Let’s look at how impact investing goes further than ESG and how investors make their portfolios more impactful.
Be sure to check out our ESG Channel to learn more.
ESG vs. Impact Investing
Many ESG funds take an underlying index, such as the S&P 500, and exclude securities that don’t meet environmental, social or governance criteria. For instance, the iShares ESG Aware MSCI USA ETF (ESGU) tracks the MSCI USA Index, which excludes tobacco, firearms, oil sands, and other companies engaged in activities that are considered classified as non-ESG.
Impact investments go a step further by actively seeking out companies making a positive change in the world. So, rather than investing in Apple because it’s not perceived as a bad company, an impact fund might instead choose to proactively invest in Brookfield Renewable Partners (BEP), one of the largest renewable power investors in the world with more than 20,000 megawatts capacity.
Impact Investing ETFs & Mutual Funds
Some impact investing ETFs include:
|iClimate Global Decarbonization Fund||0.65%||0%|
|VanEck Green Bond ETF||GRNB||0.20%||2.07%|
|iShares Green Bond ETF||BGRN||0.20%||0.82%|
|ImpactShares Affordable Housing MBS ETF||OWNS||0.30%||1.95%|
|Engine No. 1 Transform 500 ETF||VOTE||0.05%||0%|
|JPMorgan Climate Change Solutions ETF||TEMP||0.49%||0.89%|
|VanEck HIP Sustainable Muni ETF||SMI||0.24%||1.46%|
Some impact investing mutual funds include:
|TIAA-CREF Core Impact Bond Fund||TSBRX||0.61%||1%|
|Access Capital Community Investment Fund||ACASX||0.80%||1.57%|
Private Impact Investing Opportunities
Some popular private impact investment platforms:
- SmallChange makes it easier to invest in affordable housing and other real estate projects. These deals might be structured as debt or equity with various payment terms and maturities.
- GoSteward enables anyone to lend to sustainably-run farms, ranches, fisheries and other services. The deals are typically structured as loans with competitive interest rates.
- RaiseGreen provides access to various clean energy deals. Often, these are structured as preferred equity.
- Energea makes it easier for anyone to invest in solar farms worldwide, earning money from long-term offtake agreements.
- Renewables makes it easier to invest in renewable energy projects with an attractive interest rate.
Investors should keep in mind that federal regulations limit how much they can invest in private companies. In general, Regulation CF permits you to invest up to 10% of your net worth in private companies. But, of course, it’s equally important to ensure that private investments fit within your risk-and-return expectations to avoid any surprises.
Be sure to check our Portfolio Management Channel to learn more about different portfolio rebalancing strategies.
The Bottom Line
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