You work hard to invest your money in smart ways. But what if you want your investment dollars to do more than generate a return? What if you want to make a positive impact on the world — close to home or around the globe?

If this is one of your goals, then you are part of a growing movement known as socially responsible investing, or SRI. “I believe that investors have an opportunity to make money and support companies that share their values,” says Managing Partner Kathryn Swintek of Golden Seeds Fund 2, a venture capital firm that focuses on women-led businesses.

How your desire to make a social impact affects your investment strategy depends not only on your values, but also on your financial goals. Broadly speaking, there are two routes you can take: investing in for-profit companies that meet your social criteria or using tax-smart strategies to contribute to your favorite charitable organizations. Here’s a closer look.

What is socially responsible investing?

SRI is a broad term for investing in companies that make a documented effort to positively impact environmental, social and corporate governance factors. The aim is to generate competitive financial returns along with a positive social impact. You might, for example, invest in companies that develop and distribute products to assist poor or underserved communities, or products that help the environment. Alternatively, the companies you invest in may be owned and operated by minorities, veterans or women. Or they could operate according to principles that further these goals. Yet companies described as SRI are not charities; they exist to make a profit and hopefully generate wealth for their shareholders.

The idea of investing in these types of socially conscious companies is gaining ground. According to a 2014 report by US SIF, the Forum for Sustainable and Responsible Investment Foundation, more than $1 out of every $6 under professional management in the United States — that’s $6.57 trillion — was invested according to strategies that factor in social and environmental impact.

Exploring your options

You can invest according to your principles at just about any financial level, from tucking your IRA contributions into mutual funds specializing in SRI to supporting startups as an angel investor. Understand, however, that “socially responsible” is very much in the eye of the beholder. The only way to know for certain that a company truly furthers the causes you value is to rely on your own research or that of a trusted financial advisor.

Begin with a clear understanding of the areas that interest you most. Do you want to help the environment? Support minority-owned startups? Bring new solutions to persistent problems, such as poverty? Avoid companies that manufacture products you don’t agree with? Once you narrow your focus, look for funds or companies that match your criteria.

Most mutual funds and public companies that make social-responsibility claims publish their mission as well as periodic progress reports. In addition, many SRI funds use their corporate ownership rights to advocate for positive change, which you can learn about in proxy voting disclosures.

Verify company claims by turning to organizations that certify compliance to their own strict criteria. The best known of these is the B Corporation designation provided by the not-for-profit organization B Lab. Certified B Corps must meet B Lab’s published standards of verified social and environmental performance, public transparency and legal accountability.  

Investing in SRI mutual funds or individual corporate stocks aren’t the only routes. An advisor also can screen your investments according to multiple criteria. For example, PNC Capital Advisors uses tools from research and analytics company MSCI to integrate environmental, social and governance factors into its strategies. This practice would be part of a holistic approach to achieving your financial goals, says Amy West, senior vice president, director of investments for PNC Wealth Management in Florida. “At the onset, we gather with clients to get a clear view of their overall objectives,” she explains. “Then I’m able to present the solutions that I feel will best fulfill their needs.”

Become an angel investor

Another avenue for investors who seek to make an impact with their dollars is angel investing — providing capital for early-stage startups in exchange for equity or convertible debt. Angel investment (which is limited to accredited investors with at least $1 million in investable assets) has become a powerful financial tool to assist female entrepreneurs, says Golden Seeds’ Swintek, who adds that it can be an equally powerful wealth generator: Numerous studies show that women-led businesses actually perform better than average. Fortune reports that, according to the 2016 BNP Paribas Global Entrepreneur Report, companies led by women entrepreneurs had 13% higher revenues than those run by men, 9% above average overall. “In addition to helping to establish parity, investing in women-led companies makes good financial sense,” Swintek says.

For investors like Swintek, a longtime investment banker who has built stakes in more than 30 early-stage companies over the past 10 years, angel investing also provides an opportunity to share knowledge and experience. Many angel investors are serial entrepreneurs who can add value to their portfolio companies with startup or industry-specific experience, as well as mature networks that can be invaluable to young companies.

That’s the case with Phoebe Wood, an angel investor based in Louisville, Kentucky, who has three decades of international finance and operations management experience with companies including ARCO, Motorola and Brown-Forman, where she was vice chairman and CFO. She also sits on the boards of Invesco, Ltd., Leggett & Platt and Pioneer Natural Resources. Wood doesn’t select her investments using SRI criteria, but she does help guide many of the entrepreneurs she supports. “The time that I spend typically depends on what stage the company is in and how much ownership I have,” she explains. “If I have meaningful ownership in the company, I’m going to spend more time with it, because I have more at risk.”

Giving it away

Another twist on SRI involves “investing” in charitable causes. Three approaches to charitable giving may also offer worthwhile financial benefits to you and your legacy:

Donor-advised funds: A donor-advised fund allows you to make a contribution and then recommend grants over time to any IRS-qualified public charity. (You’ll also be eligible for an immediate tax deduction.) “Donor-advised funds are a great middle path between a private foundation and a charitable trust,” West says. “For example, you can contribute highly appreciated stock for tax purposes, then over the course of the year, make distributions to charities, whether on an ongoing or one-off basis.” A typical initial contribution to a donor-advised fund is in the neighborhood of $10,000, while subsequent contributions and distributions can be considerably smaller.

Charitable trusts: This type of trust allows you to set assets aside for one or more charities. There are two popular types: charitable remainder trusts and charitable lead trusts. Both benefit owner and charity alike. The key difference between the two is when respective beneficiaries receive payments. Charitable remainder trusts provide you (or another noncharitable beneficiary, such as a family member) income for up to 20 years, after which the remaining assets and any appreciation go to the charities you originally selected. Charitable lead trusts work in the other direction, making regular payouts to the charity first. After a set time period, the trust terminates, and the remainder goes to the noncharitable beneficiary.

Foundations: At the highest end of the economic spectrum are private foundations, which give donors maximum control but also incur considerable costs to set up and maintain. “To set up a private foundation, you’re looking at significant initial and ongoing investments,” West says, adding that to establish a foundation, typical clients have at least $20 million in liquid assets.

No matter what goals you have for your money, there are plenty of options if you’re an investor looking for ways to make the world a better place. You can direct your investment dollars toward improving social conditions, supporting communities and helping the environment. Choose wisely, and enjoy any financial rewards while knowing you’re also making a difference.

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