If you don’t like the fact that your 401(k) invests some of your money in, say, gun manufacturers or fossil fuel companies (Vanguard, for example, has $268 billion tied up in fossil fuel stocks), a new startup called Swell offers you another way to invest–and support companies focused on solving major global challenges instead.
In Swell’s renewable energy portfolio, companies include Tesla and lesser-known businesses like Moog, a wind power manufacturer. A company in the clean water portfolio, called Xylem, develops technologies like a foot-powered water pump for farmers in developing countries. A portfolio of disease-eradication companies includes the cystic fibrosis drug company Vertex Pharmaceuticals and Bluebird Bio, a company that recently successfully used gene therapy to treat a patient with sickle cell anemia. A “healthy living” portfolio includes Lululemon and Whole Foods. Two other portfolios focus on green tech and zero waste companies.
With a minimum investment of $500, you can choose to invest in any combination of the six portfolios. “We wanted to make it accessible to anyone,” says Dave Fanger, CEO and founder of Swell Investing. Historically, impact investing was only an option for high-net-worth investors, with minimum investments sometimes in the millions.
Fanger was working in mergers and acquisitions when he started to notice a pattern: Companies driven by values often seemed to also have a potential for long-term profit. “You start thinking about all of the pressing global challenges we have–social, environmental, like disease eradication or clean water or renewable energy–and we look at that and say these are the challenges of today, but these will be the leading industries of tomorrow,” he says.
To be included in one of the portfolios, all of the companies have to pass two screenings: they have to have a high score on Swell’s system for rating environmental and social performance, and they also have to pass the portfolio manager’s assessment of their investment fundamentals, or the financial potential of the stock. Over time, other social-impact investment options have proven themselves economically–like the MSCI KLD 400, an index fund focused on companies with high social and environmental performance, which has outperformed the S&P 500 for more than two decades.
The startup, which is incubated by the insurance and mutual fund company Pacific Life, is one of a handful of new companies offering socially-responsible investment options to people who don’t have big bank accounts. Aspiration, another startup, is targeting millennials who may not yet have any retirement savings with its IRA that includes more sustainable companies. Another called OpenInvest lets investors build a customized index fund based on their values.
Swell is aiming to be even more rigorous than some competitors. Any company included in a Swell portfolio has to show commitment to the UN Sustainable Development Goals, and has to have revenue in its core business tied to a portfolio ‘theme’ like clean water. Because “impact” doesn’t have a precise meaning, different funds might have different criteria.
Ultimately, the startup wants to help move the needle on some of the world’s most intractable problems. “We hope to have an impact both in the short term and the long term,” says Fanger. “In the short term, we hope to see a world in which every investor is interested in, informed, and empowered to invest in impact. And along the way, we hope to play a role in surfacing our most pressing global challenges so that everyone is more aware of the issues at hand–as well as the work being done to solve them.”
Correction: This article previously misstated that Vertex was working on cancer drugs, rather than cystic fibrosis treatments.