Connecting Your “Why” to Your Wealth

Do you ever wonder about the short and long term social and environmental impacts of your investments? If so, you are not alone, and luckily there are investment vehicles available to help you align your investments with your values.

Values-based investing, or socially-responsible investing, describes the process of choosing investments not just on their projected financial performance, but also on how they align with what matters to you, i.e. your values. For example, you may decide to screen out supporting companies that are involved in the sale of arms, tobacco, or fossil fuels. You may also want to invest in companies working to make the world a better place, such as those that are building alternative energy or clean water systems or that have excellent records on human rights and diversity.

Investing using values also challenges the traditional notion that societal issues can only be addressed through philanthropic or government funding. While these programs have good intentions, they can fail to achieve lasting results and encourage the kind of innovation necessary to solve complex issues.

Values-based investing empowers investors to move capital towards the changes they want to see in the world, while also planning for their own financial future. It creates the opportunity to use investments as a powerful source for good both locally and globally.

In a complicated and ever-changing world, more and more people are becoming aware of what their money is supporting and questioning if that is where they want it to land.

In a recent poll by S&P Global, 43 percent of women and 34 percent of men indicated that a company’s stance on social or environmental issues was “very important” when deciding to invest. And, in 2021, there are three times as many mutual funds and ETFs, holding more than $350 billion combined, that have been ranked for their ESG performance (environmental, social, and governance) than there were five years ago.

Like all investments, value-based investing comes with some degree of financial risk. Just how risky depends on many factors, but recent data shows that 74 percent of sustainable funds have ranked in the top half of their respective investment categories in the past years.

There is also research that strongly suggests that investing while keeping your values in mind, actually makes you a better investor. These investors tend to invest for the long-term, and do not over-react to the ups and downs of the market. A study led by Centered Wealth demonstrated that while socially and environmentally themed investments themselves performed roughly equivalent to their traditional peers, the investor’s behavior resulted in increased returns of as much as 1.23 percent.

Impact investing is a type of values-based investing where investments are made directly into companies that are striving for social and/or environmental outcomes, as well as a financial return. While the concept may be new to some, it has in fact been around for years. Impact investing is in fact, “a trillion dollar trend most people have never heard of” (Morgan Simon, Real Impact).

The growing impact investing market provides entrepreneurs with capital to address some of the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible services such as housing, healthcare, and education.

Many investors also weigh any risks against the fact that they are supporting initiatives that are important to them, as well as the fact that they feel they have direct control over where their money goes—it’s not tied up in the volatile stock market and managed by someone else. They feel connected to the company and their initiatives while also having a direct stake in the outcomes.