You Want to Make a Positive Impact with Your Investments. Now What?

Six steps for aligning your finances with your values

You want to invest responsibly and with purpose. You want to use your dollars to encourage corporate and government policies that create positive change, rather than contribute to the world’s problems. You want to be part of the solution. And you’d also like to achieve a positive return on your investments. But how?

There are seemingly endless investment choices touted as belonging to the sustainable investing, ESG (environmental, social and governance) and similar investment categories, but which ones are right for you? How do you avoid greenwashing ― companies and investment products exaggerating their ESG-friendly credentials to win your business? And what do you do when you encounter contradictions — for example, renewable energy sources that require mining for rare earth metals in countries with poor records on human rights abuses? At first glance, investing responsibly could seem like more trouble than it’s worth.

But we believe socially responsible investing is worth your effort.

Here are some steps to make it more manageable:

1. Don’t get too hung up on the terminology

This investment category suffers from confusing and inconsistent naming conventions. The term “sustainable investing” is often viewed as an umbrella term for related investment approaches and used interchangeably with the term ESG, which stands for environmental, social and governance metrics on which companies can be evaluated. For example:

• Environmental metrics may include carbon emissions, energy efficiency, pollution/air quality, clean energy technologies, and use of natural resources or hazardous chemicals.
• Social metrics may include labor relations, diversity agendas, workplace health and safety, community engagement and relations, human rights issues, hiring and inclusion programs, and charitable endeavors.
• Governance metrics may include board oversight, executive compensation and diversity, business ethics, shareholder rights, political contributions, transparency and disclosure practices, and conflicts of interest among stakeholders.

The terms sustainable investing and ESG are also used alongside and sometimes interchangeably with other terms, such as “socially responsible,” “impact investing” and “ethical investing.”

For simplicity, we use sustainable investing in this article to describe the broad category of investments that you may choose to align with your values. But our advice to anyone researching the options is to not get too caught up or overwhelmed by the terminology. At the end of the day, you want your investments to reflect your preferences — regardless of product or category name.

2. Familiarize yourself with sustainable investment approaches

More so than what an investment is called, the management approach of the investment is important to understand, as it may impact the returns you receive, the impact you make or both.

For example, Morningstar, a large financial services firm that focuses on investment research and management, breaks sustainable investing down into the following six categories, ranging from those more geared toward avoiding negative outcomes to those more geared toward making positive impacts:[i]

1. Applying Exclusions: Excluding issuers (i.e., companies, governments, etc., that issue investment securities) based on certain products or services, an industry (e.g., tobacco), or corporate behaviors (e.g., major controversies)
2. Limiting ESG Risk: Using ESG information, usually in the form of ESG ratings, to evaluate risks involving environmental, social or governance factors as part of investment decisions
3. Seeking ESG Opportunities: Using ESG information to identify companies focused on sustainability ― for example, by making sustainability improvements or using sustainability to gain a competitive advantage
4. Practicing Active Ownership: Seeking positive ESG outcomes via active ownership activities, primarily made possible because asset managers are shareholders in public companies
5. Targeting Sustainability Themes: Identifying investments that stand to benefit from the long-term trend toward greater sustainability in the way we live and work
6. Assessing Impact: Integrating impact assessments into security selection and portfolio construction — for example, focusing on bonds that finance projects to benefit people and the planet

While the above categories are just examples of how the universe can be broken down, they help demonstrate the range of approaches that exist with varying emphases on market returns (and managing risk) versus positive impact.

3. Understand your preferences

Many people we speak with express an interest in sustainable investing but don’t know exactly where they’d like to focus their efforts. Thankfully, with growing interest in this category has come helpful — and often free — resources for pinpointing your preferences. For example, the Forum for Sustainable and Responsible Investment provides free online courses and a questionnaire for assessing your priorities. Also, if you work with a sustainability inclined financial advisor, they can also guide you through a more comprehensive set of questions to pinpoint your interests.

4. Lean on your advisor for due diligence  

Once you have narrowed down your priorities, we recommend working with an advisor to select investment products. Not only can the universe of options be overwhelming, identifying those strategies best equipped to meet your objectives ― the returns and/or positive impact you seek ― requires skill and time. Past performance by a product does not guarantee its future results, and research demonstrates that leaning into advice can go a long way.

5. Don’t let perfect get in the way of good

The market and economy are quickly evolving in mostly positive ways to reflect a focus on sustainability, but it’s virtually impossible to find a pristine portfolio — one in which 100 percent of companies are making 100 percent of decisions that align with your values 100 percent of the time ― that will generate favorable investment returns. But don’t let that stop you from investing. Following the above steps will almost certainly result in a portfolio that is better aligned with your values than if you did not use a sustainable lens, and failure to invest in a diversified portfolio could cost you your dreams of having enough money for earlier retirement, vacations, homes, taking care of loved ones and more.   

6. Look for other ways to align your finances with your values

Recognizing that your investment portfolio is not the only way to make a positive impact with your money can also help. Other examples include:

• Buying products and services from businesses that support causes and policies you care about
• Banking with an organization aligned with your values
• Donating to organizations aligned with your values
• Donating your most precious asset ― time ― to causes you care about by volunteering, serving your community as a local official or sitting on a nonprofit board
• Incorporating a value statement (i.e., your beliefs and the purposes you want your money to serve) into your will or trust to communicate your intentions for socially responsible investing to your loved ones after you’re gone

Please reach out to us

If you are interested in socially responsible investing and need help getting started, want a second opinion or simply want to discuss the sustainability landscape, we would love to hear from you. We are passionate about this area of investing and can help you understand your options and build a financial plan that you can feel good about.     

[i] Hale, John, “The Morningstar Sustainable-Investing Framework,” Morningstar, August 11, 2022, https://www.morningstar.com/articles/1058990/the-morningstar-sustainable-investing-framework. Accessed March 17, 2023.