Interested in Social-Impact Investing? Here’s How to Start – Wall Street Journal

Written by Cheryl Winokur Munk

The pandemic and other recent events that point to racial injustice have made many investors think about how they can make a difference with their pocketbooks.

Certainly, large corporations and wealthy individuals have long been able to influence change through foundations and charitable gifts. For the average person, investment options to directly support social goals are more limited. But this could change as demand for such opportunities grows.

A 2019 survey by Morgan Stanley’s Institute for Sustainable Investing found that community development was one of the top three impact interests cited by individual investors. Strategies include public or private bonds that benefit minority communities, supporting affordable housing, community development and the like. Another strategy is to invest in or with small lending institutions that focus on underserved communities.

“People right now very much want to do something, and they’re not sure what’s in their power to do,” says David F. Sand, chief impact strategist at Community Capital Management, a Fort Lauderdale, Fla., investment firm that manages $3 billion in impact and other socially responsible investments. “The immediate and obvious and appropriate response is philanthropy. But that’s not the end of the tools that are in your tool kit,” he says.

Here are a few ways that individual investors can put their capital to work to address social injustice and assist community development.

Calvert Impact Capital . This nonprofit investment firm moves capital into communities around the world through its Community Investment Notes, fixed-income securities that can be purchased online or by mail starting at $20 or with a $1,000 minimum through a brokerage account or financial adviser. The portfolio addresses nine impact sectors, including affordable housing and community development, and investors can target their dollars toward one or more impact sectors, says Justin Conway, vice president of investment partnerships.

Calvert Research & Management . This investment manager is a wholly owned subsidiary of Eaton Vance and is unrelated to Calvert Impact Capital. It is one of the oldest and biggest responsible-investing firms in the world, with over $23 billion in assets under management. While it doesn’t offer a mutual fund specifically focused on underserved communities, all of its funds are managed according to firm-established responsible-investing principles. In particular, investors looking for more focus on supporting underserved communities might consider Calvert Equity Fund (CSIEX) or Calvert Bond Fund (CSIBX), which invest in organizations that seek to create positive social impact, without sacrificing returns, says John Streur, president and chief executive of Calvert Research & Management. These funds invest in companies such as community banks that do business in underserved communities.

Community Capital Management Inc. This firm’s flagship product is a fixed-income mutual fund, CRA Qualified Investment Fund (CRATX), that invests along 18 impact themes. In June, the firm launched its Minority Cares initiative, which it is hoping will draw more investment dollars to serve the needs of underserved minority communities.

In the past, individual investors with the firm couldn’t earmark funds for a particular geography or theme. Now, however, new individual investments will be allocated to the Minority Cares initiative and invested in mortgage-backed securities, taxable municipals and asset-backed securities that benefit minority businesses and communities, education for minorities, affordable housing and more, according to Jamie Horwitz, the firm’s chief marketing officer. The mutual fund is available on a variety of online platforms and through financial advisers.

Community Development Financial Institutions. These are specially designated banks and credit unions that provide financial services in low-income communities. People can visit inclusiv.org to find credit unions with this designation and cdbanks.org for banks that meet the required criteria. “They are pretty widely dispersed around the country,” says Jon Hale, head of sustainability research at Morningstar. MORN -0.02% Even if people don’t use these institutions for their primary banking needs, they can often purchase cash-equivalent money-market funds or certificates of deposit online, he says.

Impact Shares . This investment firm offers an exchange-traded fund, NAACP Minority Empowerment (NACP), that is designed to provide broad equity market exposure to U.S. large and midcap companies that align with the NAACP’s vision of good corporate citizens. The ETF, which tracks the Morningstar Minority Empowerment Index, was created using criteria the NAACP developed to score and rank companies in the S&P 500 based on factors including board and supplier diversity and community involvement.

RBC’s Access Capital Community Investment Fund (ACASX).

This fund, dating back to 1998, is exclusively focused on underserved communities or individuals, says Ron Homer, chief strategist of impact investing at RBC Global Asset Management U.S. The fund invests primarily in high-quality debt securities and other debt instruments supporting affordable housing and community development and servicing low- and moderate-income individuals and communities within the U.S. The issuers of this debt tend to be government agencies such as Fannie Mae, Freddie Mac, Ginnie Mae and the Small Business Administration as well as some municipalities.

Nuveen . Investors who are interested in affordable housing and community and economic development could consider TIAA-CREF Core Impact Bond Fund (TSBRX) and TIAA-CREF Short Duration Impact Bond Fund (TSDBX). Two of the four impact areas within these funds are related to affordable housing and community and economic development, says Stephen Liberatore, who manages both funds. These actively managed funds invest primarily in investment-grade fixed-income securities that demonstrate environmental, social and governance leadership and/or direct and measurable environmental and social impact.

Ms. Winokur Munk is a writer in West Orange, N.J. She can be reached at reports@wsj.com.

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