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Investors focus on making an impact, but what’s the strategy?

  • Assets under management using SRI strategies grew to $8.72 trillion by 2016, a 33 percent rise over two years.
  • SRI strategies have evolved from simply avoidance of "sin stocks" to "environmental, social and governance" investing and "impact investing."

Impact investing suits those looking to drive measurable social and environmental change.
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Impact investing suits those looking to drive measurable social and environmental change.

Socially responsible investing is attracting more dollars than ever. In fact, following the recent developments around the Paris Climate Agreement, many investors are likely asking themselves how they can use their money to make a positive impact.

The total U.S.-domiciled assets under management using sustainable, responsible and impact strategies grew to $8.72 trillion, up from $6.57 trillion, between 2014 and 2016 — an increase of 33 percent — according to a study by the US SIF: The Forum for Sustainable and Responsible Investment.

As interest in sustainable and responsible investment, or SRI, continues to grow, it is important for investors to understand and evaluate the different methods available to them, set measurable goals and build a strategy for leaving a lasting legacy.

Options available to investors interested in making an impact have grown and evolved significantly in the past decade. For example, early forms of SRI were more about reducing harm and screening out "sin stocks" that were deemed unethical or outright damaging. Today, SRI strategies involve not only negative screening but also positive screening to help direct funds into desirable investments.

Environmental, social and governance investing, or ESG, looks at the performance of a company based on the six principles laid out by the United Nations' Principles for Responsible Investment, allowing investors to align values with investments.

More recently, impact investing has entered the pool of options available to investors. This type of investing allows for channeling investments into companies, or funds, based on themes, such as energy, health care or natural resources. Impact investing is suitable for investors looking to drive measurable social and environmental impact.

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Finally, there's one good old way of making an impact: donating funds and resources directly into charities and nonprofits to advance one's beliefs and values. This type of investing takes into consideration that individuals have many levers — investment portfolios, philanthropy and time and skills — at their disposal to effect change in the world.

It is clear that growing numbers of investors want to make an impact. But very few have actually defined goals and a strategy for achieving them.

The quest to "change the world for the better" is a noble idea, but too broad to be a goal. It is worthwhile to remember that sometimes the cumulative effect of small changes is what leads to true transformation, and the word "small" has a different definition for everybody. For President Jimmy Carter, one of those smaller goals was to eradicate Guinea-worm disease. Yours can be sponsoring the education of a handful of children.

Whether you are investing into specific financial instruments or donating time and money into charity, real impact happens only when you measure progress.

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If you are looking to make a difference in the lives of at-risk children, how would you measure progress? Perhaps a good place to start is by focusing on 10 students in your local high school, with the goal of increasing their chances of graduating. If the graduation rate at that high school is 50 percent, by increasing that rate to 60 percent, you will have made a tangible impact.

Track records for measuring SRI are still being developed. However, a number of organizations, including the Global Impact Investing Network and the Global Impact Investing Rating System, are working toward standardizing reporting and measurement.

If you are looking at SRI, ESG or impact investing, it's important to meet with a financial professional who can help you understand how each investment is tracked and to determine which ones are best suited to your goals.

"Your loved ones have gathered to toast you. What would you want them to say? That you were successful and made a lot of money, or that you changed lives?"

While new technologies, such as Motif, are helping extend the reach of impact investing to a broader universe of investors, a financial advisor's role in taking a holistic approach to investing is still undeniable. An advisor can help:

  • Narrow focus and shape priorities.
  • Develop goals based on existing assets (not just money, but time, skills, age and energy levels, etc.)
  • Build a multichannel strategy that for reaching goals.
  • Manage and measure progress.

But before you even begin this journey, think about it. It is your 80th birthday celebration and your loved ones have gathered to toast you. What would you want them to say? That you were successful and made a lot of money, or that you changed lives?

Money may be a good measure of success, but it can never truly be a measure of fulfillment. So start planning your legacy today and begin building a strategy that will help you get there in 10, 20 or 30 years. And remember: Every incremental change counts.

— By Mark Tibergien, CEO of BNY Mellon's Pershing Advisor Solutions

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