Social Finance: Where Wealth and Values Meet

Investors who adopt social finance strategies don't have to sacrifice returns in order to feel good about the makeup of their portfolios or to effect meaningful societal change.

The term “social finance" means different things to different people. Often, those words bring to mind the avoidance of so-called “sin stocks" — shares of companies involved in the manufacture or distribution of tobacco or alcohol, or shares of gambling enterprises. But the term encompasses much more.

Social finance offers investors ways to realize competitive returns through investments designed to achieve meaningful societal or environmental impact. Investing in socially and environmentally conscious ways is growing in popularity with all types of investors. In fact, sustainable, responsible and impact investing accounted for $22 trillion in global assets at the end of 2014. 1

By understanding what drives investors toward social finance, investors and their families can better align their wealth with their personal values and implement various social finance strategies designed to reach their own financial, legacy and philanthropic goals.

What is Social Finance?

Social finance is any investment activity that generates financial returns for investors and has a positive  societal and environmental impact .2

With a growing awareness of social finance in the U.S., investors who want to have a positive impact on society are no longer limited to doing so through donations to charitable and other non-profit organizations. Social finance offers ways for investors to extend their influence by aligning their goals for public good and positive impact with their desire for wealth accumulation and legacy gifting.

Underneath our broad umbrella of social finance (which may differ somewhat from other industry frameworks), there are four key strategies with varying styles, focuses and degrees of impact: responsible investing, environmental finance, development finance and impact investing. Jump to glossary.

Why Do  Investors Adopt Social Finance Strategies?

Decisions to explore or adopt social finance strategies are not necessarily driven by charitable intent, nor do those decisions always stem from a desire to earn attractive investment returns. These decisions are often based on the following motivations:

1. Personal Values

For some individuals, deciding to invest in a socially-responsible manner stems from strongly held personal beliefs. Their primary focus is to avoid advancing the interests of organizations or industries that go against those beliefs. For example, some investors are drawn to mutual funds that will not invest in tobacco, firearms or gambling enterprises because these industries are contrary to the investor's values.

2. Fiduciary Obligations

Trustees for non-profit organizations, retirement plan sponsors or others investing in a fiduciary capacity may search for investments that meet ESG criteria as part of their risk management strategies and fiduciary obligations.

Generally speaking, these individual and fiduciary investors seek competitive investment returns while investing in a manner consistent with their personal values or fiduciary mandate. Potential social or environmental change is not a primary focus.

3. Environmental, Social and Governance (ESG) Goals

Some social finance investors want to incorporate values-based investing with altruistic intent, seeking competitive returns from investments with a broad focus on ESG opportunities. Others may want to narrow that focus, selecting investments that further very specific environmental or social goals. One such example is a mutual fund that invests in emerging markets infrastructure or in clean-energy initiatives.

For investors who care deeply about an investment's societal or environmental goal, investment returns may become a secondary consideration to the charitable mission.

4. Competitive Investment Returns

In addition to using social finance for personal or fiduciary-driven motives, many investors  also seek competitive investment returns. Fortunately, achieving competitive performance and even outperforming non-social finance investments seem to be realistic goals.

According to a 2015 study by the Global Impact Investing Network, investors reported that their portfolio performance overwhelmingly met or exceeded their expectations for social and environmental impact and financial return.3

Of course, past performance is never a guarantee of future results, and the performance of one social finance strategy is not necessarily correlated to another. Still, the data indicates that investing responsibly and outperforming the market are not mutually exclusive objectives.

5. Connection to the Next Generation

Social finance allows investors and their families to clearly identify shared values and goals and align them across areas of mutual interest. Because younger generations may want to put a greater focus on sustainable investing to achieve social and environmental impact, social finance is also a great way to bridge the gap between generations.


There are many ways of using wealth to support personal values while effecting societal or environmental change.

To get started with social finance, investors and their families should identify their goals and motivations. Doing so will provide some direction as to how, where and which social finance strategies may help achieve those goals.

Wealth advisors can serve as valuable resources in helping investors identify and understand which investment options are designed to provide the optimal blend of impact and investment results. By leveraging advisors' knowledge and experience, investors can feel confident that they are on the path toward the intersection of their own wealth and values.

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1. Responsible investing (RI) incorporates considerations related to environmental, social and governance goals (ESG) into portfolio management and investment decisions. People choosing to invest in RI mutual funds, or in a strategy designed around ESG considerations, seek positive performance and can feel confident that all potential risks and opportunities have been appropriately considered.

2. Environmental finance strategies seek to protect ecosystems by contributing to the economic growth of low-carbon power and other environmentally friendly industries and sectors. This can be anything from a bond that helps fund projects with clear environmental benefits, a mutual fund of eco-friendly companies or a direct investment in early-stage clean-technology companies. Environmental finance investors want to capture opportunities to protect the environment while diversifying their portfolios. Investments with an environmental finance goal may offer stable cash flows and are generally less volatile than — and not tied to — the performance of other assets.

3. Development finance offers investors who have a long-term view and an interest in emerging and developing markets around the world a way to geographically diversify their portfolios by helping to mobilize private-sector finance through lower-risk opportunities.

4. Impact investing is attractive to investors who seek to more intentionally effect positive social or environmental change and have a transformative social impact. While the strategies above feed the desire for a certain level of social or environmental change, such changes are generally secondary to the desire for competitive investment returns. In impact investing, such positive social or environmental change is not a secondary desire — it's equal to the desire for a satisfactory financial return. Rather than pursuing short-term gains, impact investors adopt a long-term strategy to bring about social change and public good.

1. Based on internal analysis of existing assets across RI, environmental finance, development finance, microfinance and impact investing as of 12/31/14.

2. “Conditions for Scaling Investments in Social Finance," Business for Social Responsibility, September 2015.

3. “What You Need to Know About Impact Investing," The Global Impact Investing Network, 2015.

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