Impact Investing for Individual Investors
Many investors are becoming more conscious of where they allocate their money and want to ensure that they are investing their dollars in a way that won’t be a detriment to society.1 Some common ways investors can align their portfolio with their values is by investing in Socially Responsible Investments (SRI) and Environmental, Social, and Governance (ESG) mutual funds and exchange-traded funds. However, one of the lesser-known types of sustainable and responsible investing is known as impact investing. Impact investing has the potential for direct social influence because it is made with the intention of generating a positive and measurable social and environmental impact along with a financial return.2
There are unique differences between each of these three types of investing styles. SRI is a broad term that covers an investment strategy that actively includes or excludes investments based on ethical guidelines. A good example would be a fossil-fuel free portfolio that excludes companies that produce any amount of fossil fuels. ESG investing is a strategy that looks at the Environmental, Social, and Governance characteristics of a company as part of the investment analysis process. This type of strategy may look to invest in companies that have higher ESG scores than their peers or look to exclude companies based on lower ESG scores.