While Black Friday and Cyber Monday center on consumer deals, Giving Tuesday—the Tuesday after Thanksgiving—has a different focus. Each year, individuals and corporations are encouraged to use the day to support charities and social causes, along with encouraging others to be generous by offering to match donations.

This type of impact investing provides the best of both worlds—companies can invest in assets and strategies that provide social and environmental benefits for their community. But at the same time, this involvement can lead to financial gains and a stronger reputation. What should you know about impact investing as this year’s Giving Tuesday approaches?

What is Impact Investing?

Impact investing is designed to reduce the negative impact of corporate activity on the environment and society at large. Investors who focus on impact investing only support companies that fulfill certain environmental, social, and governance standards. There are two main types of impact investments, though there is some degree of overlap:

  • Socially responsible investing (SRI) focuses on companies that are committed to social causes, such as gender equality, equal pay, and ethically-sourced materials.
  • Environmental, social, and governance (ESG) investing focuses on companies that are committed to environmental causes, social responsibility, and ethical corporate governance.

Impact investments can focus on a variety of industries, including emerging markets, healthcare, education, agriculture, and energy. Though most impact investors are hedge funds or private investment groups, there are also some index funds and other assets available to individual investors who want more socially-conscious choices for their portfolio.

What Are the Benefits of Impact Investing?

The most immediate benefit of impact investing is knowing you’re making a difference by investing only in companies with a strong commitment to socially and environmentally beneficial causes. There can be financial benefits as well.

Some investors may be nervous that, by focusing only on SRI or ESG investing, they’ll be compromising the returns they could realize on a broader array of less-specialty investments. But studies have shown that the average annualized rate of return on ESG funds is 10.2% when compared to a 12.6% broader market return over the same period.1

What’s more, during the inflation-driven market slump of mid-2022, ESG funds tended to hold their value better than other asset classes. For investors who want their financial assets to match their values, impact investing can be a good way to do so.

How Can You Get Started?

This Giving Tuesday—which falls on November 29—consider the following ways to give back through impact investing:

  1. Purchase shares of an SRI or ESG index fund.
  2. Research companies’ ESG commitments to determine whether they’re in line with your values.
  3. Research your current investments to see whether they include any companies you’d like to avoid that are less favorable to your personal ethos.

For example, some socially responsible investors avoid cigarette manufacturers, oil and gas companies, or companies that rely on low-wage foreign labor to produce their products. Determining whether an index fund or mutual fund includes companies like these can be tough—but there are online databases and tools that can help. Giving back doesn’t mean you can’t realize some benefits as well.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Past performance is no guarantee of future results.

Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

LPL Tracking #1-05325555.


1ESG Funds Resist Worst of Downturn, But Investors are Spooked, Bloomberg, https://www.bloomberg.com/news/articles/2022-06-18/esg-funds-are-losing-less-in-the-market-slump-so-far