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Money & Meaning: Four Steps to Investing with Impact

Increasingly, investors of all types are seeking to align their investments with their values – an approach Morgan Stanley refers to as Investing with Impact. This investment trend has gone mainstream. Since 2012, sustainable investments in the U.S. have more than tripled to $12 trillion. In a recent survey of US asset management professionals, Morgan Stanley found that 75% of asset managers said their firms practice sustainable investing, up 10% from 2016.1

While 89% of asset managers say sustainable investing is here to stay and 65% expect adoption to grow in the next 5 years,2 it is still a relatively new category and therefore can be difficult to know how to get started. Here is a step-by-step overview to help you navigate Investing with Impact:

1. Articulate Investing with Impact Goals

Ask yourself: what causes or types of issues do you find yourself spending time on, volunteering for, or donating to? Or wish that you could?

By clarifying your core areas of interest, passion points, and desired impact, you can gain a clearer understanding of what you'd like to achieve with your investment strategy.

2. Evaluate the various approaches to Investing with Impact

There are several approaches to impact investing, depending on your goals and risk appetite:

Restrictive Screening: Managing exposures by intentionally avoiding investments generating revenue from objectionable activities, sectors, or geographies.
Example: Choosing not to invest in companies profiting from tobacco sales

ESG-integration: Proactively considering environmental, social, and governance (ESG) criteria alongside financial analysis to identify opportunities and risks during the investment process.
Example: Selecting companies actively working to minimize their carbon footprint

Thematic Exposure: Focusing on themes and sectors dedicated to solving sustainability-related domestic and global challenges
Example: Investing in companies tackling a particular issue such as renewable energy or clean water

Impact investing: Allocating to investment funds focused on private enterprises structured to deliver specific positive social and/or environmental impacts
Example: Investing in a fund that supports companies providing essential banking services to emerging populations in Africa

Shareholder Engagement: Driving positive change through active dialogue, proxy voting, and/or shareholder resolutions in invested companies
Example: Raising concerns or sharing new ideas as a shareholder to influence the long-term impact of the company and inspire sustainability-related efforts

3. Define portfolio strategy and select investments

Whether it's an ETF, mutual fund, direct investment, or something else, there are plenty of options for putting your money to work. Depending on considerations such as the investment amount, your goals, and the time horizon, certain products may be more appropriate to fit your needs.

Work with a trusted Financial Advisor to determine what strategy is best for you. Your Financial Advisor can also help lay out the considerations of integrating Investing with Impact in your investment portfolio, or managing these investments separately (for example, as a carve-out or through a separate account).

4. Monitor portfolio for financial performance and impact alignment

Monitor and evaluate alignment of your financial objectives with your impact objectives. Work with your Financial Advisor to identify additional opportunities to further allocate funds towards your impact objectives over-time.

Did You Know?
Morgan Stanley's Investing with Impact platform has over 140+ Investing with Impact exchange traded funds, mutual funds, separately managed accounts and alternative investments (for qualified investors) across a range of impact objectives. Plus, overlay restriction screening capabilities to accommodate further customization.

For more helpful resources including tips and insights on navigating the many milestones of adulthood, please reach out to your Financial Advisor.

1Morgan Stanley Institute for Sustainable Investing & Bloomberg L.P., "Sustainable Signals: Growth and Opportunity in Asset Management," 2019.

2 Ibid.

This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be appropriate for all investors. Morgan Stanley Smith Barney LLC recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. This material is not an offer to buy or sell any security or to participate in any trading strategy. Asset allocation and diversification do not guarantee a profit or protect against a loss. Past performance is no guarantee of future results.

Private Funds (which include hedge funds and private equity funds) often engage in speculative investment techniques and are only appropriate for long-term, qualified investors. Investors could lose all or a substantial amount of their investment. They are generally illiquid, not tax efficient and have higher fees than many traditional investments.

Investing in the market entails the risk of market volatility. The value of all types of investments may increase or decrease over varying time periods. Fixed Income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall.

The returns on a portfolio consisting primarily of Environmental, Social and Governance ("ESG") aware investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.

An investment in an exchange-traded fund involves risks similar to those of investing in a broadly based portfolio of equity securities traded on exchange in the relevant securities market, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. The investment return and principal value of ETF investments will fluctuate, so that an investor's ETF shares, if or when sold, may be worth more or less than the original cost.

Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund / exchange-traded fund before investing. To obtain a prospectus, contact your Financial Advisor or visit the fund company's website. The prospectus contains this and other information about the mutual fund / exchange-traded fund. Read the prospectus carefully before investing.

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