What exactly is social impact investing? I view it as the practice of integrating environmental, social and governance (ESG) factors into investment decision-making. The aim is to enhance risk-adjusted returns, while at the same time generating a positive social and environmental impact.
Within the context of an overall financial plan suited to an individual's financial goals and risk tolerance, social impact investing can be a useful way to align a client's portfolio with causes he or she supports.
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The three ESG factors guide this process. Social impact investing takes into account how companies address environmental concerns; for example, do they use nuclear power or renewable energy? How do they deal with waste management?
Social considerations may include whether companies are equal opportunity employers and if they assign a high priority to employee health and safety. Governance comes into play around corporate transparency and business ethics.