As a climate conscious generation ages into the financial responsibilities of adulthood, old money management solutions are no longer going to cut it. If you’re making sustainable lifestyle choices in your day-to-day, why wouldn’t that factor into your savings and investment decisions?
Impact investing means integrating your values into your investment strategy. Separate from charity or philanthropy, impact investments generate positive social and environmental impact without compromising financial return.
Despite mountains of evidence supporting the necessity of curbing the use of fossil fuels in order to avoid climate catastrophe, fossil fuel production has only grown over the past 20 years. Oil and gas companies are still profitable because major corporations continue buying from them. Individuals are not responsible for decarbonizing the economy, but we do have the power to pressure industries into surrendering their dependence on fossil fuels.
Impact investment can be both individual and institutional.
How can impact investing help us get there? Fortunately, interest in the space is growing rapidly, so we have more opportunities than ever to put our money where our principles are. Carbon Collective, an automated investment management company, is working to simplify investment in portfolios built around the climate transition. They take a three-pronged approach to achieve this:
There is a common misunderstanding that wealth building and sustainability are conflicting goals, but as we approach the inevitability of a fossil fuel-free future, it’s clear that’s not the case. The Imperial College of London ran a study on renewable energy stock returns and found that from 2010 to 2019, renewable energy stocks firmly outperformed fossil fuel stocks in the US, UK, France, and Germany. Since the COVID pandemic began there’s been an even greater difference (Carbon Collective shared a post breaking this research down further).
To assess the state of impact investing today, the Global Impact Investing Network (GIIN) conducted a survey of 294 of the world’s leading impact investors, and received optimistic results. Key findings included:
GIIN frames the growing impact investment market as that which “provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, micro finance, and affordable and accessible basic services including housing, healthcare, and education.” The organization emphasizes impact measurement as a hallmark of the concept: “The commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field.”
These stipulations serve to combat the greenwashing that is unfortunately far too common among companies looking to profit from waxing demand for environmental consciousness.
Methods of impact measurement may include:
Impact investment can be both individual and institutional. From fund managers, to private foundations, to pension funds, to NGOs, a range of investors can choose prioritize climate or other social values in how they direct their funds.
Furthermore, options for where and how to make those choices are ever expanding. For example, Iroquois Valley Farmland REIT is an organic farmland finance company that provides farmer-friendly leases and mortgages to the next generation of organic farmers. The company has raised capital from a broad base of investors with a variety of investment accounts, including individuals, partnerships, IRAs, trusts, corporations, foundations, and nonprofits, and they are one of the first private companies in the US to offer investors direct exposure to a diversified portfolio of certified organic farmland.
Bankers Without Boundaries (BwB) is a nonprofit powered by former investment bankers to assist high impact projects that benefit the environment and social good. BwB works with governments, institutions, cities and foundations to provide advisory and research services to mobilize capital.
Platforms like Carbon Collective, Iroquois Valley, and (ahem) Farm are making it more accessible than ever to invest with impact — i.e. you don’t need to have mountains of savings to start growing your portfolio this way! If you currently have a 401(k) with an employer, look into your investment options–there may be a fund available to you that aligns with your values. If not, try asking the HR department if they would consider adding an option that does. Carbon Collective has green 401(k) portfolios for businesses to offer to their teams. If you have an IRA, you can choose to invest it in socially and environmentally responsible companies, or simply choose not to invest in funds that include fossil fuel corporations or others that conflict with your values. Some impact investment platforms offer relatively accessible entry points. Iroquois Valley, for example, has a minimum investment of $10,506. As Farm grows, we plan to make investing accessible to as many people as possible. We believe that good investment decisions don’t preclude being a good steward of this planet, and if you’re looking to invest, you should be able to take advantage of that.
Impact investing means integrating your values into your investment strategy.
As with all investing, impact investing poses certain risks. However, we don’t need to compromise our own convictions to do good by Planet Earth in order to make sound financial decisions. If there was ever a question of whether fossil fuels or more sustainable solutions were the wiser investment, the answer now couldn’t be more clear. Investing in the future of the planet not only can, but must, coexist with the choices we make for our own lives.
