Sustainable Investing

How to use your portfolio to amplify your charitable impact

Oct 18, 2022

Learn how your investments can better align with your philanthropic visions, without compromise.

Across the United States, this time of year heralds a period of reflection and a chance to consider making charitable gifts—a practice that has inspired the term “Giving Season.” Many families are gathering to discuss the causes they wish to support—and how to extend the impact of their capital. 

Giving Season can be a great opportunity for families to articulate, share and model their values—particularly across generations.

However, philanthropy isn’t the only place where you can express your values with your capital. Many of the most popular giving themes from our clients can be amplified through a suite of market-rate sustainable investments.1

Some of the most popular giving themes center around education, climate change and social justice —all of which have sustainable investment opportunities. Here are some examples of how you can amplify your philanthropic goals and potentially generate positive returns. 

Education

Do you give to your alma mater, a scholarship fund or some other educational cause? You also might want to consider investing in market-rate bonds that finance student loans and educational facilities. You might even be eligible to receive tax credits if you purchase these securities within your own state of residence.

The mechanics of supporting student loans are relatively straightforward. Each year, students and their families look for ways to make up any shortfalls between their financial aid packages and their tuition costs—a challenge that has only intensified as rising fees have outstripped the pace of inflation. In fact, nearly 30–40% of all undergraduate students take out loans, making student loan debt (which now totals USD 1.75 trillion2) the second-largest consumer debt category after mortgages. Banks and other entities finance these loans, and then sell the loans into the bond market so they can free up space on their balance sheets to continue originating loans for others.

Similarly, schools often tap into the bond market to help pay for capital improvements (such as new dorms, classrooms and other educational facilities). These bonds are often issued through local nonprofits, development authorities and public agencies, and take the form of tax-exempt municipal (muni) offerings. If you live in a state that provides dedicated tax advantages for investors buying local muni bonds, you may be able to buy these tax-exempt bonds and simultaneously support educational institutions in your own community. 

Environment

Has your charitable giving to environmental causes increased in recent years? If you make donations to nonprofits that help to mitigate climate change and promote biodiversity, you might want to invest in market-rate companies that support the same causes but also provide compelling financial returns.

The recent Inflation Reduction Act allocated over $380 billion to energy and climate investments, which is creating tailwinds for environmental investments across the country. Some of these investments will land on the supply side of the equation, supporting technologies that harness wind and solar power more effectively. Others will be designed to meet growing consumer demand for less carbon-intensive technologies (such as electric vehicles, efficient appliances and “smart” buildings).

Historically, companies that participated in the development of clean energy technologies were relatively small and early stage, so the only way to invest in them was through private equity. Now—with the industry maturing rapidly—many of the strongest performers are publicly listed.

For families focused on protecting intergenerational wealth, the energy transition represents a particularly compelling opportunity to pursue growth in their equity portfolios. Although these types of investments can be volatile, they can also represent durable, intergenerational megatrends that we expect to see play out over an extended time horizon.

Diversity, equity and inclusion

The fastest-growing focus for charitable giving is social justice, which became a focal point for philanthropy in May 2020, as protests swirled in the United States over police brutality and institutionalized racism. Since then, increasing awareness of the need for diversity, equity and inclusion (DE&I) in the workplace has begun to catalyze change across corporate America.

If you support social justice through your philanthropy, you may want to consider funding more diverse investment managers—as well as managers who prioritize diversity. Some investment managers, for example, are pushing their investees to publicly disclose the diversity of their staff, and others are filing shareholder resolutions that demand their investees undergo comprehensive Racial Equity Audits. 

In many cases, these efforts are being launched through the lens of financial materiality. The demographics of America’s consumer base are changing rapidly, and some investors say that companies won’t be able to meet the needs of that changing consumer base if they fail to hire employees who reflect those same shifts.

Over time, diverse managers have delivered notably strong results. According to a research study released in November 2021 by the National Association of Investment Companies (NAIC), diverse private equity managers’ funds outperformed the industry benchmark in 76.5% of the vintage years studied.3

A season to reflect

Like seasonal giving, sustainable investing can give your family an opportunity to discuss and express your values through your capital. Best of all, these investments can simultaneously work to support your values and your financial goals: Historical returns from sustainable investing show that these opportunities can match market returns—and in some cases, even generate alpha.4

As a family, you can also monitor how closely companies match your own philanthropic aims: New tools are emerging that will allow you to track sustainable investment metrics over time—much in the same way that financial reporting requires the disclosure of auditable, historical results, year over year. While this market development is still very new, it is being driven by consumer demand and regulatory initiatives, creating an environment in which it may be easier than ever to align your charitable and financial goals. 

Reach out to your J.P. Morgan team to explore all the ways your investments might help support your charitable goals. 

1 Sustainable investments that still target the same financial returns as their corresponding benchmarks.

2 According to the Education Data Initiative, 92% of all student loans are federal, 7.3% are privately held. Data as of July 2022.

3Examining the Returns 2021: The Financial Returns of Diverse Private Equity Firms, published the National Association of Investment Companies (NAIC), November 1, 2021.

4From January 2012 to June 2022, the MSCI ESG Equity Leaders Index (which focuses on companies with strong ESG scores) outperformed the broader MSCI World Index by 20 basis points (and experienced less volatility during that period). 

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Key Risks

Sustainable investing (“SI”) and investment approaches that incorporate environmental social and governance (“ESG”) objectives may include additional risks. SI strategies, including ESG SMAs, mutual funds and ETFs, may limit the types and number of investment opportunities and, as a result, could underperform other strategies that do not have an ESG or sustainable focus. Certain strategies focused on particular sectors may be more concentrated in particular industries that share common factors and can be subject to similar business risks and regulatory burdens. Investing on the basis of sustainability/ESG criteria can involve qualitative and subjective analysis and there can be no assurance that the methodology utilized, or determinations made, by the investment manager will align with the beliefs or values of the investor. Investment managers can have different approaches to ESG or sustainable investing and can offer strategies that differ from the strategies offered by other investment managers with respect to the same theme or topic. ESG or sustainable investing is not a uniformly defined concept and scores or ratings may vary across data providers that use similar or different screens based on their process for evaluating ESG characteristics. Additionally, when evaluating investments, an investment manager is dependent upon information and data that may be incomplete, inaccurate or unavailable, which could cause the manager to incorrectly assess an investment’s ESG/ SI performance.

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