Social Justice investing is commonly linked to Socially Responsible Investing (SRI), which is investing to do good for others. Now, as COVID-19 continues to shape our societal values, clients are hoping that their investing addresses the inequities in our society. Throughout the last decade, socially responsible investing has grown and continues to impact Wall Street- sustainable funds saw record inflows in 2020.
Social justice impact investments have goals of primarily impacting society to make the social environment better. Like all types of socially responsible investing, social justice impact investments must be sustainable over time, profitable for investors, and the organization represented in the fund must continue to exist.
Ensuring that the portfolio is not at risk of environmental or social problems that could arise from lawsuits, public issues, or harm or death of any life is also considered with impact investing. Additionally, the companies’ ecological and business ethics represented in the investment must affect real change and have a record of supporting the cause they claim to impact.
The lack of these impact factors may cause investors to liquidate the investment if not met, leaving the market value to decline. Social justice and impact investing funds tend to follow the social climate of the time and can change, requiring the portfolio manager to periodically update the portfolio’s holdings.
Some common social justice and impact investment terms include:
Impact Funds- Every investment in the fund must have a social justice impact and advance social goals before the profit.
SRI Funds- Eliminates any investment that does not adhere to strict guidelines through screening. Some of the portfolios may invest in charitable causes but lack assets that are considered social justice appropriate (harming a particular group or not beneficial to society as a whole).
ESG Funds- The primary goal is profit, but the investment’s impact must benefit the environment, society, or a governance-based organization focusing on social equality.
If you have an interest in impact investing, visit with your financial professional to find out how these investments are scored, how they fit into your overall financial plan, and if they are appropriate for your situation.
Important Disclosures:
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Please keep in mind, the return on values based investments may be lower than if you make decisions based solely on investment considerations.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
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