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Impact investing: Put your money where your values are

Momentum is growing, especially among millennials, to put your money where your values are. Spotlighting this trend is the recent Chan Zuckerberg Initiative, through which 31-year-old Facebook founder Mark Zuckerberg and his wife Priscilla Chan, also 31, have pledged $45 billion to improve the world.

This altruistic interest is being reflected in the fast-growing socially responsible investing universe, which has evolved from primarily positive or negative screening of investments to also include so-called impact investments.

Green energy investing
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While there are many interpretations of the term impact investing, it can be summed up as investing for measurable and positive environmental, social or governmental (ESG) outcomes with a financial return. The large and new idea is that investors need not give up market returns when investing for the greater good.

Non-accredited investors

Long available to institutions, impact investing vehicles are just starting to emerge for the non-accredited investor. Examples of these include:

  • Public equity mutual funds featuring shareholder engagement toward changing corporate behavior.
  • Bonds and private equity deals supporting projects that address ESG issues.
  • Community development loan funds.
  • International microfinance loans.

Shane Yonston, certified financial planner and principal advisor with Impact Investors, founded his practice with a dedicated focus on this type of investing. He uses SRI funds in client portfolios as the core holdings and supplements them with 10 percent to 20 percent in impact investments.

Yonston recommends caution when choosing impact investments.

"Because of the growing consumer demand for sustainability, it's important to watch out for 'greenwashing' — when an investment product labels itself as sustainable [but isn't really] — because that's what people want to see," Yonston said.

According to Sonia Kowal, president of registered investment advisor and asset manager Zevin Asset Management, "impact investing adds a layer of intentionality and a proactive approach to the investment."

Impact investing resources

For advisors interested in learning more about SRI generally and impact investing specifically, Shane Yonston, principal advisor with Impact Investors, recommends several resources as starting points:

Impact investment products for non-accredited investors have been emerging in recent years:


"We're starting to see products specializing in particular issues and themes," she said.

Michael Van Patten, founder and president of Mission Markets, an online SRI private investment marketplace, said it's taken years "to get to this point" due to securities regulations.

"That's been the biggest chokepoint," he said. "It takes millions of dollars to create products and go through the regulatory hurdles."

Kowal at Zevin Asset Management pointed out that economies of scale are just not there yet. "There have been small numbers of companies and volatility," she said. "It's difficult to get a critical mass of investors when you need about $50 million to make a mutual fund break even."

But technology will make it possible for retail investors, according to Justin Conway, vice president of investment partnerships with the Calvert Foundation. "Robo-advisors will bring exciting things with lower minimums and easier access points," he said.

"We've seen how people in other aspects of their lives are making choices that support their values, such as eating an organic apple … buying an electric car or installing solar panels," said Conway. "But they often disassociate their values from their investments."

Growth drivers

Gloria Nelund agrees. She is chairman and CEO of Trilinc Global, an investment manager dedicated to impact investments. "Most investors feel like they have no control over their money, because the asset management industry has led people to believe they have none," she said.

But the forces that need to be in play to render impact investing mainstream are starting to come into play, Nelund noted. "Before, the main thing measured was financial statistics," she said. "Now there is more research on ESG factors because the investment industry is realizing these are strong indicators of risk." For example, Nelund said, when Nike was accused of exploiting child and sweatshop labor overseas years ago, its stock tanked.

"The big market crash in 2008 showed us that you can lose money with [conventional] investing," said Geeta Ayer, Boston Common Asset Management, an SRI-focused investment manager.

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She sees millennials and women, especially baby boomers, fueling the growth of impact investing. "The future of retirement will be [individual retirement accounts] and defined contribution plans," Ayer said. "I believe people want to think about what the world will look like in the future, to leave a better world for our beneficiaries."

Conway at Calvert added that "it's on us as an industry to educate the advisors and the direct investors."

"It's imperative to issuers and financial services firms to create ways for people to invest with their values," he said.

— By Deborah Nason, special to CNBC.com