So, what’s an investor to do given the limited social data about companies as they relate to certain aspects of the XX Factor framework? First, it’s important to debunk the idea that investors will need to sacrifice financial returns to align their portfolios for greater social impact. In our interviews, foundations and high-net worth investors expressed confusion about this idea.

There are, in fact, a range of ways to balance mission with financial objectives. For instance, Bridges Fund Management, with its Bridges Spectrum of Capital, maps out a broad range of risk/return strategies for impact investing. This spectrum is widely referenced by the social impact investment industry because it shows different strategies investors can adopt based on their desired risk, return, and impact profile. It ranges from financial-only (where traditional investment management resides) to impact-only (where traditional philanthropy resides) and describes the balance that is possible in between.

Based on dozens of conversations with asset owners and investment advisors, we identified three types of investors who seek social data on companies. We then created the table below (“A Typology of Investors”) to show how each of these three investors would apply a specific social impact lens to financial investing. Each type of investor has a different goal for considering a company’s social data. That particular goal drives investment policies and practices, much as a foundation’s philanthropic goals drive grantmaking.

While various regulators require advisors and investment managers to develop an Investment Policy Statement (IPS) for client portfolios, it typically focuses only on the financial aspects of investment goals. A mission-aligned investment strategy should be reflected in your IPS. We spoke with advisors and investment managers who are expanding their clients’ IPS beyond traditional financial concerns. Such expanded investment policy statements can include a mission statement, social criteria for the companies you seek to own (as well those you want to avoid owning), and guidance on casting shareholder ballots (called proxy voting) to align with social impact goals. (For sample language, see box.)

Given all this, investors have two clear choices when aligning for social impact: choose stocks based on the information the companies provide about their Environmental, Social and Governance (ESG) goals and engage as a shareholder to influence the companies you own.

Choosing Stocks Based on Available Data

The XX Factor can guide you to social criteria for selecting companies with policies, practices, products, and public activities that align with your philanthropic goals. For example, if you care about economic empowerment for women, the XX Factor identifies equitable work-related policies and practices as one of the key determinants, and equal pay for equal work as a measure of that determinant. To align your public equities with the goal of economic empowerment for women, you could therefore seek investments in companies that provide equal pay for equal work.

In order to have a diversified portfolio and meet certain financial risk and reward goals, you will likely own shares of companies whose policies and practices may not fully align with your philanthropic goals. This is where the second strategy, shareholder engagement, can be a useful approach.

Engaging as a Shareholder

Shareholder engagement is a term used to describe the activities that enable shareholders to communicate with the management of companies they own. As an owner of a publicly-traded company, you have the right, and many would say the responsibility, to communicate your social goals with a company’s management and board to shape its policies, practices, and public activities.

You can communicate with management and encourage a company to align with your social mission in three ways: