Mythbusters: the impact investing edition

By Christopher Stroup

Aligning your investments with your values almost seems too good to be true. Many ask, “What’s the catch?” Below we explore and debunk three of the top myths about impact investing.

Myth 1: You Have to Sacrifice Returns with Values-Aligned Investing

A NerdWallet survey found that people were skeptical of sustainable investments because they felt that values-based criteria would hinder their progress toward achieving the highest returns. An analysis by RBC Global Asset Management found that socially responsible investing doesn’t lower investment returns, and in fact, it may magnify them. The study demonstrated a positive relationship between overall stock performance and strong environmental, social and governance factors.

After some thought, this data makes sense. Evaluating these criteria allows for more complete and robust information about the company, leading to more effective investment decisions. A thoughtful, disciplined, and long-term investment strategy is perhaps the best recipe for extended success.

Myth 2: Impact Investing is a Fad

Here’s the thing: if Millennials have anything to say about it (which they do), impact investments will be around for the foreseeable future.

As the Wall Street Journal reports, Millennials are now positioned squarely in the great wealth transfer and will soon receive nearly $35 trillion from older relatives. This expansion in purchasing power indicates this generation will have even greater influence moving forward, and impact investing is an issue many care deeply about.

A MSCI report noted that 88% of high-net-worth millennials are actively reviewing their investments for ESG impact. More importantly for advisors, nearly 90% of Millennials expect their financial advisors to understand a company’s ESG factors and history before making an investment proposal.

With figures like this, it’s clear that impact investing is here to stay.

Myth 3: There’s No Way to Track My Impact

The biggest reason to engage in impact investing is to have the desired positive impact on businesses, the environment, your community, and the world at large. It’s a worthy goal that, unfortunately, too many people feel they cannot track.

That same NerdWallet survey points to these hurdles within values-aligned investing. 77% of investors do not believe that companies will execute on their socially responsible commitments. What’s more is 73% said they have a hard time finding proof that companies are meeting these promises.

To understand if companies are meeting their end of the bargain, below are four resources that can help investors understand how their impact funds are performing.

1. MSCI ESG Ratings populates sustainability scores and tracks how companies are performing against various ESG standards.
2. Morningstar Sustainability Ratings help investors see the impact of their investments.
3. As You Sow is a nonprofit that offers investors a comprehensive look at a company’s top sustainability factors.
4. Sustainalytics is a software that offers a risk ranking for companies based on ESG criteria.

There are many tools at your disposal to inform clients how companies are doing regarding sustainability factors. This means that clients can feel confident that their investments are genuinely having the impact they hope.

Christopher Stroup, MBA, CFP® is an LGBTQ+ financial advisor working for Abacus Wealth Partners in Santa Monica, CA. He focuses his work on members of senior leadership across emerging and Fortune 500 companies, as well as LGBTQ+ entrepreneurs.

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