Guest Blog Elizabeth Kraus: 5 Investment Vehicles to Make a Difference without Sacrificing a Return
Impact investing, or investing for both a social or environmental impact as well as a financial return, is growing explosively with assets expected to exceed $500 billion within the next decade. It’s hot, it’s sexy, but is it really possible to invest for impact without sacrificing a return?
I am deeply motivated to answer this question and have spent the last year searching for the answer. I am not an expert or financial advisor, and none of this should be construed as professional financial advice, but I think the answer is YES. I’ve met with dozens of impact-specific advisors, angel investors, fund managers and advocates, and these are some of the things I’ve found:
1) Sustainable stocks – A recent study from the Harvard Business School suggests that when you look at the long term, socially responsible stocks may actually outperform their competitors.
2) Shareholder advocacy – Shifting a company like Walmart .01% could make more of a difference than investing in even the most sustainable smaller companies. Instead of investing in sustainable stocks, you could become a sustainable advocate to affect change in even the most polluting (but also highest performing) companies. There have been several successful shareholder resolutions against companies engaged in fracking for example. If you are a significant shareholder, you can file resolutions on your own, or you can hire companies like First Affirmative to advocate on your behalf.
3) As a diversification vehicle – By investing directly in social entrepreneurs or impact funds in emerging markets, you can reduce your exposure to downturns in the major financial hubs. I recently came across an interesting investment group called MicroVest Capital Management which invests in microfinance and other low income financial institutions in developing countries. They have a debt fund that is structured so you can liquidate on a month-to-month basis to offer both diversity and liquidity.
4) Clean web angel investments – While angel investing is certainly not for everyone, I’ve seen some very interesting health care, education and clean energy investments with potential to achieve at least a 10x return. “Clean web” companies, web-based companies that provide an online service to achieve water, energy or resource conservation, are especially hot right now. They are generally less capital intensive than clean tech solar, wind and biofuel investments, and because they are web based, they can achieve the economies of scales needed to produce a venture return.
5) Impact-focused financial advisors – You can invest directly in socially responsible mutual funds, the best of which achieve about a 7% annual return (on a five-year average), or you can hire an advisor to build a customized portfolio for you. There is a growing network of advisors who combine both shareholder advocacy and impact funds to build portfolios that exceed 7%. The company I work with has built a portfolio that has outperformed the S&P 500 for the past 7 years. However, I’ve found that you need to hire an impact specific advisor who is already engaged in effective shareholder advocacy and has access to some of the private impact funds that have been created.
There are many, many more ways to invest for impact, but those are some that first come to mind. Have you had success impact investing and making money? Share your experience by leaving a comment.
Guest blogger, Elizabeth Kraus, is an entrepreneur and angel investor in Boulder, Colorado and the co-founder of the Impact Angel Group, a group of angel investors equally dedicated to making a difference and realizing a return.