Make Your Investing Really Matter
Many people think only of their own returns when they ponder investing. How much can I grow my hard-earned dollars if I invest in Stock X, Y, or Z? However, there's so much more to investing than that. There's the fact that you have bought a stock, you're part-owner, and the companies you choose could give you more bang for your buck than simple monetary returns.
What kind of bang for your buck? Driving positive impact within the world through investing is a pretty awe-inspiring value proposition, and more investors are seeing the appeal.
The trend to consider multiple bottom lines in investing is already well under way. The terms that are most commonly used include socially responsible investing, impact investing, sustainable investing, and investing with an environmental, social, and governance (ESG) focus.
Calvert Foundation recently released its Gateways to Impact report, showing that 72% of financial advisors are at least interested in offering sustainable and impact investing options in order to grow their businesses. This represents a near-term $650 billion market potential.
The survey asked 1,065 financial advisors and came to the conclusion that many would be interested in recommending sustainable investments to about one-third of their clients, and on average, U.S. advisors are willing to put 2.5% of their assets under management into such investments.
By definition, this type of investment "seeks to generate both a financial return and to proactively create environmental and social benefits. Investments range from publicly traded social funds, stocks, and bonds with best-in-class environmental, social, and governance practices, to investments in private enterprises working on issues such as access to clean water, poverty alleviation, and renewable energy," according to the report.
Most of the advisors questioned were interested in the simplest, most straightforward version of sustainable investment products: 61% were attracted to U.S. Large Cap Equity Fund employing ESG strategies. However, 23% were attracted to a less high-profile but up-and-coming idea, which is "impact focused" private debt and equity options.
Impact investing, also known as community investing, involves direct investments in community development, microfinance, and other social enterprises and usually doesn't involve investing in publicly traded options.
A different kind of value investing
This is good news for the many people who would love to invest according to their values, but aren't sure how. More financial advisors see the demand for such socially positive investment products for their clients, and people will be able to more easily choose products that won't surprise them or violate their personal values by making investments in, say, tobacco companies or massive military contractors.
However, even the average individual investor has increasingly plentiful options for investing this way. Some companies were formed with stakeholder concerns and positive values in their DNA.
Organic and natural supermarket Whole Foods Market (NAS: WFM) is a great example of a company that has multiple stakeholders in mind across its entire business, and has always functioned that way. Elements that make it a positive investment include its deals with inspirational suppliers, as well as initiatives like its relationship with Grameen Trust, which provides microloans to low-income entrepreneurs worldwide. (See Motley Fool co-founder Tom Gardner's chat with Whole Foods' co-CEO John Mackey about conscious capitalism here.)
Even older companies are starting to see the benefits of making their operations more sustainable and responsible, though, as more and more consumers and investors are paying attention.
For example, water scarcity is one of many issues that concern responsible investors. This year, PepsiCo (NYS: PEP) won the Stockholm Industry Water Award for its successful initiatives to reduce water used in its production, as well as initiatives to help alleviate water challenges on a broader scale than simply in its own business.
Animal welfare advocates like the Humane Society recently applauded Kroger's (NYS: KR) decision to call on its suppliers to more quickly phase out inhumane gestation crates for breeding sows, for example. Given the fact that Kroger is a major company, with 2,435 stores in 31 states, such a move should make a tangible difference in how farm animals are raised.
Making money vs. making money really matter
Investing can matter so much more than simply generating strong returns on one's own dollar; it can also help support and capitalize companies and organizations that are making efforts to support a better future.
For too long, investing has simply meant "making money" to too many people. There's growing evidence to show that more and more people are realizing that making money and making a better world aren't necessarily at odds. Investing dollars can mean something: meaningful returns and a better future.
Check back atFool.comevery Wednesday and Friday for Alyce Lomax's column on environmental, social, and governance issues.
At the time this article was published Alyce Lomax owns shares of Whole Foods. The Motley Fool owns shares of PepsiCo and Whole Foods. Motley Fool newsletter services have recommended buying shares of Whole Foods and PepsiCo, as well as creating a diagonal call position in PepsiCo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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