3 Different Ways to Approach Impact Investing (Including Halal)
3 min read
When you're building your investment strategy, you have the opportunity to pursue impact investing – aka putting your money toward investments that align with your values while still growing your portfolio.
Do you care about the environment? Would you like your money to go towards social impact and equity causes? What about investing in causes that are halal versus haram? That's where an impact investing strategy comes into play.
Eco-investing is a common type of impact investing
As our society has globalized, the topic of climate change and environmental impact has become more central to the conversation. It's to the point that companies are focusing on making a positive impact environmentally while still giving investors strong returns.
Just look at what happened when eco-friendly hedge fund Engine No. 1 staged a boardroom coup to get environment-focused board members into Exxon (NYSE:XOM), an oil conglomerate.
Environmental investing focuses on mitigating harm to the environment and starting and maintaining ecologically sustainable businesses. It's the first part of ESG (environmental, social, and governance) criteria.
Social equity investing creates an impact
Social equity investing looks to increase the reach of social justice while creating significant financial growth. Investors who are interested in social equity and impact investing may track how a company positively impacts society or its active commitment to being a socially responsible corporation.
Social impact investing comes with a whole array of investment vehicles and capital, just like regular investing.
Plus, social equity investing has proven to be profitable, as more than 88% of investors have reported that their investments have either met or exceeded investment goals.
Some examples of social equity funds include:
Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)
iShares ESG Aware MSCI EM ETF (ESGE)
SPDR SSGA Gender Diversity Index ETF (SHE)
Halal investing to round out your impact
Halal investing requires investing according to Islamic principles. Halal investing includes:
Not investing in businesses that produce pork products, alcohol, gambling/gaming activities, interest-based financial services, or adult activities
No business activities that account for more than 5% of the revenue if these activities are haram (forbidden by Islamic law) or incur interest (called riba)
Giving any income derived from interest-bearing sources to charity
Not investing in bonds and other interest-based investments
Eliminating investment in companies that hold high debt (sometimes referred to as highly leveraged)
Eliminating investment in companies that have greater than 33 percent total debt as compared to their market capitalization (trailing 12-month average)
Eliminating investment in companies that have greater than 45 percent accounts receivable as compared to their total assets (trailing 12-month average)
Some examples of US halal stocks include iShares MSCI USA Islamic UCITS ETF (ISDU), Dupont (NYSE:DD), and Canon (NYSE:CAJ).
Impact investing allows investors of all experience levels to consider their values and put their money where their mouth is. The best way to approach any impact investing strategy is to research the companies you believe in and figure out if they're as good below the surface. Whether through environmental, social, halal, or another strategy, you can watch your portfolio grow while living your truth.
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