In the last post, we talked about where the money in your savings and checking accounts are parked. We also touched on credit cards that have a positive impact. But we’re just at the tip of the iceberg!
Over the past few years, a dizzying number of ESG or impact-oriented investment products have emerged on the scene that cover every asset class. As you may recall from my last post, an asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset classes are made up of instruments which often behave similarly to one another in the marketplace. Depending on your goals, it’s good to diversify amongst these investments so you don’t put all your eggs in one basket, so to speak. Historically, the three main asset classes have been:
- Cash equivalent and money market instruments (think savings and checking accounts)
- Fixed income (things like government or corporate bonds)
- Public equity (investment in public companies that are listed, for instance, on the S&P 500)
There are other categories that many investment professionals include:
- Private Equity (private funds that invest in a variety of ways)
- Commodities (think oranges)
- Real property (think real estate)
- Cryptocurrency (think Bitcoin) – much more recent
Our focus in this article is on fixed income investments.
There are a variety of fixed income securities from multiple issuers in both public and private strategies. Funds can be organized based on characteristics such as geography, duration, asset type and credit quality.
From a return-based impact perspective in the US, there are opportunities to add municipal bonds and high-quality corporate credit to your portfolio. From a return-based global fixed income perspective, other asset owners and managers have incorporated allocations to managers supporting the development of microfinance into small and medium enterprises through the developing world. These can be a range of loans – from individual business loans to energy loans. There are also opportunities to expand into sovereign, quasi-sovereign, supranational and other forms of international corporate credit.
Additionally, financial services is a broad category with a lot of debt-based impact investing potential. Financial services investments in this case can be categorized as loans made to financial intermediaries who, in turn, relend processed to select beneficiaries, which can include underserved populations in both the US and in emerging economies that would otherwise not have access to capital. This can include microfinance.
Community investing is another broad area with a lot of opportunities, and also related to the area of financial services. What is Community Investing (CI)? CI channels public and private investment to low income and other underserved communities in order to provide capital, credit and training that these communities would otherwise lack. CI is a broad term that spans a wide range of initiatives that are available to all levels of investors. Typically, these investments are channeled through community development banks and credit unions. Cash and fixed income are some of the best approaches to getting involved via Community investment notes, community development bonds or direct purchases of notes from CDFI (community development financial institution) loan funds. Many CIs offer market rate opportunities across the investment spectrum, and many are fairly de-risked.
Green Bonds are another core area of focus that are becoming more popular. Green bonds emerged in 2007 as a tool to finance sustainable initiatives, moving from nothing to $90 billion annually in the past decade. Essentially, issuers can raise money that is earmarked for climate and environmental projects. There are several investment managers that offer sector-focused, multi-sector and sustainable bond strategies.
Your homework? Ask your financial advisor where your fixed income is invested and start exploring some options with an ESG lens.
Let’s move some money for good! Next up: transitioning your equity portfolio.
Disclaimer: Information herein is not intended to be complete, and such information is qualified in its entirety. This is not an offering or the solicitation of an offer to purchase an interest in any fund, and it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security. Nothing herein should be construed as investment advice, an opinion regarding the appropriateness or suitability of any investment, or an investment recommendation.