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SRI, ESG & Impact Investing For Women: Understanding Your Options

Posted by Lyn Dippel, JD, CFP® on February 05, 2021
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SRI, ESG & Impact Investing For Women: Understanding Your Options

Nowadays, what constitutes a “wise” investment isn’t necessarily the same for everyone. The basic principles of investing will always apply across the board—understanding your tolerance for risk, knowing your timeline, evaluating stocks using standard performance criteria, and more. However, an increasing number of people—many of them women—are also looking for investments with purpose in an effort to support companies that reflect their personal values or have committed to creating positive change in the world.

If that sounds like you, then you’re in the right place. There are lots of opportunities to invest in a way that aligns with your passions; this article will clarify impact investing and other similar investment strategies for women and point you in the right direction to get started.

Looking for financial advice centered around your goals and passions? The expert team at Bay Point Wealth can help! Schedule a call with us to get started.

Impact Investing (& Other Options) For Women

If you’re looking to invest with purpose, there are three primary approaches:

  • Socially responsible investing (SRI) eliminates companies or industries from your portfolio that do not align with your values. You may decide, for example, to avoid owning stock in tobacco or oil companies and their affiliates because they produce products you have taken a moral stand against. SRI is essentially a negative screen—removing companies that you perceive to have a detrimental impact on society.
  • Environmental, social, and governance (ESG) investing is a positive screen for companies that, relatively speaking, are strong in these three areas. It evaluates potential investments by considering a company’s:
    • Impact on the environment—Is it a good steward of the natural world? What actions is it taking to reduce carbon emissions or become more energy efficient?
    • Treatment of people—Does it conduct and foster respectful relationships with employees, suppliers, customers, and the surrounding community? This question covers social justice concerns from gender and diversity issues to data protection to labor standards and more.
    • Governing standards—Are its business practices ethical? These practices could cover a broad range of activities, such as transparency in accounting, regulations compliance, reasonable executive salaries, and more.

The industry or company type doesn’t come into play with ESG investing; it’s possible for a tobacco company, for example, to be present in an ESG fund if it is having a positive impact with regard to sustainability or employee diversity. ESG investing doesn’t eliminate companies but instead, considers the strengths (and weaknesses) of all companies on a relative scale.

  • Impact investing is a combination of the two above-mentioned approaches, essentially screening for the positive (companies that are strong in ESG) but also ruling out the negative (companies participating in undesirable activities). It tends to focus on forward-thinking companies that are more socially responsible than their peers and are clearly making a difference in the world.

Today, the majority of socially responsible investing—a trend driven primarily by women and millennials—is taking place through ESG funds. While the concept of ESG has been around for more than a decade, the last few years have seen explosive growth: The number of ESG-focused funds has doubled in the past three years, and global ESG assets in 2020 were valued at $40.5 trillion.

These numbers are a testament to the fact that women investors can make a positive difference in society with these approaches, perhaps even more so than they could through charitable donations.

Before You Start Investing...

Understand that ESG is still a bit of a fuzzy term.

There is no single definition of what constitutes a “socially responsible” company, and ESG factors can be difficult to quantify. That means different funds use different methods to rate and rank companies.

Before you invest in a fund, review its selection criteria. ESG funds are supposed to consider all three factors, but they tend to lean one way or the other. If you’re passionate about the environment, look for a fund that emphasizes sustainability and climate change. If your passion is human rights and diversity, look for funds that focus more on social aspects.

You might prefer to avoid the fuzziness of ESG investing if you have a strong feeling about a particular industry or company; that’s where socially responsible investing or impact investing is a better choice. With SRI and impact investing, you can carefully read the fund’s prospectus to eliminate the companies whose products or practices you are against, and support a smattering of other well-run companies at the same time.

Keep the ultimate objective in mind.

Investing with purpose doesn’t mean you shouldn’t be aiming to grow your money. The companies you choose may be ethically “good” investments, but they should still be financially good investments as well. In the recent past, these types of funds have tended to outperform conventional funds—evidence that the presence of ESG factors is usually an indicator of a high-performing business.

However, not all ESG funds are automatic wins. An experienced financial advisor can help identify fund portfolios that match your needs and analyze funds for their past performance. There’s more ESG-related information available now than ever before; a knowledgeable professional makes the selection process much more manageable.

Interested in learning more about ESG, SRI, or impact investing?

Talk to us at Bay Point Wealth. Investing and financial planning are our passions, and we’d love to help you reach your financial objectives in a way that aligns with your personal values. Our focus is on you. When you work with us, we’ll start by asking what’s important to you and recommend investments that align with your goals. Or, if you simply have questions about ESG, SRI, or impact investing, we can help with that, too. Schedule a call with us today to get started!

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Topics: Investment News