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The country is currently experiencing a shift toward more
sustainable living. In addition to the wide array of whole food
markets and hybrid cars available to today’s consumer, many people
also want their investments working for the greater good. Although
these investments have been around for more than a decade, the past
few years have seen substantial growth in the areas of charitable
investments, sustainable 401ks, and green bonds. No matter your
passion, your financial portfolio can make a difference in the
world, while still generating profit for you.
Charitable Investing 101
Charitable investments, also known as impact or sustainable
investments, are those made in companies, organizations or funds
with the intent to generate a measurable, beneficial impact on
society. Rather than yielding exclusively financial returns, they
seek to boost a positive social agenda, an environmental or medical
cause, or back socially responsible companies.
The landscape of charitable investments has been growing steadily
for the past few years. According to a
recent study conducted by the Morgan Stanley Institute for
Sustainable Investing, the total volume of these investments has
nearly doubled over the past two years, growing from $3.5 trillion
in 2012 to nearly $6.6 trillion in 2014.
The same study found that more than 70 percent of investors are
interested in finding more charitable options and expect to see
growth in the area over the next five years.
Financial Institutions. Some of the nation’s largest banking
institutions have moved toward investing more assets in charitable
causes. In 2013 when Morgan Stanley formed the Institute for
Sustainable Investing, it did so with the goal of having $10 billion
in client assets invested for social and environmental causes within
the first five years. Chief Executive Audrey
Choi said, “We fundamentally believe that considering the
sustainability and impact of your investments is a business
opportunity for us and our clients. We also think it’s a
fundamentally strong value proposition to integrate thinking about
large global issues in your investing decisions.”
Bank of America’s head of Global Wealth and Retirement Solutions
Andy Sieg agrees, saying, “We think impact investing is an idea
whose time has come in mainstream wealth management.”
Corporations. Many businesses are also beginning to see the
benefits of focusing on sustainability and providing ethical
investment options. Smart investing, good publicity, and a positive
reputation will eventually lead to profit, but companies are also
seeing improvement off the books. A charitable giving program
can improve employee engagement and company morale. When employees
are pleased with their corporate culture it drives them to perform
Higher levels of employee engagement, coupled with more responsible
and forward-thinking practices have led many of the nation’s largest
corporations to work toward improving climate change, adopting
sustainable production and operation practices, and addressing poor
conditions within their organizations as well as in developing
Some companies have taken responsible financing one step further
from simply running their businesses and choosing their investments
more responsibly, and begun helping their employees invest
responsibly as well. The industry is beginning to see a trend in
companies choosing their employee 401k programs based on
sustainability ratings. These plans rate the sustainability of its
participants’ holdings to ensure each dollar invested is done so
Millennials. While the nation’s banking institutions and
business are shifting their priorities and providing the capital
behind the charitable investing trend, the real driving force behind
the growth is the millennial generation. While young adults may not
be contributing large sums to charities each year, studies
show that the majority of the generation has made donations,
solicited donations and/or volunteered, and even more have the
intention to do so in the future.
Bradford Bernstein, Senior Vice President of Wealth Management with
UBS in Philadelphia thinks that experienced investors could actually
learn something from the younger generation. “Millennials are the
biggest force behind this trend of socially responsible investing,”
he said. “[They] are interested in making a difference, and they
choose to invest and buy from companies that are making a social
statement.” It is this generation that will be running the banks and
businesses in a few years. When their drive to make a difference
meets the ability to put the capital behind it, the market with
undoubtedly see even more exponential growth in this area.
Despite overwhelming growth and the desire to make a difference,
there are still financial considerations to be made when choosing
investments. Charitable investing is about finding the balance
between investments and maximizing the social benefits of those
investments. A portfolio built entirely on emotional and moral
decisions is not likely to yield the same returns as one that
focuses solely on appreciation and growth.
The common misconception is that charitable investments do not
perform as well as others. It may be true that the returns may be
lower than in some more traditional investments. However, the drive
and passion behind the causes being funded by these investments can
lead to greater returns.
The Forum for Sustainable and Responsible investment conducted
a study in 2012 that found that at the time, one out of every
nine dollars under professional management in the country was
invested according to sustainable strategies. The report found that
charitable investing grew 486 percent between 1995 and the date of
the study, while other assets under professional management only
grew 376 percent during that time period. The responsible
investments saw greater growth in response to social changes in the
country, government backing, and through a desire and a need to
affect high-profile issues, such as climate change.
As is always the case when building a financial portfolio, certain
types of investments may be more risky than others. Choosing
stocks based on the organization’s social responsibility, for
example, may not be as productive as buying based on appreciation.
Because of their limitations, stocks focused specifically on making
a difference often are not very growth-oriented.
Identifying Responsible Investments
Mutual Funds. If you are ready to start making your money
work for more than just returns, socially responsible or faith-based
mutual funds are a great starting point. It can be difficult to
identify sustainable and ethical companies. There may be a false
perception that a certain company would not do anything immoral, but
mutual fund managers generally have done their due diligence. These
funds are often designed to favor companies that meet certain
criteria, cover companies with high social, environmental and
governance standards and actively avoid companies with unsustainable
Green Bonds. For those investors who want to balance
their portfolio to include more stable investments, green bonds can
round out a portfolio while encouraging environmental
sustainability. Green bonds are typically issued by federally
qualified organizations for the development and
maintenance of brownfield sites – areas of land that are
underutilized or underdeveloped. Other
green bonds aim to raise funds to support lending for projects
that seek climate change or renewable energy.
Due Diligence. When investigating companies be wary of
those that use good deeds to conceal bad behavior. Instead focus on
companies where environmental and social concerns rank high among
the corporation’s priorities, like Google (GOOG).
In such companies the executives often make substantial
contributions to the company-backed causes and truly live their
Identify companies that provide sustainable and helpful goods or
services. These companies conserve energy, operate efficiently, and
design products and services using recycled materials that save the
user money and make their lives better. Companies such as Nike and
Johnson Controls (JCI)
fit this description.
Closely monitored working conditions, strong safety and health
standards, and high employee satisfaction are also good indicators
of a responsibly-run organization. Employee satisfaction and
engagement ratings do not lie and can help identify those
organizations with an ethical mission statement, such as Apple.
Last, but not at all least, seek out investments in businesses with
a long-standing reputation for product sustainability, transparency,
and leadership. Panera, for example, prides itself on its history of
fair animal treatment, using local produce, and adding no artificial
ingredients to its healthy menu items. Strong leadership with strong
ethical beliefs can ensure that your money will be put toward a good
The first step toward building a sustainable investment portfolio is
to decide how to blend your finances and life views.
For example, some investors may view Coca-Cola as an organization
that mass produces sugary, unhealthy drinks to the American public,
while others may see a global clean-water and efficiency program.
Define what causes and cultures are important to you and begin
investigating companies that share your vision, but that does so
while keeping an eye on growth. Experts suggest starting slowly, and
finding a guide.
About the Author
Guided by his strong faith and charitable instinct, Mark Tan is
committed to helping others live happy, virtuous lives.
At Thrivent Financial, Mark assesses his clients’ unique
situations and creates financial plans customized to their needs.
He empowers his clients to make informed decisions to stay on
track and reach their goals. His sophisticated approach to
financial planning helps clients assess multiple financial goals
and concerns. As part of a team of professionals that share
his commitment to service, Mark has the opportunity to work
one-on-one with clients and also access additional resources and
knowledge from of members of his team when needed. Contact Mark at
firstname.lastname@example.org. To view or download the entire eBook, visit http://www.mark-tan.com/.
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