of wealth and resources, barriers between public and private capital are breaking down to promote collaboration and engage new investors.

Conclusion

The interest in social investment shows no signs of slowing down. In fact, it’s becoming more and more accepted as the way forward towards achieving progress on the social issues that impact us all, such as climate change, energy efficiency, economic inclusion, healthcare, and education while giving investors the chance to achieve profitable returns. As digital transformation continues to change the investing landscape, the current divisions between investing and philanthropy will continue to merge as complementary strategies, increasing the power of social investment to create social good.

If you have explored socially responsible investing (SRI), then you might also be familiar with the concept of investment screening.

Socially responsible investing, a form of impact investing, is a strategy used to align investments with social goals.

Investors understand that their money can produce positive outcomes in more than just a financial sense by achieving both financial growth and positive social change. Investment screening is used to filter out companies or organizations that do not meet investors’ standards, and instead allocate capital to those that do.

Positive and negative investment screening is used to distinguish between different organizations based on how restrictive investors would like their investments to be. Positive screening identifies and focuses investments into companies that are considered top performers based upon chosen criteria. Alternatively, negative screening looks to exclude companies that perform poorly on environmental, social, and corporate governance (ESG) criteria and removes them from investment portfolios. Understanding some of the different approaches to socially responsible investments can help you to learn how your portfolio is managed, and which investment strategies best fit your objectives.

What is Impact Investing?

Impact investing is a way to invest your money with the intent to bring about some socially desirable outcome with the expectation of a financial return. 

CNote specifically defines impact investing as deploying capital with the aim of creating some measurable positive social outcomes with the expectation of financial returns. Like your vote, your dollar is powerful. Whenever you give money to an institution, whether in the form of an investment or a transaction, you are supporting their mission – whether you morally agree with it or not. It’s that simple.

Of course, there is some subjectivity when it comes to what it means to do good. Something that one investor believes to be a good cause may not be important to another investor. Overall, the goals of impact investing generally reflect popular social and political opinions of the time. In the mid-twentieth century, this included a focus on civil rights, women’s suffrage, and anti-war efforts. Nowadays, common causes people look to support through the power of their investments are environmentally sustainable initiatives, increasing economic opportunity for minority or underrepresented communities and ending world hunger.

There are three key components to impact investing: investment with the intention to do good and the expectation of financial return all while creating measurable impact. Measuring the impact of one’s investment is a central tenet of impact investing. If you are investing to make a difference, you should utilize measures to understand the true impact your investment is having.

What is Socially Responsible Investing?

Socially responsible investing (SRI) is a strategy that considers specific investor values when choosing organizations to invest in.  Sometimes referred to as Sustainable, Responsible, Impact Investing, SRI Investing involves investing in companies that are engaged in ethical and socially conscious fields. Also known as ‘green investing’ or ‘ethical investing,’ SRI has become a popular way for investors to support causes they believe in while earning positive financial returns.

Much like impact investing, there is a level of subjectivity when it comes to socially responsible investments. In general, SRI indexes or mutual funds look to invest in organizations that support environmental and social causes. They typically avoid companies that deal with alcohol, gambling, tobacco, and weapons.

Why Engage in Socially Responsible Investing Practices?

People invest in SRI indexes and funds for a variety of reasons. An investor may be driven by strong personal values that guide their investment decisions. If investors are dedicated to green living, they may want to invest in companies that pass ESG criteria for green companies. A company or investor may pride themselves in supporting organizations that celebrate diversity. They may pursue investments in companies that champion these initiatives as a way of improving their own ESG profile.

We are seeing more often than ever before that clients and shareholders are demanding that companies take action to improve their own ESG standing, like through investing in SRI opportunities. Shareholder activism has forced organizations to reevaluate their own practices and invest in causes that their shareholders value.

Does SRI Result In Lower Financial Returns?

You may have heard that committing to socially responsible investing may result in lower returns. However, that is often not the case.

Consider the Domini 400 Social Index, which is essentially the S&P 500 for socially responsible investing. In a study from Morningstar and MSCI that compared the index total returns from the year 1990 to 2008, it was determined that the return and risk characteristics were nearly identical for both indices. In fact, the Domini 400 Social Index slightly outperformed the S&P 500.

As the tide changes towards more socially responsible investing, companies are learning that raising their ESG standards can earn them more investors and a stronger client base. Consumers are looking for companies that reflect their values now more than ever. Socially responsible investing has built a bridge between enacting positive change and growing wealth.

The Difference Between SRI and Impact Investing

While SRI and impact investing both seek to enact social change and produce wealth, they differ in their need for measurable change.SRI is concerned with deploying investment dollars in a way that is responsible and positive. Impact investing requires that the change be, as the name implies, impactful. A good way to understand the difference between SRI and impact investing is that SRI can simply stop at “do no harm” while impact investing seeks to proactively “do good” with investments.

Screening and Socially Responsible Investing

While impact investors seek to do measurable good, socially responsible investors seek to support causes that align with their views and avoid causes that they find undesirable. This is done through a process called screening.

Investment screening is the process of determining whether an organization’s values align with that of the investors. In today’s market, screens help identify firms based on environmental, social and corporate governance (ESG) criteria.

When evaluating companies based on environmental factors, a screen may take into account the amount of waste they produce, greenhouse gas and carbon outputs, raw materials used in production and how materials are sourced.

Companies evaluated based on social standards will typically look at the health and safety of workers, gender equality within the company, and diversity within the workplace. However, sometimes the assessment of socially responsible practices does not stop at the company themselves; Some fund managers will even evaluate the workplace practices of suppliers to ensure that they pass the screens as well.

Governance standards refer to how the business conducts itself. These screens will typically test for corruption, instances of retaliation, scandals, or even the compensation differences between executive members and entry-level workers.

There are two forms of investment screening: positive screening and negative screening. Screens are essentially filters that define what is an acceptable investment. They help to identify companies that may have risks that are not recognized by traditional fiscal standards. For example, if an analyst would like to screen for companies that are cruelty-free, this would set a clear screen parameter for investment opportunities.

The History of Screening

Investment screening was originally used by religious investors who were concerned about investing in industries that they found sinful. This was meant to exclude companies that were involved in industries like weapons manufacturing, alcohol and tobacco companies, and gambling operations.

Eventually, this shifted from just being utilized by religious investors to also being used investors who were interested in using their money to advance their social beliefs. This especially included women’s right to vote and civil rights in the early 20th century.

Investors also used screening to divert funds from companies that they found did not represent their values. In the 70’s and 80’s, investors used divestment as a way to negatively screen companies that benefitted from South Africa’s Apartheid policy. If a company benefitted from apartheid, investors pulled all of their investments out of the company. The lack of economic support helped to aid in the breakdown of apartheid.

What is Negative Screening?

Negative screening, or exclusionary screening, is one of the most basic methods of separating socially responsible investments from those that are likely to have a negative effect on society.

Negative screening is much less restrictive than positive screening. It simply excludes investments in companies that actively work against the investor’s values, such as organizations with a history of international bribery or corruption. Effectively, this process works to remove investments in entities that are deemed as having a negative impact on society or the environment from the investor’s portfolio. For this reason, negative screens help to embody the “do no harm” initiative of impact investing.

Early socially responsible investors used negative screens to weed out companies in ‘sin industries’, such as alcohol or gambling. The negative screening process has evolved to also exclude companies that do not meet diversity standards, emit large amounts of greenhouse gases, or engage in corrupt business practices.

Advantages

Negative screening is the most widely used process of identifying targeted investments for a reason; it’s incredibly inclusive.

