Impact investing—also called socially responsible investing or ESG investing—is an intentional way of directing your funds to the environmental, social, and governance causes that matter most to you, empowering investors to do well by doing good. It’s an investment strategy that balances positive impact with financial returns, benefitting both your financial future and the social and environmental factors that shape our world.

As helpful as impact investing can be, there are a few misconceptions about this strategy that can make some investors hesitant to direct their investing dollars towards mission-related investments.

Curious if impact investing is the right strategy for you? Read on to learn how environmental, social, and governance investing compares to traditional methods—and why positive impact and positive financial returns aren’t necessarily mutually exclusive.

How is impact investing different from traditional investments?

In a traditional investment strategy, the key goals are twofold: Generating financial returns year after year, and optimizing risk. To do so, many financial advisors will suggest allocating your investment dollars into a mix of stocks, exchange traded funds, mutual funds, bonds, and other investment vehicles and asset classes. Your financial advisor will likely choose these investments based on their previous financial performance, potential return, and level of risk.

An impact investing strategy is built around similar goals, but with one added priority: Creating a positive social or environmental impact alongside those financial returns.

Impact investors direct their investment capital towards businesses, non-profits, and funds that prioritize renewable energy, leverage zero-carbon technology, aim to improve health, education, and housing, and monitor their environmental performance as closely as their revenue growth. By investing in these sustainability-focused companies, impact investors can mobilize their capital—addressing some of the world’s most pressing social and environmental needs in the process.

High-impact investments don’t necessarily mean lower returns

One of the biggest misconceptions about environmentally and socially responsible investing is that investments made in change-focused or sustainability-centric funds and companies don’t offer the same kind of return potential as traditional investments made into growth-focused companies.

In reality, impact investing can offer a competitive financial return and social or environmental impact. As with traditional investing strategies, the financial performance of impact investing portfolios is determined by how well the funds are managed, the investments made, and—perhaps most importantly—the tax-smart strategies you use to optimize your after-tax earnings.

Impact investing can involve more than just environmental stewardship

A second misconception about impact investing is that it’s a niche strategy largely centered around environmental benefits. And while environmental outcomes are one of the most popular focuses of impact investing, they’re far from your only option.

Your impact investing strategy can be built around the environmental, social, and governance causes that mean the most to you. Investors may fund companies that promote sustainable agriculture, or you can invest in those that value human capital as much as venture capital. You can invest in hedge funds that focus on renewable energy, or you can make equity investments in companies supporting the economic development of underserved communities.

Impact investors have the power to seed the causes, communities, and concerns that mean the most to them—matching passion with positive change.

Investors may have a bigger social and environmental influence than they think

Another misconception that keeps some investors from seeking out impact investing funds is the belief that your limited investment dollars aren’t enough to make a meaningful difference. But in reality, every single dollar counts. Not just for the impact investing industry, but for the legacy you’re demonstrating with every sustainable investing decision.

Even small impact investments, when combined with those of hundreds or thousands of other investors, can have a multiplicative effect—changing the course of the company or fund you invest in. And every dollar you direct towards positive environmental, social, and governance initiatives is a dollar channeled away from companies doing less-than-planet-friendly work.

While the scale of investment can influence the radius of its impact, every contribution counts. Because even small investments can collectively have a big effect on the decisions and innovations that drive our world.

Ready to build your own impact investing strategy?

At Cook Wealth, we help investors do more with every dollar. Our impact investing strategies balance good with growth, so you can make the most of your wealth. To start creating your own customized investment plan, or learn more about our people-first approach to saving, planning, and investing, book an intro call with our team.