Purpose investing has become an increasingly popular concept in recent years. It involves aligning investments to make a positive impact, beyond just financial returns. Investors who engage in purpose investing aim to generate tangible social and environmental benefits alongside financial gains. There are many examples of purpose investing that illustrate how it can create value on multiple fronts. This article will explore the meaning of purpose investing and provide concrete examples of how it is being applied.
Socially responsible investing targets social and environmental change
One major category of purpose investing is socially responsible investing (SRI). Investors intentionally select companies or funds that have positive social and environmental practices. Common areas of focus include renewable energy, sustainable agriculture, affordable housing, and diversity and inclusion. Funds like Parnassus Endeavor Fund and Green Century Balanced Fund are SRI mutual funds that screen for companies meeting these criteria. Another example is impact investing private equity funds like Bain Capital Double Impact, which targets measurable social and environmental impacts alongside financial returns.
Shareholder advocacy pushes companies towards purpose
Active shareholders can influence companies to adopt more responsible and sustainable business practices, rather than just divesting. For instance, activist hedge fund firm JANA Partners joined with pension funds to successfully pressure Apple to develop software safeguards for children. Major institutional investors like BlackRock and Vanguard have also started push companies, through proxy voting and engagement, to address environmental, social and governance (ESG) issues material to long-term value creation.
Community investing provides underserved access to capital
Community investing directs capital to economically disadvantaged communities to finance affordable housing, small businesses, community facilities and jobs. For example, Self-Help Credit Union provides responsible financial services and lending in underserved communities. Investors can also contribute to community development financial institutions (CDFIs) like Beneficial State Bank and Hope Credit Union that expand financial access. Platforms like CNote enable smaller-balance investments into CDFIs around the U.S.
Shareholder activism drives corporate accountability
Shareholder activism leverages the rights and powers of stock ownership to influence corporate behavior. Activist hedge funds like Third Point push for strategic, financial, governance and social/environmental changes at target companies through demands made publicly and through proxy fights. The Investors for Opioid and Pharmaceutical Accountability coalition of institutional investors pressures drug companies regarding the opioid crisis. Activists often gain board seats to drive reform from within.
Purpose investing allows investors to align capital with their values and the change they want to see. Examples like ESG integration, shareholder advocacy, community investing and activism show how purpose investing can target positive social and environmental impact.