Investors hesitant to adopt SRI may consider negative screening as it does not require companies to go above and beyond to be included in an investment portfolio. It weeds out the worst of the worst based on the particular screening criteria used and determines the rest of the companies to be acceptable. This can be beneficial to investors who are worried that SRI may be too exclusive.

Negative screens can also prevent investments into specific countries. Many exclusionary funds will exclude government bonds from countries that are known as human rights abusers. This not only prevents you from supporting practices that you find unacceptable, but it can also prevent you from investing in governments that are particularly egregious.

Drawbacks

One of the largest criticisms of negative screening is that it doesn’t work to support investments that align with an investor’s values. Negative screens work solely on eliminating investments that go against investor values. They do not place companies that support investor values at any particular advantage. By simply avoiding companies who actively work against investor values, negative screens do little to elevate the companies that actively do good. It is widely thought to have no tangible impact, as another investor (that is not focused on SRI) will likely invest in those stocks.

Examples

The most basic form of a negative screen is to avoid investments in ‘sin’ industries. This is also one of the earliest forms of negative screening. In the 1700’s, religious investors in the U.S. refused to place investments in tobacco, alcohol or gambling ventures. Even today, there are funds that screen based on specific religious doctrines.

Another example of a negative screen would be to screen for companies that have had any sexual harassment allegations in the past six years. Assuming that the fund is regularly rebalanced, any company that has not had a sexual harassment allegation in the past six years would be included or remain in the fund. A company that has had a sexual harassment allegation would be eliminated from the fund entirely.

What is Positive Screening?

Sometimes a fund manager may find that negative screening tactics may leave quite a few investments to choose from. This is where positive screening can be helpful.

Positive screening, or as it is sometimes referred to, ‘best-in-class screening’, is a process that identifies companies that are actively making contributions to social or environmental change. This enables investors to screen for and support practices that they find impactful.

Positive screening techniques work to identify and highlight organizations that are actively functioning to further environmentally sustainable and positive social practices, rather than simply avoiding bad behavior. Companies shown to have a positive impact are supported, while those who simply meet the status quo may fail the screen.

Advantages

Positive screening often looks to include only the best companies in a given impact category in the fund or portfolio. 

Best-in-class screening also encourages companies to compete with each other for investment dollars. When investment funds are based on the environmental, social or governance performance of companies, this incentivizes companies to compete with one another to create more impactful change. Positive screening not only rewards companies that do well, but it encourages industry peers to further advance their positively impactful corporate practices as well.

Drawbacks

The one major downside of positive screening is that it can be too exclusive. Investors interested in diversifying their portfolio may have trouble doing so through a positive screen. Depending on how rigorous their screening process is, it can sometimes lead to just a few companies making the cut. However, if the screen is too lenient, it can allow for companies that aren’t necessarily committed to the given cause squeaking through. This can make the positive screen feel like a moot point altogether.

Examples

Many investors are indicating that it is not enough to simply avoid harmful investments. They are interested in investing in companies that actively support their values. A common positive investment screen is for companies that create a certain amount of clean revenue. For a screen that required at least 75% clean revenue production, then only companies that met that hurdle would make the cut.

How Does a Fund Manager Screen Investments?

Because screening is subjective to the investor’s values, finding a fund or portfolio that closely matches your values is essential. But how does a fund manager actually screen its investments?

The screening process is usually implemented in one of two ways: a third-party investment manager or the use of standard restriction screens from a third-party data vendor. In essence, a firm will either outsource the screening process or they will do it themselves based on third-party data.

A firm will audit funds or portfolios at specific intervals, often quarterly or annually. Investments that do not meet the screening criteria at the time of the audit are removed from the fund or portfolio altogether.

Investors must be careful to review the screening criteria closely. A fund may say that they use environmental, social or corporate governance screens, but they may not be as rigorous as an investor would like. Understanding which causes are important to the investor and how restrictive the investments should be is important when considering a firm’s screening methods.

Is One Form of Screening Better Than the Other?

There is no one form of screening that is inherently better than the other. Because positive and negative screening works in two different ways, it is widely agreed that a combination of both methods will lend itself to the most well-rounded screening process.

It is important that the investor has a clear idea of their SRI goals and personal delineations for success to be sure that the chosen investments align well with those ideals.

When Screens Get It Wrong

Just because a company passes a screen doesn’t mean they are perfect.

Screens are merely tools that are used to help a fund manager or research department quantify what it means to be a socially responsible investment. This does not always mean that the screens are particularly rigorous, or that the company being screened is entirely ethical. A company could pass on one screen but fail another.

For example, consider a fund manager that is tasked with identifying companies that are considered low waste by environmental criteria. A company may meet the low waste requirement but also be in the midst of a sexual harassment scandal. This company would pass the positive screen. If the fund manager also had a negative screen to exclude companies based on sexual harassment claims, this company would fail. It all depends on what the investment opportunities are being screened for.

Final Thoughts

Socially responsible investing attracts investors that are not only interested in turning a profit; They are also looking to support their community, the environment, and causes that they are passionate about to thrive. Investment screens help analysts identify which companies will gain investor’s support. They offer a standard by which investors can judge companies and hold companies accountable for their values and actions. Understanding screens can help you identify investments and help you feel confident that you are supporting a good cause.

Many investors are choosing to align their portfolios with their personal values, using their investments to make a positive impact.

While socially responsible investing might seem like a new phenomenon due to its rapidly growing popularity, its earliest origins trace as far back as the first books of the bible.

The history of SRI

The earliest precursors of socially responsible investing date back to the Pentateuch – the first five books of the Bible, believed to have been written by Moses as early as 1500 BC. The books refer to a Jewish concept called Tzedek (justice and equity) and how it should govern all aspects of life. Tzedek aimed to correct the imbalances that humans inevitably generate, including the benefits one would receive from ownership. Owners had rights and responsibilities in how holdings were used, one of which was to prevent any immediate or potential harm.

This principle formed the genesis of socially responsible investing, providing religious and indigenous cultures with a set of criteria on how to generate financial returns ethically and sustainably.

Note: The above image provides a cursory summary of some of the movements and institutions that have shaped SRI investing as we know it today. It is not intended to be a completely exhaustive list.

Religious roots and origins of socially responsible investing

Despite a consensus that ethics were an essential consideration for investment decisions, the application of the principle varied; some groups used it as a guideline, others required it by law. The basis for SRI varies between religious groups, leading to many different interpretations of the subject.

Judaism (1500-1300BC)

As mentioned above, Judaism sees a need for justice/equity in all aspects of life, including government and economic activity. Jewish Law states that investments make us property owners, giving us the responsibility to use our holdings to prevent immediate and potential harm.

While most biblical and rabbinic sources refer to single owners or small partnerships, Jewish religious figures eventually addressed the ethics of shareholder responsibility. Since shareholding is a form of ownership, investors must consider the ethical responsibilities of a company before investing. This prevented followers from investing in “immoral” companies such as those involved in oil, coal and gas because of their immediate impact on human health.

Islam (609-632CE)

The Qur’an established guidelines surrounding investments based on the teachings of Islam, now known as Shariah-Compliant Finance. This philosophy aims to govern the relationship between risk and profit, along with the responsibilities of institutions and individuals. It states that money should be a medium of exchange, not an asset that grows over time.

One of the governing principles in the Qur’an is Riba, which aims to prevent exploitation from the use of money. It prohibits the payment or receipt of all forms of usury, including all sorts of interest payments, gambling or uncertainty. The Qur’an also forbids any Islamic institution or individual from investing in alcohol, pork products, immoral goods, gold & silver and weapons.

