The financial market volatility of 2022 has many investors reconsidering their investment options. When addressing risk-return options, investors should consider all aspects of how their capital is invested. The positive impact from an impact and environmental, social, and governance (ESG) investment may help alleviate some of the potential loss for many investors as they recognize the additional societal benefit of their investment.
For those interested in making an impact through their investments, finding a specific area of interest may be key. Customization can allow investors to direct their capital to support specific geographies (also known as place-based impact investing), themes, or impact initiatives. At CCM, our fixed income strategy offers clients this customization opportunity, and within the past year, we have seen the greatest demand for the following topics:
Affordable Housing
Stable and affordable housing is a foundation for well-being. It can improve the quality of life for residents by leading to better health, adequate jobs, financial stability, security, and population diversity. Owning a home has numerous economic benefits, including the ability to accumulate wealth, build home equity, pass down generational wealth, and gain long-term savings over the cost of renting. Households that owned their home had a median wealth of $305,000, substantially larger than those that rented ($4,084). Even when home equity was excluded from total wealth, the median wealth of households that owned their home was $125,500, 30.7 times that of the median wealth of households that rented.[1]
Soaring mortgage rates, housing shortages, and high rental prices have caused affordable housing to become an important and timely topic for many investors. Impact investors can help support affordable housing by investing in a variety of products and strategies, including state-issued bonds supporting affordable housing, social-purpose real estate investment trusts (REIT), private equity funds, Community Development Financial Institutions (CDFI), and mutual funds investing in pools of affordable mortgage loans.
Minority Advancement
Our nation has a long history of economic inequality. And the COVID-19 pandemic continued to disproportionately impact minority communities both as a disease and as a disruptive economic force.
Black families historically denied homeownership have been ensnared in a multi-generational cycle that has locked many of them out of much of the American economic system. In fact, recent research shows that only 44% of Black Americans own a home compared to 74% of white Americans.[2] The trailing homeownership rate further impacts Black Americans’ ability to build generational wealth over time.
In addition to the large racial wealth gap, racial injustice and insensitivity continue to plague the nation. Although there are no immediate solutions to long-standing problems, investors have focused on investments in underserved communities that go beyond donations and grants with the goal of narrowing economic disparities. Investors have started to direct their capital to advance racial equality, tackle social disparities, and help build an economy that provides opportunities for everyone from affordable housing to access to capital — the basic building blocks of income equality.
To learn more about funds looking to bridge the racial wealth gap through homeownership, read this press release.
Environmental Sustainability
One of the most significant environmental rulings in recent years came from the Supreme Court, which limited the options the Environmental Protection Agency (EPA) could use to reduce greenhouse gas emissions from existing power plants. The court’s 6-3 decision ruled the EPA lacks wide jurisdiction to move the nation’s energy production away from coal-burning power plants toward cleaner sources, such as solar and wind power.[3]
Although this decision will make it more difficult to achieve the slowing of climate change in the U.S., it has sparked investors to focus more capital toward moving our economy on a lower carbon path. By reducing exposure to fossil fuels, investors can look to reduce climate-related risks and participate in the low carbon energy transition. Many mutual funds and exchange-traded funds (ETFs) are zeroing in on climate change exclusively.
[1] https://www.census.gov/library/stories/2022/08/wealth-inequality-by-household-type.html#:~:text=Households%20that%20owned%20their%20home,wealth%20of%20households%20that%20rented.
[2] https://www.redfin.com/news/black-homeownership-rate-across-united-states/
[3] https://www.pbs.org/newshour/politics/what-the-supreme-courts-epa-ruling-means-for-the-climate-change-fight