When it comes to investing, there’s no better feeling than profiting from a company aligned with your own desire to create positive social and environmental change in the world—the extra peace of mind is hard to put a price on. Impact investing, as it’s known, has become so hot that, according to the most recent study from the Forum for Sustainable and Responsible Investment, in 2016 there was $8.72 trillion in assets under professional management in the United States. That’s roughly $1 out of every $5 invested.
Unsurprisingly, a lot of those dollars come from wealthier, less risk-averse clients who can afford to pay a little for their principles—but that may be about to change.
Earlier this year, Southern California startup Swell Investing launched a simple, mobile-friendly platform for impact investing, where you can invest in companies that are providing solutions to the world’s most pressing social and environmental challenges. The minimum investment? Just 50 bucks.
For founder and CEO Dave Fanger, who has worked for 17 years in financial services, and Amberjae Freeman from Swell’s impact team, who has focused on sustainable and responsible investing for seven years, the company’s mission is simple, and game changing: build a painless way to invest in companies that are doing good and doing well and investors, and solid returns, will follow.
FastCo.Works: First off, what is “impact investing,” and how is Swell’s platform different from previous investment methods or models for driving social or environmental change?
Amberjae Freeman: Impact investors are looking to solve global problems by investing in companies with measurable solutions to those problems. In Swell’s case, we’re not mutual funds, we’re not exchange-traded funds—we’re separately managed accounts. Our investors become owners in the companies in our portfolios, and as owners they have agency to vote on matters that concern environmental initiatives, labor concerns, and corporate governance issues.
As owners, they can partner with other shareholders to bring forth resolutions that can prevent companies from making environmental and social mistakes that in turn have negative financial consequences for shareholder value. That’s incredibly powerful, because as an owner you can engage with a company in very meaningful ways.
Dave Fanger: Until now, there really hasn’t been a way for the retail audience, broadly, to take part in this sort of investing. Historically, mutual funds and some investment banks offered a baseline form of socially responsible investing to higher net-worth clients. But the Swell platform is direct-to-consumer, accessible, and transparent. Potential investors can learn all about individual companies in our portfolios before they spend their money.
FCW: What are your portfolios, and how valuable are they?
DF: We have six thematic portfolios: Green Tech, Clean Water, Renewable Energy, Disease Eradication, Zero Waste, and Healthy Living. The weighted average market value of the roughly 300 companies in our portfolios today is around $20 billion.
FCW: What’s the primary misconception that most people have about impact investing?
DF: I would say it’s the misconception that they’re going to be sacrificing return. But as it happens, the MSCI KLD 400 Social Index, comprised of companies with high environmental, social, and governance (or ESG) ratings, has outperformed the S&P 500 over the past quarter century. And I think that’s bound to continue. At the start of 2016, almost $23 trillion in sustainable investment assets were managed globally—a 25% increase from just two years before. According to a report from Barclays, as much as $53 trillion in SRI-focused funds could be under asset management by 2025. Those are big numbers.
FCW: What metrics help ensure that companies in your portfolios are, in fact, behaving the way socially minded investors expect them to?
AF: Several factors are at play, ranging from whether a company generates significant revenue from addressing a specific problem—using technology to treat and/or conserve water, for example—to evidence that they’re committed to the United Nations’ Sustainable Development Goals. Those goals include things like achieving global food security, combating climate change, empowering women and girls, developing affordable energy for all, and so on.
When I look at a company, I’m looking at their three- to five-year plan. Are they putting enough R&D behind it? How do they perform as global citizens? How do they behave within the communities where they operate? However, we understand that no company is perfect; challenges arise. So, when we look at areas where they need to improve, we set targets to monitor whether companies are appropriately managing their impact risks. Because these risks can have financial implications. I’m constantly initiating and maintaining communication with companies about their response to the concerns of our investors and how they’re evaluating their own performance.
FCW: Is Swell’s investment model a response to consumers wanting and expecting more choice in general?
DF: In a sense, it is. As we ask about other products our audience uses, we’ve seen that things like Netflix and Spotify always come up, so there’s a world emerging for a new generation of investors where they can be very selective.
FCW: It’s the cable TV problem, where you might not want the full bundle. You want to pick and choose specific channels or streaming services, and not have to pay for stuff you’ll never watch. People like à la carte options. Why should impact investing be any different?
DF: That’s right. The idea of being forced into a mutual fund or ETF that you can’t change just doesn’t fit most people’s lifestyle. And the Swell investor has influence in the process. It’s a big shift, where you have a chance to actually have a say not only in how much money is going in, but where that money is going—and what problem your money is targeted to solve.
This article was created with and commissioned by Swell Investing.