Quaker (1650s)

Based in England since the 1650s, Quakers are members of a group called The Religious Society of Friends. While the group is primarily interested in Christianity, it is also known for its opposition to slavery and war.

In 1758, the Quaker Philadelphia Yearly Meeting prohibited members from participating in the slave trade, marking one of the first occurrences of SRI in its current form. Eventually, some Quakers went on to establish two of the largest financial institutions in modern history: Barclay’s and Lloyd’s.

Methodist (1700s)

Established in 1703, the Methodist movement was led by a man named John Wesley, one of the most articulate early adopters of SRI. During a sermon titled “The Use of Money”, Wesley outlined his stance on social investing; avoid industries that have the potential to harm workers and any business practices that might harm your neighbor. Followers eventually resisted investments in “sinful” companies, such as those involved in tobacco, firearms and alcohol. A prelude to modern exclusionary investment screening.

Modern Era: The rising popularity of SRI

The modern version of SRI in America really took hold in the mid 1900s, when investors began to avoid “sin” stocks – companies that dealt in alcohol, tobacco or gambling. In 1950, the Boston-based Pioneer Fund, established in 1928, doubled down on this movement, becoming one of the first funds to adopt SRI principles.

The avoidance of sin stocks in the 1950s marked the beginning of the rise of modern socially responsible investing, each decade bringing forth an influx socially concerned investors:

1960s

Socially responsible investing in the 1960s was largely driven by politics and concerns about the Vietnam War. Protestors boycotted companies that provided weapons for the war, while groups of students demanded university endowment funds no longer invest in defense contractors.

Meanwhile, civil rights, environmental and labor movements raised awareness about social, environmental and economic issues, bridging the gap between corporate and investor responsibility. In support of these movements, trade unions like the United Mine Workers and the International Ladies’ Garment Workers’ Union deployed targeted investments into medical facilities and union-built housing projects.

1970s

In April of 1970, 20 million Americans convened for the first Earth Day celebration, opening the door for a cascade of environmental and consumer protection legislation in the early 1970s. As society reacted to war, sweatshops, Apartheid, climate change, human trafficking and a number of other political and cultural issues, socially responsible investors followed suit.

Supported by consistent efforts from both investors and corporations, it was clear that the SRI movement was here to stay. A growing number of new funds combined social and environmental consciousness with financial objectives, reflecting the prevalence of aspirational progressive values. The Pax World Fund and the First Spectrum Fund were established in 1971, followed by the Dreyfus Third Century Fund, firmly backed by over $25 million.

1980s

In the wake of the Bhopal, Chernobyl and Exxon Valdez disasters, concerns about the environment and climate change were at the core of SRI in the 1980s. This led to the launch of The United States Sustainable Investment Forum (SIF) in 1984, which has now become one of the largest resources for SRI and impact investing.

The standardized approach to SRI in the 1980s involved building a portfolio that behaved like the traditional market while avoiding investments in alcohol, tobacco, weapons, gambling and environmental pollution. Firms paired these avoidance screens with a commitment to shareholder activism, a practice that allowed shareholders to leverage ownership to improve a company’s behavior.

1990s

By 1990, the popularity of SRI mutual funds and socially conscious investing hastened the need for a way to measure performance. Launched in 1990, The Domini Social Index (which is now the MSCI KLD 400 Social Index), was comprised of 400 U.S. publicly-traded companies that met certain social and environmental standards. Many potential investors were concerned that socially responsible investments would have lower returns than traditional investments, but this index helped to disprove those claims.

2000s and beyond (UN SDG)

By the early 2000s, socially responsible investing continued to gain supporters, alongside the introduction of many major initiatives and funds. In 2006, the United Nations Principles for Responsible Investment was launched, establishing guidelines for mainstream investors to incorporate ESG (environmental, social and governance) issues into investment practices.

Many socially conscious investors are going beyond SRI to seek out investments that prioritize a positive impact, sparking a rise in ESG and impact investing. This forward-thinking approach was reinforced by the UN Sustainable Development Goals in 2015. These goals, backed by all 193 UN Member States, are an urgent call to solve the world’s most pressing development challenges.

Conclusion

Socially responsible investments now account for over 33% (over $17T) of all assets under professional management in the US, and with increased interest from the millennial generation, that number is only expected to rise. Despite the involvement of large investment firms and funds, socially responsible investments are not exclusive to institutional investors. There’s a range of retail impact investment options that allow anyone to invest ethically and responsibly.

The history of socially responsible investing shows that what’s old is new again. We can see that this growing movement shows no signs of stopping, making for an even larger impact as more investors get involved.

Impact Investors are increasingly adopting the United Nations Sustainable Development Goals (SDGs) as their own. This can involve mapping investments to specific SDGs or even more thorough strategic alignment through the design of financial products specifically for their achievement. However, there is still a lack of awareness across the financial sector, particularly in the United States, as to what the SDGs are and how Impact Investors should interact with them.

One thing for sure is that financing the United Nations Sustainable Development Goals (SDGs) will involve considerable investment across sectors. Uniquely, the Impact Investing industry has the potential to play a pivotal role in the process of achieving these ambitious goals. The following article seeks to clarify some of the key points about the SDGs and raise awareness in the field.

UN Sustainable Development Goals

The 17 Sustainable Development Goals (SDGs) were adopted by all 193 UN Member States in 2015 as part of the 2030 Agenda for Sustainable Development. These goals were intended as an urgent call for action to solve the world’s greatest development challenges. Ranging from an end to poverty and reduced inequality to tackling climate change and preserving the world’s oceans and forests. Each goal has individual targets and indicators as a means to benchmark progress. To illustrate, Goal 1, No Poverty has five numbered targets. The first of those targets is that “By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day.” These ambitious goals are aimed at driving sustained change that will dramatically improve the living conditions not just for humans, but many forms of life on the planet. 

Financing the SDGs

To realize the SDGs will take partnerships not just government, civil society, and business but also the financial industry. It is estimated that achieving the SDGs will take between US$5 to $7 trillion with a $2.5 trillion investment gap in developing countries. Private funding and impact investing hold significant potential to close this gap as investors can leverage large amounts of investment capital.

Mapping: The process of matching investment goals or outcomes to corresponding UN Sustainable Development Goals. For example, an investment project in a developing country that increases access to clean water for both domestic and commercial applications might be mapped to goals 3, 6, 9 and 10.

Many of the world’s most prominent financial institutions have begun to explore Impact Investing strategies, including Dutch pension fund PGGM and Swiss bank UBS. The Impact Investing industry is rapidly mapping their investment goals with the SDGs, aligning their strategic goals and shaping investment products designed to achieve them.

‘Investability’ of the SDGs

The ‘investability’ of the SDGs is a hotly debated topic, as they are widely thought to be designed primarily for use by governments. However, a 2016 report by ShareAction, UNPRI and the Baring Foundation found that 60 percent of institutional investors surveyed felt that “taking action to support the SDGs aligned with their fiduciary duties” and could “create opportunities for greater returns.” The top four SDGs identified by C-Change with the greatest potential to do this were Infrastructure (Goal 9), Economic Growth (Goal 8), Climate Change (Goal 13) and Sustainable Energy (Goal 7). 

A report by UBS, In Challenge Lies Opportunity, links long term investment themes with corresponding SDGs calling out particularly investable areas such as waste management and recycling. Additionally, some Impact Investment firms, such as Dutch pension funds PGGM and APG, have rated the ‘investability’ of the SDGs and identified investment opportunities accordingly. Despite this, it is widely agreed upon that each SDG has varying levels of ‘investability’ and not all make for clearly competitive investment cases.

