We previously discussed a number of important ideas including thematic investing as well as green, clean and renewable energy. Impact investing is another important financial strategy we believe in.
What is impact investing?
Impact-investing is a socially-responsible investment philosophy that seeks to earn a profit while helping to improve society, the environment and government. Put another way, impact investors want to use their money to make a positive impact on the world, or as the saying goes: “You can do good and do well.”
Impact investors can own any asset class or sector, but they tend to focus on agriculture, finance, housing, health care, education and the environment, to name a few.
For example, impact investors may buy individual stocks, ETFs or mutual funds that own shares in companies that focus on solar power or alternative fuels. They may also make investments that address poverty, help people find affordable housing, enhance health care or improve educational opportunities. All of these are examples of impact investments.
Note: Although impact investing is similar to ESG (environmental, social and governance), and SRI (socially-responsible investing), they are technically not the same.
Impact investing and the upcoming election
The outcome of the 2024 presidential election will have huge implications for the future of U.S. environmental policies. Impact investors are already motivated and engaged about the issues. The upcoming election should motivate them to do even more.
Now that the election is only weeks away, accusations will be made against both candidates. This could convince some investors to sell all their stocks and funds just because their candidate lost. This is usually a huge mistake. It is much wiser to take a “wait-and-see’ attitude no matter who is president.
Even if you believe the “wrong” person has entered the White House, positive or negative changes to the environment or the workplace won’t happen for at least two years, according to several experts. A lot depends on who controls Congress.
Look for impact investment opportunities
If you are an impact investor, there will be many future investment opportunities. This means focusing on companies that have a positive impact on society.
If you are a new investor, buying a mutual fund or ETF is a good place to start. This allows professionals to do the stock-picking for you.
According to the MSCI, here are the “gross returns” of the MSCI USA ESG Leaders index (as of August 30, 2024):
- 1-year return +26.63%
- 3-year return +9.29%
- 5-year return: +16.21%
- 10-year return +12.75%
The top 10 companies in the index include Nvidia NVDA , Microsoft MSFT , Alphabet A {symbol link=GOOG], Alphabet C, Lilly (Eli) & Company LLY , Tesla TSLA , Visa , Procter & Gamble PG , Mastercard MA , and Johnson & Johnson JNJ .
Note: The total return of the S&P 500 index during the last year was 27.14%. In other words, the index produced nearly the same result as the S&P 500 index. However, if you had invested in a few of the top individual stocks in the MSCI ESG index, your results would have been even more spectacular.
Election implications for impact investors
The next president will decide whether oil and gas leasing on federal lands will be allowed, whether offshore regions will be protected or ravaged, such as the Artic. In addition, renewable projects, and clean and green incentives including electric vehicles, will either be prioritized or ignored depending on which party takes office.
The UN Climate Change Conference (UNFCCC COP 30) will take place in Brazil in November, 2025. This is when the parties who signed the Paris Agreement will meet. Depending on who is sitting in the White House in January, the United States will either participate or walk out, as they did in 2020.
While the president can choose which issues to prioritize, Congress has the power to pass bills. An environmentally friendly Congress (with help from the president) may pass legislation to encourage clean and green spending, tax cuts, federal government subsidies and offer other incentives for researchers and companies who develop impact-friendly businesses.
One political party may prioritize ESG programs, while another political party may choose to ignore them. It often begins at the presidential level, as the president and their party decide early in their term whether the environment and related issues are important or not.
No matter which party takes control in January, impact investing will be in the news. There is no doubt that climate change will be at the top of the list beginning with our continuing to participate in the Paris Agreement.
What can you do to make an impact?
- Vote. When you head to the polls this November (or earlier), your vote has an impact on the future of our environment, society, workplace and economy.
- Research which mutual funds, ETFs or stocks reflect your values.
- Be careful to avoid misinformation. Doublecheck any dubious or outlandish claims, especially when accusations are made with no facts to back them up.
- If you are new to impact investing, start small and don’t plunge into an investment with too much of your money. Try to have a diversified portfolio (i.e., don’t put all your eggs in one basket).
- Keep in mind that no matter who wins the White House in November, there is no way to predict how impact investments will perform in the future.
Note: For a list of impact investments including mutual funds and ETFs, a great source is Morningstar, which rates each fund’s performance while providing a “sustainability” rating.”
Conclusion
As an impact investor, one of your goals may be to help save the planet from the ravages of climate change while also helping to make life easier for others. No matter your political affiliation, everyone wants to see a robust economy, a healthy environment and a strong infrastructure.
It may take a while to achieve results, so patience is required. The next president and Congress play an extremely important role in deciding where our tax dollars are spent, one of the reasons why this election is so critical.
Read more: The U.S. presidential election could reshape the climate-investing landscape
