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Impact Investing: Aligning Your Portfolio with Purpose

Investing with impact continues to grow in popularity as investors seek to align their portfolios with their values.

Increasingly, investors are defining long-term value as not only realizing attractive returns, but also generating a positive social or environmental impact. To that end, they are looking for ways to put their investment dollars to work, using their wealth as a force for change.

What It Means to Invest with Impact

Impact investing refers to investments made into companies, organizations and funds with the intent of generating a measurable and beneficial social or environmental impact alongside a market-rate financial return. In other words, investing with impact seeks to align financial goals that are driven by economic fundamentals with impact goals that are driven by your personal values and mission.

 

Today, investors are interested in sustainable investing. And the shift toward investing in funds that focus on environmental, social and governance (ESG) factors is gaining momentum. Consider that more than half of individual investors say they plan to increase their allocations to sustainable investments in the next year and over 70% believe strong ESG practices can lead to greater returns.1

Debunking Myths about Investing with Impact

There are several myths surrounding impact investing:

 

Myth No. 1: Investing with impact means sacrificing returns.

 

Applying an impact lens to your wealth management decisions does not mean choosing personal values over financial performance. In fact, according to the Morgan Stanley Institute for Sustainable Investing, sustainable funds have often weathered recent periods of volatility better than non-ESG portfolios and in 2023 outperformed their traditional peers across all major asset classes and regions.2  “2023 saw sustainable funds return to their long-term trend of outperforming their traditional peers,” says Jessica Alsford, Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. Keep in mind, though, past performance is no indication of future results.

 

Myth No. 2: Investing with impact is a niche area.

 

The truth is, sustainably invested assets accounted for $3.4 tn AUM in 20232 and  in the 2024 “Sustainable Signals” report,  77% of individual investors said they are interested in investing in companies or funds that consider positive social and/or environmental impact while aiming to achieve market-rate financial returns.3

 

Myth No. 3: Impact investing products are limited.

 

In reality, assets under management incorporating ESG criteria globally are expected to increase to US$33.9tn by 2026, and ESG assets are projected to make up 21.5% of total global AUM in less than 5 years.4

Getting Started

Every investor has a unique set of financial goals and priorities, and there is no one-size-fits-all approach to investing with impact. There is a full spectrum of approaches to transitioning to investing with impact, including:

 
  • Restriction screening, which manages exposures by intentionally screening out investments based on an investor’s preferences.
 
  • ESG integration, which proactively considers ESG criteria alongside financial analysis during the investment selection process.
 
  • Thematic exposure, which focuses on themes and sectors dedicated to solving sustainability-related challenges, both in the U.S. and abroad.

The Bottom Line

Whether you want to allocate all or part of your portfolio to investing with impact, working with a Financial Advisor who has experience with impact investing can help you align your financial goals with your personal values.