Drivers of Impact Investing for SDG Achievement

Impact Investing has the benefit of being targeted towards regions and sectors where traditional foreign direct investment has typically had difficulty reaching, for instance, frontier markets such as Africa or underserved communities in the United States. Additionally, these investments often target sectors that have experienced difficulties garnering investment historically, such as health and rural development. The SDGs are very focused on the improvement of these regions and sectors and so Impact Investment better aligns with the goals than traditional investment approaches.

The Dutch SDG Investing (SDGI) Agenda Report, argued that the SDGs offer a “simple and attractive entry point” for those investors not yet involved with SDG or Impact Investing from which they can build out their portfolios. Whilst the Global Impact Investing Network stated that  Impact Investors can use the SDGs to “refocus and re-energize their existing activity.”    

Barriers of Impact Investing for SDG Achievement 

Conversely, a Center for Global Development Report found that the Impact Investing marketplace is highly fragmented which makes coordination difficult and increases transaction costs. The speed of development and evolution of the field creates issues that inhibit co-financing and the sharing of due diligence, this reduces the attractiveness of investment. Additionally, the lack of market infrastructure and favorable regulation in a majority of the Impact Investing marketplace is a hindrance to its development and also the ability to support the achievement of the SDGs.

The primary issue in the marketplace is a lack of data to measure progress. Traditional investments rely on the ability to benchmark opportunities against industry standards. Without this data, it is difficult to attract traditional investors. As well as this, there is an inconsistency of metrics between funders, creating additional issues. The Dutch SDGI Report found that there has been a growing movement in the last few years of standard setting and data aggregation, including the adoption of big data methodologies, in the hopes of mainstreaming SDG investing.

Overcoming these Barriers

Despite the numerous barriers to Impact Investing and the achievement of the SDGs there are many ways to overcome them. ShareAction recommended a number of these methods in their report, “Transforming the World” including; “making the goals relevant to investors, regulatory action, better company reporting and transparency, increased capacity for action amongst investors, demand from clients, support from other actors and tackling short-termism.”

Increased availability of evidence, data, metrics and benchmarks were also flagged as essential to overcoming these key barriers to SDG achievement. The EMPEA has suggested a step-by-step question approach to helping investors consider how they can more fully engage with the SDGs and conquer these barriers.

Source: EMPEA SDG Working Group EMPEA SDG Working Group. 2018. “Private Equity’s Role in Delivering the SDGs: Current Approaches and Good Practice.”, 11.

SDGs as a Common Language or Framework

The most important addition that the SDGs can bring to the Impact Investing industry is in the process of standardization. The United Nations Principles for Responsible Investment (UNPRI) considers the SDGs as, “the globally agreed sustainability framework”.  It is now general consensus in the industry that the SDGs are a good common framework or language through which to communicate the world’s greatest challenges. The SDGs can assist investors to understand, “the sustainability trends relevant to investment activity and their fiduciary duties.”

The prevalent question in the industry now is not whether to consider the SDGs but how to do so appropriately and meaningfully. There is increasing research into this process. Impact Management and Measurement organizations, such as the Impact Management Project and GIIN IRIS+, are working on this. However, this is a constantly evolving space with no “silver bullet” defined as of yet.

SDGs Looking Forward

With such ambitious goals come challenges in achieving them and taking the extra step of linking them to investments and finding a clear way to measure success. Nonetheless, there has already been significant progress for individual goals and targets. Take for example the progress in regards to global poverty:

In 2016, just under 10 percent of the world’s workers were living with their families on less than $1.90 per person per day, down from 28 per cent in 2000. In the least developed countries, nearly 38 per cent of workers in 2016 were living below the poverty line.

As more and more resources get behind these goals from investors, public entities and private donors, the hope is that this framework can drive massive change to improve the lives of billions of people across the globe. How investors allocate resources in support of these goals has the potential to massively accelerate global progress.

What impact investing options are currently available to retail investors?

What is impact investing and how can I participate? These are questions we often hear from individual investors looking to connect their money with meaning.

According to the Global Impact Investing Networking (GIIN), impact investing refers to investments that  are “…made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” The term was first coined in 2007 at the Rockefeller Foundation’s Bellagio Center, in recognition of the rapid growth of impact investing among retail investors over the years-to-come.

Given that there is a growing demand for readily accessible impact investment options, we’ve decided to compile a list of these that are available to regular investors. We’ll work to regularly update this compilation to cover the most popular and accessible options.

Although some of these companies could be classified as “competitors” of CNote, we are avid supporters of the impact investing movement. We believe that every new dollar committed to companies focused on moving impact investing forward is a win for both CNote and society-at-large. To that end, we hope you will find this guide helpful.

Methodology and Definitions

Since impact investing is a relatively new concept for most, the standards for what is and is not an impact investment can vary. We have compiled a list of companies that we feel have been generally accepted as offering impact investment products that are accessible to investors of all sizes. We believe that these companies fairly represent the current landscape of established retail offerings accessible to investors of any net worth. As a result, products and opportunities that may only be available to foundations, trusts, and high-net-worth investors did not make our list.

We recognize that some equity-focused platforms focus on divestment, wherein companies that do not align with a specific impact approach are excluded from their portfolio of investments.  Classic examples include companies that produce weapons, tobacco, and other so-called “sin” stocks. While we acknowledge this kind of socially-conscious investing, we are excited to see many platforms taking a more active approach by allocating capital directly to companies driving a beneficial social impact. After all, we believe impact investing can be so much more than a decision not to invest in a certain class of companies.

For simplicity, we’ve also tried to separate impact investing options into various categories: robo-advisors, fixed income investments, exchange-traded funds (ETFs) and other offerings. Some of these offerings have their own platforms where you can invest directly, like CNote, whilst others are available through brokers, or via direct offerings like Calvert.

Impact Investing Options

Aspiration

Category: Robo-advisor

Doing business in an industry that has traditionally served the wealthiest, Aspiration has made it their mission to “bring the best financial solutions services to everyone.” Aspiration offers a mix of banking and retirement services, links to charitable giving and investment products.

Unlike other platforms, Aspiration allows customers to decide how much to pay towards their monthly fee, “what you think is fair – even if it is zero.” They also incorporate the Aspiration Impact Measurement (AIM) system into their banking which allows you to track your personal ‘People and Planet’ impact as you shop.

• Minimums: $0- 10
• Fee Types: “Pay What is Fair”
• Products: Banking Services, Retirement Services, Professionally Managed Funds
• Returns: Market

Summary: Aspiration largely falls in line with other impact investment options like Swell or OpenInvest. They see themselves as being “radically accessible” and serve a relatively young consumer base. Such accessibility is apparent in the variety of banking services they offer in addition to a dedicated fund.

However, the products they offer, while wide ranging, are ultimately limited. For example, they only offer the option of two investment funds, with only one, their “Redwood Fund,” impact-focused. They do however offer seven charitable causes one can donate to for a tax deduction, but these are not investment products.

Conclusion: Aspiration is a platform that caters to those seeking accessibility and those new to impact investing who may be intimidated by traditional financial products or turned-off by the modus operandi of most large financial institutions. One of Aspiration’s main selling points is their “pay what is fair” fee structure. This flexible fee structure and lack of minimum investment makes it a good option for a potential investor simply looking to get a feel for the investment landscape.

