The Truth about Impact Investing
I get asked a lot about impact investing. Clients, and people at dinner parties want to know, is it risky? Is it expensive? Who’s doing it? I tell these curious folks; impact investing is about generating change with your hard-earned dollars. Change can mean a lot of different things to a lot of different people which invites more questions. I explain, this type of investment is a proactive approach to social good. It’s about offering support where your interest is, and putting funds behind issues you care about.
I used to think money could change the world. I know now that people change the world, and they change it by deciding where to invest their money. Impact investments are intended to generate positive, measurable social and environmental impact. Those who choose to create impact, are the changemakers.
I’ve been a Senior Investment Advisor at Harbourfront Wealth Management and with Sea Glass Wealth Advisory Group for three years now, but I’ve been a financial advisor, helping people invest their hard earned dollars for over 30 years. I’ve seen the interest in impact investing grow. I’ve seen wealth grow as a result of impact investing. This is not charitable donations we’re talking about. Impact investments are intentional and quantifiable investments that aim to achieve a financial return.
I want my clients and all investors to feel confident about where their money is going. I’m passionate about sharing the impact investment options available, not only to allow clients control but to create more demand for impactful products. In creating demand, first we have to understand what we’re talking about. To do that, we must share the facts and dispel some of the myths around impact investing that I hear so often from clients and those interested investors at dinner parties.
Impact investing is local
Impact investments are generally connected at a grassroots level making them more locally focused than other options. This doesn’t necessarily mean in the neighbourhood you live in, but in the values of your community. For example, many people in British Columbia care about the outdoors and the environment. Impact investing is about supporting the causes that benefit your local area. Putting your money behind locally invested funds will give those businesses an opportunity to grow and thrive.
Another local element is of the businesses themselves. Part of vetting these funds is examining how they run their companies. A fund manager wants to know if an organisation is equitable with their people and if the business is using local providers in their own community wherever possible. Community impact happens on many levels from ethically sourcing materials, environmental footprint and staffing. Supporting local businesses who run their business using local sources, labour and resources, grows community.
Impact investing is not more risky than other investments
This is a common myth I hear and one I’m quick to dispel. Impact investments hold no higher risk than traditional investments. Companies that operate with good governance, making informed decisions for their environment and their people tend to be sustainable. There’s a bit of a safety net when companies are making decisions that lower or mitigate their risk as they’re making good choices. By making good decisions with social governance or the environment, companies protect themselves and investors. Investments always carry some level of risk depending on the type of fund and term. These risks should be discussed prior to any investment with the understanding that all investment products are highly vetted and risks are calculated. Impact investing is no different and carries the same, and often less risk as mainstream investments.
Impact investing is about what you want, not just what you don’t want
Socially Responsible Investing (SRI), or ethical investing is similar to impact investing. These funds allow investors to filter out and avoid social, environmental factors, or sectors of business they don’t want to invest in. Negative environmental impacts or companies managing weapons or tobacco are common examples. SRI ensures an investor is aligned ethically with where money is being invested. Impact investing goes one step further and not only avoids certain sectors but opts in to causes an investor chooses. Impact investing focuses on funds whose core missions generate the desired social and environmental impact. This proactive approach investigates organisations deeply, looking at sustainability across multiple areas.
Impact investing is ethical
Deciding if an investment is ethical is a personal choice. Before any financial investment, looking at governance of a fund, and aligning with the goals is important. Impact investment options tend to have high ethical decision guidelines, environmental and social governance. If ethics are part of the investment conversations, an impact investor is off to a good start. Finding a fund manager who aligns with your ethical standpoint and is willing to do the work to answer any questions is also a valuable part of investing. In my opinion, impact investments are held to a high ethical standard, making them extremely desirable.
Impact investing makes money
There are a variety of ways to invest locally, in your community. You can invest in a local bakery by buying croissants every day, or you can support by gifting money or making a donation. Impact investing is different as with those first two options you’re not making money. With impact investment, the investor gets paid out on their return and their funding can then grow. The investor is making money and so are the businesses you’re investing in. This model makes it possible to support the causes and organisations that are near and dear to your heart with financial investment, while at the same time, setting yourself up for early retirement or increasing your wealth portfolio. Impact investing makes money.
Impact investing is for everyone
Anyone can choose impact investing. With a minimum of $500 to invest there are options available in impact investment portfolios. For Canadians with investment goals, $500 is an achievable, entry level place to start. And, it doesn’t have to be all or nothing. You can allocate a portion of your investment to impact funds. Depending on your short and long term goals and plans for your money, there are options available and impact investing can play a role in any portfolio.
There aren’t enough options currently for impact investors
This is true. There aren’t currently enough options, in my opinion, when it comes to impact investment. There’s an abundance of investment options out there but impact investments have an opportunity to fill more of the space. Impact investing requires a lot of a fund manager, the research into the business, their financials, governance and commitments are extensive. As more businesses think globally in terms of environmental and sustainability, more will qualify as impact investments but in addition, we need to see demand for these types of funds. The power of collective capital to instigate change cannot be overlooked. Finding a fund manager that is willing to put the effort in to find the funds and support an investor’s goals is essential. The information is out there but knowing where to look can be daunting.
Learn more about impact investing
Most of us have limited dollars to invest and with which to build our future financial portfolio. Many of us want them to make the biggest impact that we possibly can to support the things we care about, providing for those carrying out the work. The demand for impact investment options is growing, there are things we can do today to instigate real change locally and globally by investing differently, asking more questions and understanding the investments we’re putting money into.
The differences between impact investing and ethical investing are worth examining. One’s a much more proactive approach while one’s a little bit more passive.
People should feel good about where their money is going and what it’s supporting. I love to dispel the myth that you have to give something up if you want to be impactful with your money. It’s not the case. Impact investing is profitable and smart.
Recently we hosted a video workshop where we debunked the myths surrounding impact investing. To learn more about this strategy, check out the video at the top of this page to view the entire session.
We are looking forward to the opportunity to meet you! For more information, please feel free to reach out.
- Check out our upcoming events.
- Contact Us for more information on Sea Glass Wealth Advisory Group.
- Find Tracey on LinkedIn and Facebook.
< Back to Blog Posts
Share this post:
