As the world grows smaller, linked not only by lines of communication that make us aware of natural and man-made disasters and opportunities half a world away but by ties of commerce, blood and belief, some investors look for more than financial results from their investments. They want to have a measurable impact on cultures and lives far from their own, and look for ways to make improvements on a global scale.
To do that, they seek out investments that make a difference, and ways to find them. Opportunities can include projects or startups to build or reconfigure infrastructure, bring anything from technology to clean water to medical care to a region that lacks it, or even just the financing of green technology on an individual basis. Sometimes such investments can offer higher yields than conventional offerings, although they can carry higher risk as well.
Here are seven ways to invest with impact.
1. Impact Notes Bond Program from IFC and Incapital: IFC (International Finance Corporation), a member of the World Bank Group, and Incapital LLC teamed up in March to launch a program that allows U.S. investors to buy triple-A rated IFC bonds and support private sector development in emerging markets.
According to IFC, the new bonds, called IFC Impact Notes, are “an alternative to securities issued by Government Sponsored Enterprises, or GSEs. IFC Impact Notes have the potential to offer more attractive yields than U.S. Treasuries with equivalent maturities.”
IFC, a global development institution, lends in emerging markets and raises funds for those loans from global capital markets. It focuses on the private sector and “invests to support job creation, access to health care, education, food, infrastructure, and finance, and other development priorities.”
2. Asset-Backed Toyota Auto Receivables Owner Trust 2014-A A3 Green Bond. Yes, you read that correctly; it’s an asset-backed security issued by Toyota Financial Services that will support consumer loans and leases for green Toyota vehicles, according to Everence Financial and the Praxis Intermediate Income Fund, which have committed $3.5 million to purchase of the bond.
According to Everence, which advises Praxis Mutual Funds, proceeds of “the $1.75 billion Toyota Financial Services green bond offering [which was increased from its original $1.25 billion due to strong investor demand], will fund new retail finance contracts and lease contracts for qualified Toyota and Lexus hybrid or alternative fuel powertrain vehicles.”
While this particular green bond may be new to Praxis, the fund itself is not new to social impact investments, which make up more than 10% of its holdings. Not only does it also hold World Bank green bonds, but, according to Praxis, “market rate investments also include bonds in solar and wind installations, vaccines, medical research and community infrastructure. The fund’s high social impact investments also include community development investments, which benefit disadvantaged communities in the U.S. and around the world.”
3. Solactive Green Bond Index: Financial markets indices provider Solactive AG recently launched the first index in the market to track green bonds. The index, according to Solactive, is based on a universe provided by the Climate Bonds Initiative, a nonprofit that is working toward climate change solutions via the bond market.
Solactive explained as follows: “Green bonds are now commonly defined as fixed-income securities that raise capital for a project with specific environmental benefits, where the proceeds go to climate mitigation or adaptation efforts. Green bonds are part of the overall climate-themed bond market, which has been rapidly increasing over the last years, amounting to currently $346 billion, with a further growth expectation according to the Climate Bonds Initiative.”
Astrid Ludwig, head of the bond and complex team at Solactive, said of the initiative, “Most of the responsible investment products available so far have been launched on the equity space. We are enthusiastic at the idea of offering this new, innovative index solution, which clearly fills a gap in the market, as we see a tremendous interest generated by green bonds.”
Solactive also plans to launch a Solactive Climate Themed Bond Index later in 2014.
4. The FTSE Developed ex-Fossil Fuels Index Series: The FTSE Group has teamed with BlackRock and the Natural Resources Defense Council (NRDC) to launch a series of global ex-fossil fuel indices that is groundbreaking in more ways than one: it includes natural gas in the list of proscribed investments.
While natural gas may have had a lower environmental footprint than coal or oil based on the pollutants it releases when burned, new methods of extraction that include hydrofracking—tied to earthquakes, pollution and even contamination from radiation—have stirred controversy among those advocating for cleaner sources of fuel. Investors wishing to completely remove the fossil fuel sector from their portfolios—and help others to do so as the call for environmental protection grows louder—may find this a useful tool.
5. The Pax World Growth Fund: Pax World has been busy on the sustainability front; it’s announced that the Pax World Growth Fund has divested of all fossil fuel holdings and “will henceforth pursue a fossil fuel-free investment strategy. In lieu of fossil fuel companies, the fund will substitute investments in companies that are proactively developing solutions to global sustainability challenges, including climate change, water, food and health care.”
This fund, by the way, isn’t the only Pax World fund to be fossil fuel-free; the Pax World Global Environmental Markets Fund has been so since inception in 2008.
6. The Pax MSCI International ESG Index Fund: Pax World Management LLC has launched this fund based on the MSCI Europe Australasia Far East (EAFE) ESG Index. The index, according to Pax World, “consists of equity securities of issuers organized or operating in developed market countries around the world excluding the U.S. and Canada that have high sustainability or ESG [environmental, social and governance] ratings relative to their sector and industry group peers, as rated by MSCI ESG Research.”
7. New EU Legislation Requiring Disclosure of Ethical Criteria: While it’s still in the works, the proposed legislation will compel companies to disclose far more information than they currently do regarding how they handle issues that range from human rights to environmental, social, corruption and employee concerns.
Everyone isn’t pleased with the draft, which has been substantially watered down from its original form; that proposed levying requirements on some 17,000 listed and unlisted companies across the region. However, businesses protested loudly enough that in its present state it only applies to approximately 6,000 companies, most of them listed, throughout the EU. What pleased businesses displeases advocates of ESG, who point to loopholes in the current proposal—which still has to be voted on by EU members. Still, it is expected to make a difference to investors who seek more information so that they can make more informed choices.