Betterment

Category: Robo-advisor

Betterment, an investment platform founded in 2008, has recently added elements of impact investing to their lineup of products. In 2017 they introduced their “Betterment SRI” (Socially Responsible Investing) portfolio strategy. They seek to blend their SRI approach with the features of their general investing strategy, stating, “We allow socially conscious investors to express that preference in their portfolios without sacrificing the aspects of Betterment’s advice that protect their returns the most: proper diversification, tax optimization, and cost control.”

• Minimum: $0 for their Digital Plan; $100 000 for their Premium Plan
• Fee Types: 0.25% for Digital; 0.4% for Premium
• Products: US Large- Capitalization Stock
• Returns: Market

Summary: Betterment offers tax-loss harvesting and great account minimums, catering to millennials and those with an eye towards retirement. Betterments is still attempting to cohesively integrate their main investment platform with their impact investment platform. One of the main limits to their approach is that, “The ESG scoring approach to SRI does not fully eliminate companies that investors interested in SRI may consider undesirable.”

As an example they do not exclude ETFs, SUSA and DSI, whose stock offerings include investments in, “some energy companies that engage in oil and natural gas exploration, like Hess.” Betterment is not alone in this as most successful ESG investment methods often target large ETFs. Positively, Betterment is honest about its shortcomings, and  its options are still relatively conservative.

Conclusion: Betterment is a serviceable investment platform, offering low minimums, great value for retirement accounts, and clear utility for people without a large disposable income. As an impact investment platform, they have an approach that is safe but relatively unambitious.

Capital Impact Partners

Category: CDFI

Capital Impact Partners is a nonprofit CDFI that seeks to leverage its thirty-plus year relationship with traditional financial institutions and other funding sources to support the equitable development of local communities. They achieve this by arranging loans tailored to the needs of their low and middle-income borrowers.

Capital Impact Partners is focused on services like; healthcare, education, affordable housing, and healthy foods for those in underserved communities. Their operating vision is to help create, “a nation of communities of opportunity built on a foundation of equity, inclusiveness, and cooperation.”

• Minimum: $1000
• Fee Types: None
• Products: Fixed Income Notes
• Returns: Fixed Interest Rates according to 1 to 10-year terms

Summary: Capital Impact Partners maintains an on-balance sheet loan portfolio of $311.3 million, over a third of which has been allocated towards education. From there, housing, healthcare, and community development round out their portfolio. They tout that they have served over five million people and have created more than 37,000 jobs.

Those interested in investing through Capital Impact Partners must purchase “Capital Impact Investment Notes” through their brokerage account. This makes the process simple but limits your ability to have any real say in where your money will go. Therefore, investing in Capital Impact Investment Notes for social impact purposes requires that you largely agree with their core values and trust that your money is being put towards a meaningful cause.

Conclusion: Capital Impact Partners maintains a relatively strong AA- S&P credit rating. Coupled with their thirty-five years of business, this makes them a serviceable investment vehicle for those who share the same impact investing priorities and wish to direct funds towards the development of underserved communities.

CNote

Category: Platform & CDFI

CNote is an award-winning, first-of-its-kind financial platform that allows anyone to make money investing in causes and communities they care about. With the mission of closing the wealth gap, CNote directs every dollar invested toward funding female- and minority-led small businesses, affordable housing and economic development in financially underserved communities across America.

• Minimum: $1
• Fee Types: No fees for retail investors. Other services like underwriting, customized investments, and specialized impact reporting for institutional investors likely have fees. 
• Products: Fixed Income Investments
• Returns: 2.00% product with quarterly liquidity

Summary: CNote seeks to fulfill its mission of closing the wealth gap, “by providing a new and sustainable capital source for our community-lender partners, generating better returns for our members, and by increasing capital access and economic activity in communities that need it most.”  

CNote is a strong option for investors who want to support community development across America and see the tangible impact their money is having. CNote produces regular borrower stories and impact metrics to highlight just how investors dollars are driving change.

CNote supports a variety of account types and customers including personal, trust and business accounts. Additionally, CNote provides robust support for financial advisors who want to invest and manage their clients’ funds. Finally, CNote supports institutional investors and works with foundations, large banks, and other traditional financial institutions to deliver impact at scale.

CNote has no minimums or fees.

Conclusion: If you want your money to make a tangible impact on individuals and communities across America, CNote provides competitive returns and flexible liquidity. 

Calvert

Category: Community Investment Note

Calvert was one of the first family foundations to trade mutual funds to avoid doing business during apartheid South Africa. They officially launched their portfolio and Community Investment Note in 1995. In their own words, Calvert has made it their goal, “to serve sectors and regions that are often overlooked or underserved by the traditional capital markets.”  

• Minimums: $20 for direct and Online Plan; $1000 for Brokerage Account
• Fee Types: Brokering fee for the Brokerage Account
• Products: Fixed Income Investments
• Returns: Market

Summary:  Calvert has a separate mutual fund and foundation.  Their foundation offers three main loan products; balance sheet loans, structured debt loans, and asset-backed facilities.

The non-profit places special emphasis on nine social impact sectors, “shaped and ever-evolving by a maturing impact investing industry and macroeconomic shifts that affect these markets.” Those impact sectors include; Affordable Housing, Community Development, Education, Environmental Sustainability, Health, Microfinance, Renewable Energy, Small Business, and Sustainable Agriculture. Calvert has a strong industry reputation, boasting a note balance of $390,870,019. They offer a return on investment in the range of 0-4%.

Conclusion: Due to its long history, Calvert has earned its place as a trusted impact investment platform. The vast majority of their loans are funded through a combination of balance sheet and structured debt loans. Overall, Calvert offers both lower and higher cost options for potential investors.

Earthfolio

Category: Robo-advisor  

Earthfolio does not only bear the distinction of being the first online investment service to focus primarily on sustainable investing, but in 2015 they also launched their app. Earthfolio screens its investments against 10 ESG criteria. These stated ESG criteria include; Environment, Animal Welfare, Equality and Diversity, Non-Violence, Healthy Living, Corporate Governance, and Community Development.

• Minimums: $25 000
• Fee Types: 0.5% annual fee
• Product: ETFs, Stocks, Bonds, Mutual Funds
• Returns: Market

Summary: “Sustainability is not a niche for us,” Earthfolio states on their site, “it’s the DNA of how we’ve invested for over fifteen years. Every portfolio we build invests exclusively in a broad spectrum of sustainable mutual funds that screen on up to ten environmental, social, and governance, criteria.”

Earthfolio is a good choice for those looking for a more established platform, given that it is one of the oldest options on this list. Earthfolio caters to customers with $25,000 or more available to invest in any of their range of product offerings. Given this high minimum, Earthfolio may seem out of reach for young people looking to make an impact investment.

Conclusion: For an investor that has $25,000 or more to get started and wants a platform with a long track-record, Earthfolio offers a good set of products that is likely to fit most investors’ needs.

Hedgable

Category: Robo-advisor 

Hedgeable is similar to the other relatively new impact investment platforms on the list. Their mission, “to democratize the market!” seems to be exemplified by their very low minimums and the unique range of SRI themes they offer. Hedgeable focuses on eight different themes for its SRI platform; U.S. Social Responsibility, International Social Responsibility, LGBTQ Equality, Low Carbon Footprint, Alternative Energy, Female Leadership, Social Fixed Income, and Water Purification and Conservation.

• Minimums: $1
• Fee Types: 0.3%- 0.75%
• Products: ETF, Mutual Funds, Equities, Commodities, etc
• Returns: Market

Summary: With the motto “Private Wealth for Everyone,” Hedgeable offers a $1 minimum for opening an account and a range of personal, retirement, and corporate accounts. To fulfill their mission statement, Hedgeable allows individuals access to portfolios with, “customized asset allocation that can include access to asset classes typically reserved for only the wealthiest investors.”

