Impact investing: three ways to make a difference for community and climate.

Impact investing: three ways to make a difference for community and climate.

Thomas Holloway, CFA

Thomas Holloway, CFA

The way we spend our money certainly determines our community and climate footprint. Many of us are keenly aware of it. The big and little things we buy add up, like how we commute (well, when commuting was a thing), where we travel, and remembering to bring reusable bags into the grocery store (and a mask!). A newer focus for mindful citizens is how to invest our financial assets also to have a positive impact. Three ways investors can do this are in public markets, private investments, and banking. I will give specific examples of all three.

1. Public Markets. Case study: Genus Fossil Free

Outside of their primary residence, most people invest primarily in stocks and bonds on the global capital markets, usually with the help of a professional investment manager like Genus Fossil Free (where I work). Investors do not need to sell everything and start an organic farm to align their portfolio with impact. Genus scores thousands of public companies on their climate and community impact then removes companies in the oil and gas business as well as those in weapons, tobacco and other unappealing industries. 

Within neutral industries, Genus picks specific companies that are doing a better job and overweights firms in positively green industries. In parallel, Genus scores all the stocks and bonds on the attractiveness of their expected return and then thoughtfully builds client portfolios to manage risk and diversification.

An investment of this type is suitable for up to 100% of investable assets. I am investing my whole RRSP.

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2. Private Investments. Case study: ecologyst (formerly Sitka)

The vast majority of businesses are small- and medium-sized, unlisted on public exchanges. The investment value of these countless companies adds up to less than the big ones that everyone has heard of, but they are our engine of employment and community. Investor interest in unlisted companies has grown significantly lately with high-profile companies such as Uber and Airbnb staying private for much longer than previously. Some private businesses are brimming with purpose and a good way to know about it is to be a customer or employee. 

Putting the private-investing trend and impact-investing trend together leaves us looking for chances to buy into to smaller unlisted companies making a difference. The mission for Victoria-based outdoor clothing and lifestyle brand ecologist is to “leave it better than we found it”. The surf-inspired firm onshored all its clothing manufacturing to Victoria- British Columbia and pivoted to sustainable materials like organic cotton and wool. This sounds more like a green consumption choice than an investment – turns out it is both. Investors can directly buy ecologyst equity because the company is raising funds to expand their factory, accelerate online growth, and develop products. This investment is illiquid and will only see a return when the company is acquired or does an IPO.

A single investment of this type is suitable for up to 1% of investable assets, unless you work at the company when it can make sense to be more concentrated. I am investing less than ½%.

3. Banking. Case study: Vancity Community Investment Bank Impact GIC

Depending on time horizon, risk tolerance, and goals, a safer cash-like investment can make the most sense. Guaranteed Investment Certificates (GICs) are a deposit at a bank that earns a fixed rate of interest. Even if the bank fails, which does not happen very often (!), the Canadian Deposit Insurance Corporation (CDIC) insures the deposit up to $100k. GICs come in cashable or fixed-term varieties and current rates are in ballpark of 1-2% per year. That is not a lot of financial return, but you get security, liquidity, and with impact GICs, you get impact too. 

Vancity Community Investment Bank is a federally chartered bank tied to Vancity credit union. The funds raised by selling impact GICs are in turn lent to projects such as a land trust, community coworking hub, and affordable housing. The projects have to pay back the loans with interest, so it is not charity. The bank and the GIC investors expect to make a financial return. Green and impact lending is a significant growing trend globally. Expanded access to debt capital, perhaps at more affordable rates or better terms, will accelerate green and socially positive projects. That is making a difference even with a boring GIC.

A single investment of this type is suitable for up to $100k due to the federal guarantee. I am not investing personally, however I recommended and invested $100k for a non-profit board that I serve.

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