What is a Purpose Investor?
With Purpose as a dominant personality characteristic, these investors place significant importance on meaning. Investing is not just about returns, but also a big way they can have a positive impact on the world around them. Purpose Investors may seek to impact the world through Socially Responsible Investing (SRI), Environmental, Social, and Governance (ESG), ethical investing, as well as faith-based and biblically responsible investing (BRI). They also may have a focus on diversity, equity and inclusion (D, E & I). Purpose investors are often generous in their giving and seek to express their values in as many aspects of their decision making as possible including who they work for, what they buy and what they invest in.
Examples of investments that may appeal to a Purpose investor are those with a focus on clean water or energy or companies that have a strong focus on gender or LGBTQ+ rights.
To distinguish what makes a Purpose investor from somebody who has strong views elsewhere in their personal life, it’s important to understand that people have different degrees to which they want to focus on returns when it comes to investing versus the positive impact on the world around them. For example, some investors prefer to keep all options open for investing and see charity and philanthropy as something very separate from growing their personal wealth.
Topics in Purpose Investing
Today, people increasingly want to invest in companies with responsible business practices. Focusing on ESG provides three important criteria that investors can examine and measure to determine if companies operate responsibly. While some investors may focus on the impact these investments have on society, others believe that responsible companies may be more sustainable and investing in them could lead to greater returns over time.
The “E” in ESG stands for environmental. Many measurements, like a company’s carbon footprint, provide an indication of a firm’s environmental impact. Environmental investing isn’t only about avoiding companies that pollute or have environmentally damaging products like fossil fuels or plastics. Investors can also own companies working to deliver clean air, drinking water or oceans and those providing energy from renewable sources like solar and wind.
The “S” stands for social. This topic generally covers all the ways that companies treat people. For example, do they ensure their employees have a safe working environment? Do companies deliver products that do not harm their customers or the communities where they do business? Does a company treat all employees, including women, people of color, and LGBTQ+ employees equally, and have diversity at all levels of the organization?
“G” constitutes governance and the controls a company has to ensure it is managed with integrity. Is there proper oversight to ensure the company doesn’t take on undue business risks? Are there safeguards in place, such as a truly independent board of directors, to ensure the company is managed to protect the interests of all shareholders and not primarily for the benefit of senior executives or founding family members?
What is Greenwashing?
Coined by environmentalist Jay Westerveld in 1986, “greenwashing” refers to when a corporation or organization spends more time and money on marketing themselves as being sustainable than on actually minimising their environmental impact (Source: Earth.org). Companies may try to misrepresent their actual environmental impact with false or misleading information. One way to avoid greenwashing is to invest in funds where the portfolio managers do their research on individual companies. You can also check a company’s ESG rating, where independent agencies review a company’s exposure to long-term environmental, social, and governance risks.
Socially Responsible Investing
Socially responsible investing (SRI) involves owning companies that serve the greater interests of the public, communities, and the planet. In its earliest iterations, socially responsible investing focused on “exclusionary” investing, which translated into not owning companies in “sin stock” categories like alcohol, tobacco and firearms.
Today, SRI is much broader than that and encompasses companies that behave in a variety of socially responsible ways. For example, a company may promote gender equity by paying women at the same levels it does men or promoting gender diversity in all ranks of its organization including the senior executive team and board of directors. Another company may be socially responsible because it addresses inequality around the world by supporting people operating small businesses who often get overlooked by traditional financial institutions when these businesses need loans to grow.
Focusing on ESG has become an effective way to determine if companies act in socially responsible ways. Investors can examine and measure how companies are faring with their environmental, social and governance practices.
An environmentally conscious company that provides technology to deliver clean air, water or energy, for example, is acting with social responsibility. So too are companies that have strong social practices such as ensuring that all employees and those employed by their suppliers have safe and non-exploitative working environments. A company with positive governance processes, such as protection for whistleblowers who reveal anything amiss at the company, is also acting in a socially responsible way.
Impact investing lets you focus on an issue that you care about and put your money into companies making a difference on that issue.
If gender equity is your concern, for example, you could invest in companies that provide equal pay to women and have women at all levels of their firm, including the senior executives and directors on the company’s board. If you want to do more to help the environment, you could invest in companies across all the categories of clean technology or within any specific area, such as clean water, air, transportation or energy.
If reducing inequality is important to you, you can invest in minority-owned businesses or in financial institutions with a good track record of providing loans to minority businesses or in companies that serve often-overlooked groups of people around the world who need financing to advance their small businesses.
Today, you don’t have to find these companies on your own. You can select from a variety of exchange-traded funds (ETFs) that will bring together companies working toward a specific issue like clean air or gender equity.
Impact investing falls within the broader category of sustainable investing, which focuses on companies working to ensure that the ways people consume the planet’s resources today do not sacrifice the needs of future generations. The United Nations has established 17 Sustainable Development Goals, such as good health and well-being and reduced inequality. Many companies and countries are working to support those goals. Impact investing can help achieve them. Many companies have signed the UN Principles for Responsible Investment (UNPRI) to publicly share their commitment to corporate responsibility.
Biblically Responsible Investing
Biblically responsible investing is a way for people to incorporate the principles set forth in the Bible into the ways they manage their money.
Often, that means not owning companies in the “sin stock” categories of alcohol, tobacco, gambling, firearms or adult entertainment. Today, given technological and medical advances, these categories have been expanded. People who are strong proponents of the right to life, for example, may not want to own companies engaged in stem-cell research given that stem cells are taken from fetuses.
Biblical investing can also extend beyond the types of stocks you own to the ways that you invest. Many of the behaviors identified in the Bible as virtuous align with the general investment approaches that have been proven to serve investors well over the long term. Examples include exercising prudence and diversifying your holdings across a variety of investments.
The approach applies to other religions, too, under the more general term of “faith-based investing.” For example, in Islam, Shariah law prohibits Muslims from contributing to businesses associated with alcohol and pork and from collecting interest on investments. In Judaism, the principle of tikkun olam – repairing the world – may steer investors toward causes that help fight climate change or social injustice.