All investing has an impact.

Impact investing, or the pursuit of making tangible positive change through your investments, has become a hot topic in the investment world. What you may not realize is that whether or not you’re consciously investing for change, your investments are making an impact, says Megan Schleck, CEO of the investment platform Coin. Impact investing is about taking conscious control over the influence your investment decisions have on society and the world around you. “The more conscious we are as investors, the more power we have to make better decisions about our money,” Schleck says. If you want to take charge of your investments’ impact, start with these nine things beginners should know about impact investing.

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The same investing rules apply.

Impact investing is still investing so all the same rules apply. “None of the basic financial planning and investment guidelines change with impact investing,” says Sonya Dreizler, a consultant to financial services firms about impact investing and ESG at Solutions with Sonya. You still need to be investing in a way that’s well-diversified and in line with your risk tolerance as it works toward your financial goals, she says. And you need to be prepared to stick out the market when things get rough. “The strongest indicator of personal return is how well you stay invested in the long run, not the individual stocks or funds you pick,” she says.

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All investing has an impact.

Impact investing, or the pursuit of making tangible positive change through your investments, has become a hot topic in the investment world. What you may not realize is that whether or not you’re consciously investing for change, your investments are making an impact, says Megan Schleck, CEO of the investment platform Coin. Impact investing is about taking conscious control over the influence your investment decisions have on society and the world around you. “The more conscious we are as investors, the more power we have to make better decisions about our money,” Schleck says. If you want to take charge of your investments’ impact, start with these nine things beginners should know about impact investing.

The same investing rules apply.

Impact investing is still investing so all the same rules apply. “None of the basic financial planning and investment guidelines change with impact investing,” says Sonya Dreizler, a consultant to financial services firms about impact investing and ESG at Solutions with Sonya. You still need to be investing in a way that’s well-diversified and in line with your risk tolerance as it works toward your financial goals, she says. And you need to be prepared to stick out the market when things get rough. “The strongest indicator of personal return is how well you stay invested in the long run, not the individual stocks or funds you pick,” she says.

Start with your goals.

As with any investing strategy, impact investing begins with your goals. Once you know your impact goals, you can determine the best responsible investing strategy to help you achieve them. “There are a variety of options for investors to consider in their approach to responsible investing,” says Amy O’Brien, global head of Responsible Investing at Nuveen. You may want to focus on simply excluding certain bad actors from your portfolio or you may want to take a more integrated approach that looks at all ESG factors and may even include impact investments, “which seek to produce tangible positive impacts on environmental and social issues,” she says.

Impact investing can be done in every asset class.

“An impact investing strategy need not be implemented exclusively through direct private investments,” says Erika Karp, founder & CEO of Cornerstone Capital Group. It also needn't be limited to the "greener" sections of your portfolio. Impact investing “can be done using every asset class,” Karp says. Of course, some asset classes lend themselves to responsible investing easier than others, but with new options seemingly available every week, impact investing is only becoming more accessible. So there is no excuse for not staying diversified while investing for impact.

You don’t have to sacrifice returns.

Investing for impact doesn’t mean you have to accept lower investment returns. “We now have over 40 years of research that dispel any myth that you lose money by also considering your values while investing,” says Renee Morgan, impact director at Impact Investors. “In fact, there are times you may perform better based on the screens and advocacy that impact funds and advisors use.” For instance, screening for CEOs with high pay ratios has helped investors avoid corruption scandals. What’s more, 80% of more than the 200 studies and resources reviewed by Oxford University found that good sustainability practices positively impact a company’s stock price.

Don’t sweat the acronyms.

Advisors, the media and product providers use different terms when talking about values-based investing, Morgan says. While each term has a specific definition, they’re “used interchangeably in so many forums that you should not worry about being in the right place based on terminology,” she says. Focus instead on what’s being said around the term, rather than the term itself. “But do make sure your advisor can distinguish between these and provide the parts that fit your need and wants,” Morgan adds.

Make sure you’re speaking the same language.

While the acronyms may not be worth sweating over, making sure you’re speaking the same language when talking about impact investing is important. “Sometimes when people say ‘impact investing’ they’re talking specifically about private investments in companies that have a direct, visible impact,” Dreizler says. Other times they mean “mutual funds that have a less damaging environmental footprint than their peers.” So one of the first things to do when you hear someone use the term “impact investing” is to make sure you’re on the same page.

Look beyond the fund name.

Being on the same page means looking deeper than an investment’s name. Without a lot of strictness around naming conventions for impact investments, investors can find a variety of different approaches under the same umbrella term, Dreizler says. “And since impact or green or sustainable mean different things to different money managers, investors need to make sure they’ve found (a fund) that matches what they’re looking for.” Look at both the fund’s intentions listed in its prospectus and its top 10 holdings. The Forum for Sustainable and Responsible Investment (US SIF) provides an online chart of sustainable, responsible and impact mutual funds that details the impact each fund aims to achieve.

Be careful where you get your information.

Just as how people use the term impact investing can vary depending on who you’re talking to, so too can the caliber of the information they provide about it. “All investors need to do their homework,” O’Brien says. “Those who choose a responsible approach to investing must be especially careful about the sources of information they use for making their decisions because of varying levels of quality.” She points investors to US SIF and Morningstar as two reputable sources with tools for evaluating impact funds and their managers.

Consider shareholder engagement.

One of the lesser-known ways to make an impact with your investments is through shareholder advocacy, Dreizler says. Anyone who owns shares of a company has the right to take material issues to management and vote at shareholder meetings. When you invest in a mutual fund, this right falls to the fund manager. A number of sustainable, responsible and impact fund managers use this process to encourage companies to improve their practices. If you want to see wide impact as an investor, invest with mutual fund companies that do shareholder engagement, Dreizler says. US SIF’s online fund chart is a great place to start identifying such funds.

Things to know about impact investing before you get started.

The same investing rules apply.Start with your goals.Impact investing can be done in every asset class.You don’t have to sacrifice returns.Don’t sweat the acronyms.Make sure you’re speaking the same language.Look beyond the fund name.Be careful where you get your information.Consider shareholder engagement.1 of 12

Coryanne Hicks, Staff Writer

Coryanne Hicks is an investing reporter for U.S. News & World Report. She is an expert at ...  Read more

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