Social Impact Investing: How to Make Money and Save the Planet
Where you put every dollar matters more than ever today. Your investments can align with your values and the types of companies you want to see grow over time and it's not as difficult as you might think.
Social Impact Investing takes traditional investing one step further: it is the act of allocating your investment dollars based on social and environmental factors, achieving similar (and sometimes greater) returns than traditional investing and helping to build a better/more sustainable world at the same time. We'll walk you through how it works below! 👇
Consider Your Core Values 🤔
Social Impact Investing is pretty broad, let's break it down! Within Social Impact Investing, there are three main buckets to look for; "Environmental, Social, or Governance (ESG)". These values could be guided by your upbringing, the people around you, or even your life experiences. They are unique to you. Take a moment to consider what aligns with your values the most:
Environmental 🌎 —> Carbon Emissions, Clean Energy, Climate Action, Sustainability
Social♀ —> Gender Equality, Racial Equity, Human Rights, Labor Practices
Governance ⚖️ —> Board Diversity, Corporate Structure, Ethical Principles, Privacy
Got It... Now, How Does the Investing Part Work 🙋♀️?
Although we can't personally tell you exactly what we think you should invest in, we recommend considering a few different avenues.
If you go the DIY route here's how you can go about ESG Investing:
aka (buy/sell investments on your own),
Consider certain companies that you already know of that fall well within your core values. You can also research individual companies, read about them in the news, or utilize a trusted resource to learn more about where they fall within the ESG rankings.
MSCI is a trusted market research company that provides the ability to search by company or ticker here to see where a company falls on a scale from AAA to CCC (best to worst) taking into account several different ESG values within their key industry.
Index Funds are also a practical way to invest in ESG; they are a way to get exposure to a variety of companies all at once (you help mitigate some individual company risk along the way as well). MSCI also produces ESG research and ratings by mutual fund name, ETF, or ticker. Check it out here. Similar to how we saw with individual companies, the funds are rated on a scale from AAA to CCC (best to worst).
Lastly, see if there is a way to sort for "Socially Responsible" investments on the brokerage investment platform you use. For example, Chase's "You Invest" platform allows individual investors to filter for "Socially Responsible" investments.
If you go the Roboadvisor route, here's how you can go about ESG Investing:
Go to the FAQ of your Roboadvisor and see if/how they incorporate Social Responsible Investing. They may do it through a pre-defined managed portfolio or an alternate route, such as allowing you the ability to restrict certain companies, like Wealthfront does.
If you go the Financial Advisor route, here's how you can go about ESG Investing:
Most of them have pre-defined managed portfolios with an ESG focus. Just ask what their latest offerings are and for additional information!
Still not sure whether you should individually invest or use a Roboadvisor? learn more here.
But... Will I Still Make Money 🤔?
You may be wondering... how do the returns look like when I invest in these types of companies? Good news! The S&P 500 ESG Index has consistently outperformed the S&P 500 Index historically. Just take a look at the past year:
MSCI ACWI stands for MSCI All Country World Index and it represents all of the large and mid-cap stocks across the world. When we talk about "large-cap" think about Apple, Alphabet, or Walmart, while "mid-cap" consists of stocks with market caps between $2 and $10 billion such as American Airlines, Hyatt Hotels, or Popular Inc. Take a look at how MSCI's ESG Index has outperformed against the ACWI historically:
The main takeaway here is that Socially Responsible Investments do just as well, if not better than traditional investments! 🤑
Action Items ✅
Research! Check out these free resources for DIY Investing or to fact check Robo-Advisor recommendations: ➡️ Search a company or ticker here and find out MSCI ESG's rating. Companies are rated on a scale from AAA to CCC (best to worst). ➡️ Search by fund name or ticker here.
If you DIY, check your investment brokerage account and see if there is a filter for "Social Impact" or "Socially Responsible" funds.
Find out how your Robo-Advisor or Financial Advisor incorporates Social Impact Investing in their platform.
Invest in ESG and hold on for the long run. Your investment can make a difference, both for society and for your own financial returns.
You are a reflection of your values. You can make a financial gain, while also making a positive impact on the world. Hopefully, you can incorporate Social Impact Investing values into your personal investment strategy and financial plan going forward 🌎.
Disclaimer: The content on Young, Not Broke is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor.