Invest for good: Impact investing for young Canadians

This investment strategy aims to deliver financial returns while championing the social and environmental issues you care about—and also ensure your money doesn’t support what goes against your beliefs. 

Impact investing offers a refreshing sense of agency at a time when huge global challenges—climate change and housing affordability, to name just two—seem insurmountable. Not surprisingly, impact investing especially resonates with Gen Z and Millennials, who have inherited these and other problems that were decades in the making. 

In this column, I’ll break down how to identify profitable and impactful investing opportunities, along with common pitfalls to avoid. You’ll also learn practical steps to kick-start your impact investment journey, and I’ll share resources that can help you align your financial choices with your values. Read on to learn how to make money and make a difference. 

What is impact investing? 

Impact investing means investing in projects or companies that generate positive social or environmental impacts while providing financial returns. As Joseph Curry, Certified Financial Planner and CEO of Retirement Planning Simplified in Peterborough, explains, “Investing is about putting your money to work so that you can participate in the future cash flows of those investments, getting further ahead financially. Impact investing incorporates that idea—making money—but also aligns it with your values in the hopes that your money can have an impact beyond just giving you financial returns.”

The Canadian impact investing landscape has grown significantly in recent years. According to the Responsible Investment Association (RIA), the impact investing market grew to an estimated $20.3 billion by the end of 2019, almost a 50% jump from the 2017 estimate of $14.8 billion—and nearly five times the 2013 estimate of $4.1 billion.

Younger generations are behind the boom—nationally and across North America. According to research from the Fidelity Charitable Organization, 40% of Millennials report engaging in impact investing, compared to only 20% of Baby Boomers.

On a global scale, impact investments are profitable. The 2020 Global Impact Investing Network survey found that over 88% of impact investors reported that their investments met or exceeded their financial expectations. 

Examples of impact investing

One of the most prominent examples of an impact investor is the Bill & Melinda Gates Foundation, founded by tech entrepreneur Bill Gates. With a whopping $67-million endowment (all figures in U.S. dollars), the foundation engages in philanthropy and has a strategic investment fund. This fund manages $2.5 billion and invests in initiatives that further the foundation’s mission of improving health, education and gender equality. The fund selects organizations and projects that benefit the world’s most vulnerable individuals, who are often overlooked by traditional investors.

Of course, impact investing happens on a local level, too. SolarShare is one example. Through this community-based organization, Ontario residents can invest in “solar bonds” to fund renewable energy. “Essentially, you’re providing and investing money to impact climate change through solar projects,” Curry says. “Like any other bond, they promise to pay you back a yield, meaning you receive a percentage return and interest on that investment.”

SolarShare says that since its incorporation in 2010, its 2,000 members have invested $80 million and earned $13 million in interest.

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What makes impact investing so appealing to young Canadians?

A strong focus on social and environmental issues resonates deeply with younger investors, who often prioritize purpose alongside profit in their money decisions. Young Canadians today are more aware of global challenges, and they seek investment opportunities that contribute to meaningful change.

Curry points to climate change. Younger generations feel that we’ve reached a critical juncture and that solutions are urgently needed. “For Baby Boomers or older generations, it’s less of a concern to their future. It hasn’t always been at the top of their minds or part of their values,” says Curry. “We’re at a stage now where we need to start thinking about these things and driving change, or else we and our kids will suffer the dire circumstances of not taking action.”

For young Canadians, the potential consequences of inaction—how climate change could impact their future and their children’s future—loom large. This sense of urgency makes impact investing not only appealing but also existentially necessary.

How can I choose impactful yet profitable investments?

While impact investing focuses on driving change, combining it with a more traditional investment approach increases your chances of profitability. Curry explains that impact investing funds social or environmental causes, and socially responsible investing (SRI) filters out companies that don’t meet specific ethical standards, like heavy greenhouse gas emitters. He says an ESG (environmental, social and governance) framework offers a filtering mechanism, but impact investing takes a more targeted approach.

The good news is that you don’t have to choose between profitability and making a difference. A well-diversified portfolio that follows evidence-based investing principles is still the best path forward, says Curry. However, he suggests it’s possible to carve out a portion of that portfolio for specific impact-driven projects. Doing so allows you to build wealth while moving the needle on positive change that is near and dear to your heart.

How to get started with impact investing 

To learn more about impact investing, Curry recommends exploring resources like sustainable investing articles from Morningstar and articles from Dimensional fund advisors specializing in ESG investing. These provide valuable tools for those seeking both impactful and lucrative investment opportunities.

Curry is a Millennial himself. His approach to impact investing is rooted in maintaining a broadly diversified portfolio while filtering out companies that don’t meet specific ESG criteria, such as those with high greenhouse gas emissions and those that produce tobacco or weapons. Curry leans on Dimensional’s criteria for ESG. 

He also highlights the importance of shareholder involvement in pushing companies towards better ESG practices. “One of the potential problems I see with just completely avoiding companies that have any greenhouse gas emissions or doing anything that doesn’t fully align with ESG is you also don’t have a say. As a shareholder, you have votes around the board. You have a bit of a say,” he says.

But before jumping into impact investing, it’s crucial to identify your values. This helps guide your financial decisions and ensures your investments align with your long-term goals. As part of this process, Curry shares an exercise to help you clarify your values. Taking a values-driven approach is essential for more meaningful and informed investing.

More about sustainable investing:

• An investor’s guide to ESG reporting in Canada
• What Canadian investors can do in times of world crisis and war
• Responsible investing is growing in Canada. Which ESG factors matter most?
• Sister activism: Nuns push for change through stock investments
• How to invest more sustainably in crypto

About Alicia Tyler

The Toronto-based journalist has more than 18 years of experience as an editorial leader in digital and print media, specializing in consumer and service journalism. Her work has appeared in Clean Eating, Flare and more.

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