Published on February 8th, 2020 | by Andrea Bertoli0
How To Get Started With Impact Investing
February 8th, 2020 by Andrea Bertoli
Impact investing, sometimes called sustainable investing, SRI, or green investment, is a growing field, yet one without clear parameters. In this article I will cover some of the things to look for if you’re interested in starting with impact investing, and discuss some apps you can utilize as you begin your impact investing journey.
Disclaimer: I’m a new investor, and neither my team nor I can offer professional financial advice. You need to do your own research and evaluate any investments before throwing your money at them, etc., etc.
The Growth of the Impact Investment Market
Impact investing is a rapidly growing share of the investment market. How much is it growing? Figures vary, but nearly everyone agrees – it’s big and only getting bigger. Morningstar, citing data from a 2019 US-focused Morgan Stanley survey, showed that 85% of investors are interested in sustainable investing, up from 71% in 2015. More telling, I think, is that those ‘very interested’ in sustainable investing jumped from 19% in 2015 to a whopping 49% in 2019.
What is the Definition of Impact Investing?
Impact investing, broadly defined, is investing in a way to creates positive impact in the world. Impact investing is often looked at through Environmental, Social, and Governance (ESG) screening criteria, which can help determine which companies are defined as ‘impactful.’ However, ESG has only a vague definition and no clear definition. This can lead to investor confusion, and opens the door to misrepresentation on the part of investment managers and firms, who may add impact funds or impact strategies into their offerings with no real oversight – or commitment to the cause.
Sunny Oh, writing on MarketWatch, explains: “A lack of standardized and frequent data on ESG metrics [has] been a major issue for a category of investing seeking uniformity and consistency, according to analysts at State Street.” For example, ESG criteria doesn’t necessarily screen out fossil fuels, which to me is the epitome of non-environmental focused investments. Liqian Ma explains that some investors think differently, and for them it’s about engagement – some might include fossil fuels in their portfolio and use their position as investors to advocate from changes from within.
This inconsistency in the definition of impact has been a huge frustration for me as I continue to invest build my own portfolio. As I wrote about in my previous article, I have found that the loosely defined criteria affects nearly all of the impact funds that I have looked into. I was finding companies in my portfolios that I believe have no business being there. For example, I looked into investing with COIN, and its Clean Water impact portfolio includes Coca-Cola, which is about the worst company I could imagine for that category because of the company’s misuse of both drinking water (in India, Mexico, South Africa, and the rest of the world) and use of plastic — which got them the ‘most polluting brand‘ distinction just a few months ago.
In the past two years of my own investment learning journey, and in conversations with sustainability-aligned friends and financial advisors, it’s become clear that there is really no such thing as a perfectly sustainable investment. Just a few days ago I was talking with a friend who is deeply involved in climate change activism with her consulting work, and she mentioned again that her advisor simply would not invest in more sustainable funds for her. He cited a total lack of fund availability to his firm. She realized, after months of discussion with me and her advisor, that she simply needed to be a better advocate and do her own research. As a busy professional and mom to two little ones, this is a huge barrier.
There needs to be better impact investing opportunities that are clear and accessible. It’s also an opportunity for investors to advocate for more clear ESG criteria, better funds, and better company behavior and outcomes overall.
Apps to Help you Get Started with Impact Investing
Knowing that no one solution is going to be perfect for every investor, I’ve shared a list below of some ways to get started with impact investing. As the SRI market grows, there has been an expansion of apps and online platforms that require little knowledge of the stock market and just a quick connection to a bank account to get started on your investment journey.
Many of these apps listed below would be considered robo-advisors – as in, a computerized investment services that use apps and online sites rather than in-office consultations. I’m really fascinated by this type of investment platform, and I’m naturally drawn to them, both because I’m on the cusp of being a millennial (tech-native) and because I have a dislike and distrust of traditional financial institutions. These clever and UX-friendly apps are very appealing, and I think will continue to grow in both size and scope as these types of digital solutions allow for newer generations to get started with investment.
As I’ve written above, there is no such thing as a perfect investment, and you’ll have to do your research for any company that links to your bank accounts and is holding your funds for future use. The details below are based on my own experience and/or research only – I’m not personally invested in any of these companies at this time. Always do you own research to determine what’s the best fit for your money, your investment strategy, and your conscience.