Hedgeable is considered one of the better robo-advisors in the market right now because of the services and options it provides, according to Business Insider, but Hedgeable is not great for those starting out. As Conroy demonstrates in magnifymoney.com, those with accounts under fifty thousand dollars will be charged a 0.75% fee, while those with assets under management between one to ten million dollars face a 0.3% fee.

Conclusion: Hedgeable has a lot to offer as an impact investment platform. However, if you are a potential investor just getting started, there are other platforms out there that do not charge these fees. If you are an investor with a relatively large account, Hedgeable caters to you.

iShares

Category: Sustainable Investment Funds – ETFs

Summary: iShares is a family of exchange-traded funds managed by BlackRock. As implied by Larry Fink’s Letter to CEOs, BlackRock’s iShares platform has increasingly been placing an emphasis on its more sustainable investment offerings. The firm breaks down sustainable investing into four key categories: ESG investing, Thematic Investing, Impact Investing, and Screened Investing. iShares offers separate ETFs for each category.

Rates will vary across investment offerings and level of management.

Note: To invest in ETFs issued by iShares, you’ll need to have a brokerage account that allows you to buy and sell public equities and ETFs. There may be fees and other transaction costs associated with individual brokerage accounts.

You can learn more about iShares suite of SRI product offerings here on their website. Currently, they have around 14 unique offerings.

Motif

Category: Robo-advisor

Motif is a thematic investing app, meaning that they have compiled a group of stocks related based on a theme that one can invest in, as opposed to allowing investors to select individual companies or stocks. Describing thematic investing in their own words, Motif states, “We analyze data to uncover important trends driving the economy. Then we create dynamic portfolios of companies with exposure to these trends so that you can easily invest in them.” The three main investment themes in which Motif places primary focus are; Fair Labor, Sustainable Planet, and Good Corporate Behavior.

• Minimum: Depends on the package/service you choose
• Fee Types: None for Next Wave Portfolio; 0.25% annual fee for Motif Impact Portfolios; 0.5% annual fee for Motif Thematic Portfolios
• Products: Stocks, ETFs, etc
• Returns: Market

Summary: They define Motif as a, “basket of up to 30 stocks or ETFs intelligently weighted to reflect an investment theme, market insight or innovative trend.” One problem that some investors may have with Motif is the fact that dividends are not automatically reinvested. This slows down the investing process and, since it usually costs $4.95 per trade, makes the overall investing experience more expensive. Their management fee is also a cause of concern, as it is just an approximation and not the sum total of what it costs to do business with them.

Conclusion: Motif sells the idea of thematic investing because it is more comprehensive for investors who want to invest in causes rather than in single stocks. Motif has the issue of not reinvesting dividends automatically, which makes reinvesting feel cumbersome. With that said, it still gives investors the opportunity to make long term investments for issues they want to see change or transform with their investment.

Newday

Category: Robo-advisor

Newday, launched mid 2018, is a financial technology and institutional asset management company with the mission to, “spread the power of investing with your conscience”. Their portfolio is a “custom-made, proprietary, and targeted investment strategy” where customers can benefit their choice of 6 impact areas; Gender Equality, Fresh Water, Ocean Health, Global Impact, Climate Action and Animal Welfare. Investment is possible through their mobile app. 

• Minimums: $5 
• Fee Types: 1% annual fee
• Products: Stocks, Custom Portfolios
• Returns: Market 

Summary: Newday’s target demographic appears to be millennials as investment is strictly available via their mobile apps for IOS and Android phones, with plans to introduce a web-based platform in the near future. Customers can choose their impact, risk level and schedule recurring investments, via the app. They focus heavily on financial education with the “Learn” tab on their webpage as a key focus, regularly spotlighting companies they invest in and explaining their reasoning for said investment. 

They currently offer six equity portfolios consisting of approximately 20 to 40 individual stocks, with the aim of also introducing socially responsible checking and savings accounts later this year. All of their portfolios, except Animal Welfare, were built to reflect the 17 United Nations Sustainable Development Goals. Newday also donates 5% of their revenue from asset management fees to their NGO partners who include; Conservation International, Lonely Whale Foundation, Global Fund for Women and Water.Org. 

Conclusion: A Robo-advisor for millennials new to impact investing who want to learn as well as invest. The Newday platform is easy to use, transparent and affordable, allowing users to personally tailor their account according to their investment preferences and recommendations from Newday. However, Newday is still in its infancy with just over $1 million under management and is by no means a tried and tested method of investment.

OpenInvest

Category: Robo-advisor

Created in 2015, OpenInvest has a mixed approach, allowing you to compile a portfolio based on 12 different issue options. Of these, six are divestment strategies and six are investment strategies. Openinvest states that it is, “dedicated to using technology to bring honesty and transparency to financial services, while making socially responsible investing easy and more accessible.”

• Minimums: $100
• Fee Types: 0.5% annual fee
• Product: Equities, some ETFs, Bonds, Mutual Funds, Custom Portfolios
• Returns: Market

Summary: While OpenInvest offers a similar package to other new impact investment platforms on the market with regard to price, they, on the whole, take stronger political and moral stances than the other platforms on this list. They strongly value a commitment to the political stances they take and have admitted to, “frequently turning away customers who are not ready to invest or whose needs are met elsewhere.” They offer a new technology that allows members to proxy vote via their app, which may be appealing to some investors.

If your political beliefs align with OpenInvest, then you will probably love the platform. If they don’t, however, you might want to look elsewhere. They’ve recently received venture funding from a large group of respected investors, which may mean they’ll expand their product offerings in the near future.

Conclusion: For an impact investor who truly identifies with their message and political stances, OpenInvest is a good option. If you want to ease your entry into impact investing, there are other options that don’t require such a minimum investment or the support of their strong political positions.

Personal Capital

Category: Robo-advisor, Account Aggregator 

Personal Capital is a personal wealth management system that is focused on making investing simple even for a wide range of investor risk profiles. Within its portfolio of services, Socially Responsible Investing (SRI) is a key part of the firm’s offerings. By partnering with Sustainalytics, a global leader in ESG research and ratings, Personal Capital is able to help users curate stock portfolios that meet their individual impact preferences. 

Summary: Personal Capital encourages companies to connect all their financial accounts to get a “complete financial picture.” They then encourage customers to connect with an in-house financial advisor to create a retirement plan. Taking a hybrid approach, Personal Capital claims to “combine award-winning technology and financial tools with experienced people to create the smart, easy way to transform your financial future.”

Fee structures as of November 2019 are:

• First $1 million: 0.89%
• First $3 million: 0.79%
• Next $2 million: 0.69%
• Next $5 million: 0.59%
• Over $10 million: 0.49%

Conclusion: If you’re looking to streamline the management of your finances and want help from a professional advisor managing your money Personal Capital may provide the right mix of human and technological touches. Their fees are competitive and they offer a suite of free tools to help educate and convert clients.

RSF Social Finance

Category: Social Investment & Donor Advised Funds

RSF Social Finance offers a diverse range of funds and makes a point to promote transparency as a key feature of their investment model, “We believe that inquiry and dialogue are essential to transforming people’s relationship with money and moving the economy toward greater equity.” RSF Social Finance organizes quarterly “community price gatherings,” where investors and borrowers have a chance to meet and where quarterly interest rates are decided, in addition to “Shared Gifting Circles,” which “give participants distribution and allocation authority over grant funds.”

