Investing capital to address social or environmental issues is becoming a more common investment strategy with significant opportunities for return. Environmental, Social, and Governance (ESG) investing focuses on companies and assets with strong ESG principles woven into their business model. Sustainable investing goes one step further by targeting investments toward those that address environmental issues more directly. Impact investing, however, goes many steps further than both ESG and sustainable investing.
Applying an impact lens to investing requires building a portfolio of impactful products and services that are the core of a business, not an ancillary component or theoretical commitment. Impact investing also takes a unique systems thinking approach by avoiding short-term solutions in favor of identifying root causes, understanding interconnectedness, and generating multiple solutions. Lastly, impact investing sets measurable outcomes from the beginning, with clear expectations of the benefits that will result from the additional capital investment. Above all, applying an impact lens requires additionality, intentionality, and measurability to target underserved areas of the global economy.
Additionality refers to the pursuit of social or environmental benefits that would not have otherwise occurred without the investment. Reallocating capital from potentially harmful companies or assets toward impact investing can be an effective tool in and of itself in offsetting negative impacts. By 2030, it is estimated that impact investing has a $12 trillion growth opportunity1 compared to the $2.3 trillion2 that were invested for impact globally in 2020. Building a portfolio diversified by impact themes, as well as by asset class and geography, creates a well-balanced, risk-adjusted impact portfolio that achieves the investor’s return expectations.
Intentionality refers to an investor’s targeted contribution to positive social or environmental outcomes. Some investors may only be interested in one or a few themes while others will seek to incorporate a variety of themes. Everything from urban infrastructure and food waste to clean energy and healthcare can have positive social and environmental impacts.
Measurability of the intended social or environmental impact must be reported on clearly and reliably. Effective measurement is the best way to differentiate a greenwashed asset from one with real impact. Reporting also assures stakeholders that their intentions are being met. Because impact investing incorporates more measured targets, it can be helpful to use the Sustainable Development Goals (SDGs) as a framework. The SDGs are a set of 17 goals with 169 targets established by the United Nations to end poverty, protect the planet, and ensure prosperity around the world. The UN Conference on Trade and Development estimates $5-7 trillion1 is required by 2030 to meet the SDGs.
For investors with a particular interest in SDG 4: Quality Education3, TrueShares has a unique impact fund that also supports veterans and first responders while investing in U.S. companies. The TrueShares RiverNorth Patriot ETF (FLDZ) goes many steps further than funds focused on meeting ESG or sustainability principles by donating the profits and a majority of fund fees directly to Folds of Honor, a 501(c)(3) non-profit that provides education and scholarships to families of veterans and first responders who were disabled or killed in action.
1 – https://www.mercer.com/content/dam/mercer/attachments/global/gl-2022-impact-investing-2022.pdf
2 – https://www.ifc.org/wps/wcm/connect/publications_ext_content/ifc_external_publication_site/publications_listing_page/impact-investing-market-2020
3 – https://sdgs.un.org/goals/goal4
The TrueShares RiverNorth Patriot ETF is also subject to the following risks: Equity Market Risk – securities held in the Fund’s portfolio may experience sudden, unpredictable drops in value or long periods of decline in value. Market Events Risk – Markets have experienced significant periods of volatility in recent years due to a number of economic, political and global macro factors, including the impact of the coronavirus (COVID-19) pandemic and related public health issues, growing concerns and uncertainties regarding interest rates, trade tensions and the threat of tariffs resulting in volatility and negative impacts on asset prices, liquidity of certain securities and normal operations of the securities markets. New Fund Risk – The Fund is a recently organized investment company with no operating history. Other Potential Risks – The Fund may invest in “when-issued” securities; preferred stocks; rights/warrants; tracking stocks; investment company securities/pooled investments; REITs; and repurchase agreements. Investors should read the Fund’s prospectus for more information related to these risks.