Aspiration: Aspiration offers an impact fund called the Redwood Fund, exclusively available through it. This fund removes fossil fuels and firearms, and includes other screens that focus on diversity, ethics of the company, supply chain monitoring, and more. It does not allow company exclusions at the user-level, unfortunately. There is a $10 minimum investment, which makes it more accessible to more people with a range of incomes. I had a conversation with Irfan Kamal, the VP of Marketing at Aspiration, and he explained that they offer more ways to make impact instead of investment. First, there is a high-yield savings account (at 1%), and a checking account and debit card to help consumers track the impact of what they spend using an ‘impact score.’ Furthermore, Aspiration does not invest any of its reserves into fossil fuel projects, unlike most traditional banks that invest in fossil fuel projects.
Betterment: Betterment offers some SRI options, however, it does (what I would judge to be) minimum screens – at least as of 2017 some of its ESG funds contain companies that engage in fossil fuel extraction; in another explainer it’s further clear that the company doesn’t yet believe that better investments will yield better results. I emailed the Betterment team for further clarification and did not get a response.
COIN Investment: An awesome app with a good marketing strategy and design. I really wanted to like this company. It aims to make impact investing more accessible to new investors, and the platform was easy to use and well-designed. However, when I dug a little deeper, I was disappointed with its offerings. I recently interviewed the team to talk about how its funds were set up, and I got a lot of insight into how a large investment company (COIN is owned by John Hancock) thinks about impact. See the full article above to see why I pulled out my small investment amount after a short time.
EarthFolio: Started in 2000, it claims to be one of the first firms to invest exclusively in green funds. The site is beautiful, and the app is ‘coming soon.’ As I browsed its website, I was impressed with the seemingly easy to navigate setup and structure. The downside? The minimum investment is $25,000 to start and to maintain, which is out of reach of many investors, especially those just starting out.
Ellevest: Built to make investment easier and more accessible for women, I love the concept and the style behind Ellevest, but its platform was a disappointment, as were its funds. I wrote extensively about this in my other article. It does a lot of work to build investment opportunities that are focused on women in the workplace, and support companies with proactive gender and diversity metrics, but I found that it was lacking in sustainability focus. To be fair, that’s not its primary focus, but as it’s deeply important to me, I moved all my money out of its accounts. Ellevest is focused on impact in lots of other ways besides sustainability, and that’s important, too.
Newday Investing: I found this company on LinkedIn, and its website and platform looked really promising. However, I don’t have much to say about its offering because their team never got back to me (it’s been over two weeks). Multiple emails to their support team bounced, so I reached out to them on Instagram. I did get a response saying to contact someone on the team, who then suggested I ask my ‘general questions’ to yet another person, who didn’t respond. I feel really strongly that if I’m going to link my bank account and entrust a company with my retirement, I need a human on the other end of the email to answer questions. I must add – this is the same thing that happened when I tried to get in contact with Swell months ago, and it shut down a few months later – of course, past performance is not indicative of future outcomes. Ha.
OpenInvest: OpenInvest seems like another easy to start impact investing, but I didn’t get a response from its team either. It’s likely for the best anyway: if you visit the website, you’ll find a FAQ that shows just how deeply it is committed to climate and the Divest from Fossil Fuels cause: “To maintain diversification in your portfolio, OpenInvest doesn’t recommend divesting from an entire industry [like fossil fuels]. That’s why the default version of the fossil fuel screen only removes the companies with the highest fossil fuels reserves.” It does note that if you specifically request it you can remove these, but honestly, WTF is the point of choosing divestment from fossil fuels as a cause if you’re NOT DIVESTING FROM FOSSIL FUELS?!
Personal Capital: While Personal Capital is often written about as primarily a tracking software for all your assets, it also offers its own investment products – but this is not the company to start your impact investing journey. I spoke with Brendan Erne, the Director of Portfolio Management, and he reminded me that its software is optimized for those with $100,000 in assets or more. Its review of SRI practices was interesting to read – I like that it excludes the energy sector entirely so as to avoid fossil fuels. Erne explained that solar and wind are managed under the utility sector, and thus are not left out in the energy sector screen. He noted that utilities should be included in diversified portfolios, as many of the utilities are driving change in the renewables space. The company uses Sustainalytics, an Amsterdam-based company, to provide the data for its SRI offerings; he said that Sustainalytics are the pioneers in this industry, and that its impact methodology is robust.
There are lots of reasons to believe the shift away from fossil fuels is going to radically change the market really soon. We can already see it happening, like BlackRock and TCI Funds pulling our of these traditionally well-performing companies. As fossil companies decrease in value, and as the impact market grows, there is lots of opportunity for startups to fill a much needed gap of truly sustainable impact investment, and some of the companies featured here are on the cusp of this shift. I think there is still room for improvement, as this list above shows, in both the user experience and overall impact of investment, and I look forward to seeing what’s next.
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