• Minimums: $1000 for Social Investment Fund; $100 000 for Regenerative Economy and Food System Transformation Funds
• Fee Types: N/A for Social Investment Fund; 0.6% annualized Investment Fee in addition to a 0.75% – 1.25% annualized “Community Contribution” for Donor Advised Funds
• Product: Various Specialty Funds
• Returns: 1.25% (decided quarterly) for the Social Investment Fund; 1% annualized for the Regenerative Economy and Food System Transformation Funds

Summary: RSF Social Finance offers various fund options. The Social Investment Fund provides direct investment into social enterprises in the fields of climate & the environment, education & the arts, and food & agriculture. Meanwhile, the assets held in the Donor Advised Funds are kept in a, “mission-aligned investment portfolio, which seeks safe and liquid cash opportunities that achieve deep impact.”

RSF Social Finance have claimed a 100% repayment rate of principal plus interest to investors in every year since its 1984 inception. With that said, the 1.25% return for the Social Investment Fund has only begun for the 2019 calendar year, previously hovering between 0.75% to 1.00%. The relatively high minimums for the funds are offset by minimum-free gifting options like Money to Transform, Shared Gifting and their Seed Fund.

Conclusion:  Their giving options are all designed to give individuals who believe in the same mission the chance to put their own money towards the value-driven organizations and entrepreneurs identified by RSF. Overall, their diverse product offering, long track-record, and above-average transparency makes it a worthy option on this list.

Stash

Category: Robo-advisor

Stash explains that their core mission is making financial opportunity and literacy available to everyone. Their focus is on making investing as simple as possible, with younger investors serving as their target clientele. They encourage their users to, “Think big, start small” and offer custodial investment accounts for those under 18 years of age. The main investment themes on their platform are; Clean Energy, Reduction of Carbon Footprint, LGBTQ Rights, Gender Equality, Water Conservation, and other ESG focused companies.

• Minimum: $5 upfront for Investment Account; $15 minimum for Retirement Account
• Fee Types: $1 per month for under $5000, 0.25% fee annually for over $5000 for Investment Account; $2 per month fee for Retirement Account
• Products: ETFs, Bonds, Commodities, Banking, etc
• Returns: Market

Summary: Stash offers packages like “The Activist” or “The Techie.” It is similar to peers in the space, offering a variety of ways to make investing, especially with regard to SRIs, accessible. They are a thematic investment option that allows investors to invest in theme-based ETFs. There are 33 ETFs options on the app. Stash also allows you to buy fractional shares, usually reinvesting in individual stocks or in one of their other themed ETFs.

Stash works well for beginners because it offers guidance and teaches basic terminology, but it may come at a cost. According to both College Investor and Nerdwallet, investing in Stash is more expensive because of the $1 per month fee which eats into your return as opposed to just investing directly in an ETF.

Conclusion: Stash sought a way to make investing easier and less intimidating. In the end, it faces similar issues that other ESG platforms encounter. If you are an experienced investor looking for an app to use for a long time, it might be better to look elsewhere. With that said, Stash is still a decent option for novice investors who are just starting out and want to make a difference with their money.

Street Shares

Category: Peer-to-peer Lending Service

Streetshares is a peer to peer lending service that offers business loans to small businesses and those owned by veterans and current members of the United States Armed Forces. Their mission is to, “Bring trusted digital finance to America’s heroes.” While their website prominently features their commitment to supporting the military and veterans, one doesn’t have to be a military member to apply for a loan from Streetshares or invest in the loans they offer.

• Minimum: $25
• Fee Types: N/A
• Products: Veteran Business Bonds
• Returns: Up to 5% interest

Summary: Streetshares offers 3- 36 month terms for financing and lines of credit as low as $2000. As opposed to other funding and lending services, Streetshares offers relaxed borrowing qualifications as well as forgoing an application fee which is different from other community lending services. The most anyone can invest on Streetshares is $500,000, and the minimum is $25 for their Veteran Business Bonds. People start receiving interest within 2-5 days as well as receiving funds within 3-7 days.

Conclusion: For those interested in peer-to-peer lending and supporting former service members, Streetshares is a solid choice. It is a dynamic platform for those wanting to invest in a place supporting veterans with a broad yet set list of investing options.

Wealthsimple

Category: Robo-advisor

Wealthsimple, Canada’s largest robo advisor, gives customers the option of, “investing on autopilot” through a variety of asset classes, tax loss harvesting, and even offers to manage your first $5000 for free. It also offers a halal investing option for investors who follow and practice Islamic law. It puts a lot of its ESG investing focus on investing in low cost ETFs.

• Minimums: None
• Fee Types: 0.4%- 0.5%
• Product: ETFs
• Returns: Market

Summary: “Put your money on autopilot!” is an easy slogan to get behind but can often become a dangerous notion to apply, as many critics have noted regarding Wealthsimple’s investment strategy and product offerings. Fees depend upon the amount of money you store in your account, as accounts lower than $100,000 incur an annual fee of 0.5% as compared to the 0.4% fee that accounts with more than $100,000 face.

The main criticism lobbed at Wealthsimple, however, is that it has a conflict of interest in investing in PDF and PHR, which are owned by Som Seif, a board member of Wealthsimple. Both these ETFs don’t trade at the same volume and are not near the price range as the other ETFs on the list, which raises questions as to why they are included in its investment offerings.

Conclusion: How they use their platform to please their customers will always be a question that lingers for Wealthsimple. Beyond acting as an impact investment platform, they have one billion dollars under their tutelage and are invested in ETFs committed towards low carbon emissions, clean technology, gender diversity, affordable housing, and sustainable growth. At the very least, Wealthsimple serves as an example as to how ESG investing can be a complicated enterprise for everyone involved.

Wunder

Category: Specialized Solar Project Investments

The Wunder Group is a fintech company founded in 2013 in Boulder, Colorado. Its parent company, the Wunder Group, uses venture capital to help fund the solar projects that WunderCapital promotes. Its motto is to, “Do well and do good,” presumably by investing in solar projects through their curated solar energy portfolios.

• Minimums: $1000
• Fees: 0.25%
• Product: Solar Energy Funds
• Returns: Depending on the fund, between 6%- 7.5%

Summary: WunderCapital manages solar energy investments and construction for solar energy projects. WunderCapital has a singular goal in mind in prompting solar energy projects and because of this, WunderCapital lacks diversity, leaving it subject to a precarious sector of environmental investing. On top of that, one must be an accredited investor in order to invest in WunderCapital.

Conclusion: WunderCapital has a relatively high minimum compared to other options on this list, but a 0.25% annual fee is hardly unreasonable when all is said and done. If you are an accredited investor and are specifically interested in investing in the solar energy space, WunderCapital could be the right option for you.

Conclusion

We hope that this list provides you with a better idea of the various retail impact investment options available today. Before pursuing this line of investing, it is important to note that pooled equities or ETFs may contain stocks that contradict your overarching investment goals. For example, the gender diversity ETF, SHE, holds shares in ConocoPhillips and Occidental Petroleum Corporation, among others, which might be at odds with an overall portfolio strategy targeting renewable energy sources. Be sure you do your own research before you commit to any of the platforms on this list. It’s often useful to dig a bit to find out the true level of impact and rigor around portfolio construction associated with any investment option you choose. 

As the industry matures, impact investing space will need to address these kinds of issues, but there is hope for socially conscious investors. The diversity of impact investing options on this list speaks to the market demand of investors that value social and financial returns. According to Christopher Skroupa in the Forbes article In ESG We Trust — The Risk And Rewards Of ESG Investing, “… impact investing has grown 97% in the past decade.” We believe that this trend will only continue in the years to come, and we hope that you too will soon be part of it

Given the negative impressions people typically have of the financial services industry, a lot of these platforms are making a concerted effort to make themselves accessible, including CNote. As this space continues to grow, one can only hope to see the clear impact that these businesses and platforms provide to society as a whole. We hope this list helps you find solutions that allow you to align your investments with your values. 

