Purpose investments: seeking financial and social returns
This blog post is part of a year-long series that examines key concepts in our glossary of philanthropy services terms.Purpose investments are a crucial component of what we in Family Wealth Advisors call “purpose-built philanthropy” – a deliberate and thoughtful approach that helps clients amplify their impact by combining the “purpose” behind their current, more traditional, philanthropic activities, such as charitable gift giving, with the deployment of capital in all aspects and areas of their lives.
Coined by Bank of the West, the term “purpose investments” includes impact investing, environmental and social governance (ESG), socially responsible investing (SRI), microfinance, social impact bonds, mission-related investments (MRIs) and program related investments (PRIs).What purpose investments are not
Purpose investments are NOT a specific investment product; rather, they constitute a for-profit investment approach that enables clients to align their entire investment strategies, or a portion of their portfolios, with their philanthropic interests by applying deliberate and thoughtful investment selections across all asset classes.
Moreover, purpose investments are not a reason to accept concessionary returns, but rather are a method of pursuing both social returns and financial returns. This approach differs from traditional investment approaches that tend to seek competitive financial return regardless of, or with little concern for, the social impact of the investment. Meanwhile, on the other side of the spectrum, purpose investments differ from charitable grants and gifts – modes of capital deployment that seek only positive social outcomes with no regard for financial return.
Purpose investments are not just for philanthropists, either; in fact, the only prerequisite for them is passion.What are the benefits of purpose investments?
When discussing any investment approach, it is crucial for advisors and clients to be on the same page. Disparate terms such as impact investing, SRI, and MRIs are sometimes viewed as interchangeable, even though they are not.
Purpose investments aim to clarify investment categories to allow for flexibility, deploying a 360-degree client services approach that encompasses all facets of individuals’ and families’ desires to make an impact. For example, clients may choose to eliminate sources of income that are at odds with their values, ethics, and principles – a choice that is not an option in investment approaches that privilege maximizing financial return.
People often say, “You can’t have it all.” Yet with purpose investments as part of an overall purpose-built philanthropy approach, individuals and families no longer have to choose between financial and social-impact goals; they can see the impact of their efforts all around – in their own lives, as well as the world at large.
Investing involves risk, including the possible loss of principal and fluctuation in value. This information is for educational purposes only and is not intended to be investment advice or a recommendation to buy or sell a specific investment.