The goal of every investor is to get a good return on their hard-earned money. Impact investing is the idea that you can get a good rate of return on your investment while also investing in companies that have a positive impact on society. With a focus on clean energy and green infrastructure, there will be an abundant amount of investment opportunities in Impact Investing. We take a look at the top impact investing companies for 2021 below.
Impact investing companies can have a positive impact on society through the products that they sell. Or impact investing companies can have a positive impact on society via the culture created within that allows impact investing organizations to give back to the communities they serve.
There is data to show that companies that take up the idea of caring about social and environmental impacts can outperform companies who do not operate for the “greater good”.
It would seem like a lot of people and financial institutions agree with this style of investing, as there is now more than $40 TRILLION of assets under management with impact investing companies. That is a staggering sum and an undeniable megatrend that is just getting started
Impact investors demand a positive impact alongside a financial return that is reasonable for the risk they are taking.
Think for a minute about why buying a stock in impact investing companies is so attractive and why investing in companies that are not impact investing organizations is so unpleasant to some investors.
Think about a fossil fuel company like Exxon, that does great harm to our environment to extract its raw product from the ground. And then the ultimate consumers are polluting our air as they use the finished product with their cars, etc.
Oil spills cleanup like the one below, is just one example of the negative impact.
Compare Exxon to NextEra Energy, which is a large utility company in the southeast that has much of its power generated by renewable energy sources like wind and solar.
If you stop and think about it before placing a trade why would anyone invest in a company like Exxon, or any fossil fuel company. A company like NextEra Energy is much more attractive.
Like Exxon above, think for a minute why you would want to invest in Altria, Phillip Morris or British Tobacco. At first these companies may be particularly interesting to dividend investors because of their high yields. But stop and think about the products these companies manufacture (cigarettes) and the negative impact on the people that consume them. Also think about the pollution caused during the consumption of the product. Clearly these companies would not be in the portfolio of any serious impact investor.
Now let’s discuss Impact investing as it relates to companies where there is a culture of giving back to the communities they serve through charitable work and/or other initiatives.
One of the best examples of creating a great internal culture is with March Benioff and what he has done as the chief executive officer of Salesforce. Many people are familiar with Salesforce’s products that are on the leading edge of the digital customer experience. These fantastic products have driven Salesforce’s market value (market capitalization) up to a staggering $250 billion. This has created a fantastic financial return for just about anyone who has invested in them in the last twenty years.
But less people are familiar with the positive impact that Salesforce is having on the communities it serves because of their internal culture. Through their philanthropic pledge, Salesforce annual commits 1% of its product, time, and equity for the greater good. They do this, not because they are required to do this. They do this because they think it is the right thing to do.
If I were going to allocate my capital to impact investing companies, I would use a criterion like the five listed below. I would not invest in a company that did not meet all five:
I have already talked about two of my top impact investing stock picks for 2021 above with NextEra Energy and Salesforce.
My final impact investing third stock pick for 2021 is Brookfield Renewable Energy.
Brookfield Renewable Partners owns a portfolio of renewable power generating facilities in water, wind and solar, with a significant focus on energy from water. They are led by the well-respected Connor Teskey. They are well capitalized, growing nicely from year to year and are in the middle of a megatrend that should carry them profitable well into the future.
When it comes to investing, consider impact investing as a way that combines looking for companies with a strong financial performance that are also doing good things for the world.
Once you look at investing through that lens it will give you a whole new appreciation for companies that are able to do both without needing to make any sacrifices.
Use the three examples above with NextEra Energy, Salesforce, and Brookfield Renewables as examples to get you started in your impact investing journey. I expect great things from them in 2021 and beyond.