The Growth of Donor Advised Funds

When it comes to charitable donations, the increasing importance of Donor-Advised Funds (DAFs) is undeniable. In 2017, DAFs accounted for as much as 7% of total charitable giving and 10.2% of individual giving, rising from just 4.4% of individual giving as recently as 2010 ¹¹ In short, Donor-Advised Funds are a force to be reckoned with in the charity space and must be regarded as a major vehicle through which philanthropic giving now occurs.

DAFs operate by accepting funds from donors, who then can take an upfront charitable tax deduction. These donors then recommend how the DAF should distribute the donated funds to nonprofit organizations over time. This eventual charitable distribution usually takes the form of grants. Typically, only a fraction of total charitable assets held by DAFs are distributed within a given calendar year. Grant payout did rise from 20.6% to 22.1% from 2016 to 2017, but considering DAFs held $110 billion in charitable assets, that still amounts to over $85 billion in charitable assets seemingly warehoused in 2017 alone. ¹²

An integrated approach can help donors achieve objectives prior to grantmaking and assure that participants take a holistic view where they can see the forest for the trees.

Challenges Present Opportunities, The Growth of an Integrated Approach

Integrating impact investment options with DAFs can solve two problems at once, generating social impact in the here and now while simultaneously enhancing a fund’s future grant-making capacity.

The fact that there are no shortage of causes that could use capital while many billions of dollars earmarked for charity sit idle, sometimes for years at a time, has led some organizations, such as the Institute for Policy Studies, to levy criticisms towards the growing prevalence of DAFs. ¹³

Notably, some question the extent to which the proliferation of DAFs in recent years has drawn attention away from more traditional charitable vehicles.¹⁴ In addition, given that major players in the DAF world include names like Fidelity, Goldman Sachs, Schwab, and Vanguard, some have also noted an apparent “Wall Street takeover” of charitable fundraising.¹⁵

Despite these objections, there is no doubt that DAFs are here to stay as a major force in the charitable donations space. At the same time, there is increasingly a desire of donors to align philanthropic activity with a values-based approach. Integrating impact investment options with DAFs can solve two problems at once, generating social impact in the here and now while simultaneously enhancing a fund’s future grant-making capacity.

Benefits of Impact Investing for DAFs

While each individual DAF will likely identify unique ways in which impact investing can complement and improve their operations and satisfy their donors, we will focus on three broad ways in which DAFs can clearly benefit from pursuing greater integration with impact investing.

1. The flexibility of DAF Capital

Combining DAFs and impact investing allows a greater degree of flexibility for donors looking to make a difference. While grants can certainly be a powerful vehicle for charitable giving, they usually consist of one-time transfers that take time to administer and may have long lead times for generating measurable impact. Given that the scope of grants can be limited, donors may wish to improve the odds that their funds will have an impact before that final grant outlay.

The utilization of impact investments not only keeps the capital moving to different opportunities in the short term while awaiting its final deployment but also gives DAF donors a wider range of causes through which to distribute funds. Donors that consider impact investment options will be more likely to find a suitable match for their particular values and desired charitable ends. In that way, adding more ways in which funds can be productively allocated can only benefit DAF sponsors in attracting donors and give donors the best opportunity to make the kinds of impact they are looking for.

2. Do More Good More Often

As already mentioned, it can often take a long time for DAFs to distribute funds. In the intermediate time period between when funds are provided by the donor to a DAF and its eventual distribution in the form of grants, pursuing impact investment opportunities can go a long way towards helping the capital reach more of those who need it most, increasing the chance of leading to productive or maybe even life-changing outcomes.

To illustrate, with many impact investing platforms centered around supporting the development of local communities, donors with significant sums of money tied up in DAFs can find creative ways to make an impact in their communities through small loans while waiting for large-scale grant-making opportunities that strike their fancy. This can enhance the reputation of the donor or DAF sponsor or simply provide the psychological satisfaction that comes along with making a meaningful impact early and often.

3. Growing Assets While Doing Good

No list of benefits of impact investing would be complete without mentioning that targeted impact investing can earn a return on donor principal while making a difference. Any returns can then be reinvested back into more impact investing opportunities, put towards future grants, or even withdrawn as profit if the donor so wishes.

While there may seem to be something of a disconnect between the impulse to engage in charitable contributions through DAFs and the idea of earning a return on investment, there is nothing immoral about providing capital to entrepreneurs with positive social visions and sharing in their success. After all, a donor who benefits financially from impact investing is free to invest further in the beneficiary of the impact investment or put the returns back into the DAF for future use. Of course, it is also possible to pursue impact investing options that do not promise a return if the donor does not even want the appearance of earning a return on their funds.

Roadblocks to Integration between DAFs and Impact investing

Education about impact investing is likely one of the major obstacles to its successful integration with DAFs. ¹⁶ Since donors are largely in control of the funds that they transfer to DAF sponsors, they and their investment managers must be aware of the range of impact investing options available and participate actively in the distribution process. This requires that they understand the process of impact investing separate from the grant-making that DAFs typically engage in and be on board with the mission of the chosen impact investment targets.

There are challenges to a more integrated approach, but they are not insurmountable.

Not only must donors sign off on particular impact investments, but the DAF sponsors must be willing to move quickly to take advantage of particular opportunities. Since many DAF sponsors currently require certain account minimums before allowing donors to actively direct funds to opportunities outside those already offered by the platform, such account size restrictions must be decreased or standard offerings must be expanded to encompass more impact investing options. Either way, DAF sponsors are likely to take such actions only at the request of donors, further reinforcing the importance of donor education about the benefits of impact investing.

Active communication between donors and DAF sponsors is vitally important for such changes to take place. While DAF sponsors are largely responsible for identifying impact investing opportunities, the donor is more likely to be supportive if they are sourced for ideas about where funds can best be deployed. In that way, impact investing should be seen as an avenue for collaboration between donors, funds, and capital recipients with the potential to create a substantial value-based impact.

Themed Investment Portfolios & Promise for the Future

While there is no way to predict all of the ways in which DAFs will take advantage of impact investing opportunities in the future, we can look to recent developments that signal potential avenues through which the necessary education and integration can be achieved. For instance, the emergence of themed impact investment portfolios demonstrates a clear solution to the problem of matching the charitable intent of donors with opportunities that are promising, actionable, and aligned with donor values. Such themed portfolios might consist of impact categories such as equitable economic development, environmental conservation, achieving health outcomes, and so forth.¹⁷

In addition, there is already a trend of DAFs incorporating impact investing opportunities into their product lineup for those who know where to look. For example, the Triskeles Foundation offers donors the opportunity to invest in funds social outcomes and ESG initiatives. ¹⁸ Furthermore, Fidelity Charitable, by far the largest donor-advised fund in the US, also offers a range of dedicated impact investment options. ¹⁹

Finally, we’d like to highlight that CNote is already working with DAFs to generate income and impact prior to grantmaking. Our product offerings provide flexibility quarterly liquidity, and a solid return on investment of 2.00%, and, most importantly, a vehicle for driving meaningful change in the economic development of under-served communities across the United States.

With that said, we look forward seeing the further integration of impact investing with donor-advised funds in any way that it may manifest, as we recognize the potential benefits that can arise when we work together to match available capital with those looking to build stronger local communities and in the process contribute to the flourishing of all.