Impact investing is about using markets and money for social good. Impact investing is built on the belief that private capital can play a powerful role in solving the massive global challenges of our day, and that capital markets should work for good as well as profit. This vision is realized through investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.
Every month, PCV will give you a roundup of what’s new in the field, what conversations are taking place, and how you can get involved. Here are some highlights from November:
[custom_headline type=”left” level=”h2″ looks_like=”h3″]Impact Investing Is A Fast-Growing Force[/custom_headline]
The demand for sustainable and impact investing is growing— investors now consider environmental, social and governance (ESG) factors across $8.72 trillion of professionally managed assets, a 33 percent increase since 2014! This is according to a major new report from our friends at US SIF, which looks at the growth and maturity of sustainable and impact investments from 2010 to the present.
Money managers and institutional investors are scrutinizing an array of concerns—including climate change, weapons production, human rights and corporate political spending and lobbying—across a broader span of assets than in 2014. A diverse group of investors is seeking to achieve positive impacts through such strategies as corporate engagement or investing with an emphasis on community, sustainability or the advancement of women.
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[custom_headline type=”left” level=”h2″ looks_like=”h3″]What’s Needed Next?[/custom_headline]
As impact investing has become larger and entered the mainstream, there’s a few long-standing discussions that need to be settled and codified. For many years, the field of impact investing played host to debates that involved seemingly irreconcilable positions: Was it possible to achieve both market-rate financial returns and meaningful social impact? Could philanthropic funding coexist effectively with commercial investment? Now, as the field reaches a new stage of maturity, leading social finance organizations are developing models that bring greater sophistication to the work of evaluating investment options. Our partners at Omidyar Network have built a framework for pursuing investment opportunities that takes into account not only firm-level impact but also market-level impact. Read more in Stanford Social Innovation Review >
This sentiment is echoed over at Barlcays, which recently investigated the relationship between ESG investing and performance in the US corporate bond markets. They found that introducing ESG factors into the investment process resulted in a small but steady performance benefit, with no evidence of a negative impacts ever found. Read more at Barlcay’s >
We’ve looked at frameworks and financial relationships, but what about due diligence? Given impact investors’ focus on scaling up positive solutions to global problems, perhaps it’s not surprising that many aren’t putting resources into measuring unintended harms. While impact investors rightly focus on positive investment returns, we should also be on the lookout for the social and environmental harm that investments might cause—because in the final analysis, some of those investments do more harm than good. If impact investors adopted a stronger focus on rights-based development and accountability, they could make better decisions and improve their impact. Read more on Stanford Social Innovation Review >
[custom_headline type=”left” level=”h2″ looks_like=”h3″]Supporting Social Enterprise From the Get-Go[/custom_headline]
As impact investing continues to grow and prove itself, opportunities abound for investors to put capital markets to work addressing social and environmental challenges. Deep impact investing with social entrepreneurs provides a rewarding way to add a sense of purpose to investing strategies. But, the amounts and structure of funding needs of both for-profit and nonprofit social enterprises tend to be a little different than what traditional investors are used to. Learn what you need to know at ImpactAlpha >
If you’re not with a big firm and wondering how you, as an individual, can tap into impact investment markets, there’s a new tool that can help. ImpactUs Marketplace is one of a wave of new investment crowdfunding platforms. Investment crowdfunding is similar to Kickstarter or IndieGoGo, in that you visit a website, search and browse opportunities, and put your money into one or more projects. Investment crowdfunding is different from those other platforms, though, in that you will actually get paid back for your investment over time. Read more on Next City >
There are also some benefits that impact investors can look to in the tax code. A provision of the I.R.S. code can help de-risk early-stage impact investments by providing a significant tax deduction for losses from investment in “qualified small businesses.” In some cases, the deduction is even more advantageous that the tax deduction for charitable donations. And of course, the investment may be a success, which is even better than a deduction.
For impact investors that want to support new for-profit ventures tackling social or environmental problems, §1244 is a win-win strategy: If the startup succeeds at having their intended impact, and successfully builds a profitable business, the investor receives triple-bottom-line returns. If the venture tries and fails, at least the individual or family can deduct their losses against ordinary income, and that deduction is better than if they gave the investment to a non-profit approach to the same problem. Read more on ImpactAlpha >
On the other end of the capital investment spectrum, our Accelerating Impact Investing Initiative (AI3) released a new issue brief on tax incentives for impact investments through Community Development Financial Institutions (CDFIs). CDFIs, like Pacific Community Ventures, are government-certified financial institutions that serve individuals, businesses and communities that tend to be overlooked by the conventional financial system. The brief takes a close look at tax credits at the state level, both of which have proven effective in increasing the amount of private capital invested in underserved communities to develop affordable homes, support small businesses and create jobs. Read more on the AI3 >
[custom_headline type=”left” level=”h2″ looks_like=”h3″]New Approaches Across Multiple Sectors[/custom_headline]
Building more affordable housing is an especially tough challenge for philanthropy. Funders don’t have enough money to solve this problem by themselves and solutions hinge on much more than new capital. Issues like zoning, transportation, and access to schools and services all come into play. Now, several stakeholders are partnering to launch an impact investing tool called “Our Region, Your Investment” that is helping to address the rise of housing problems in the greater D.C. region. Read more on Inside Philanthropy >
Another major social ill affecting America is drug addiction. With a fresh infusion of $11.2 million in philanthropic and private capital via a new financing framework, Family Based Recovery Services based in Connecticut is piloting a new program, hoping to reach up to 500 Connecticut families over a five-year-period. Since no one alone can solve the nation’s drug problem, health professionals will deliver family based recovery plans to vulnerable families with the Connecticut Family Stability Pay for Success Project, officials announced Wednesday during a panel at the Community Health Center. Read more on Middletown Press >
The next major social challenge we face is ramping up alternative and renewable energy. In Ohio, policymakers have expressed interest in a set of renewable energy and efficiency policies that would maximize financial benefits to the state, while keeping Ohio on track to meet potential future environmental regulations. To evaluate the most effective mix of resources that would meet these two objectives, the Greenlink Group, in consultation with Runnerstone, produced four forecasts of the state’s electricity market with different mixtures of renewable energy. Read more on Greenlink Group >
One more area that’s ripe for impact investment is the food and agriculture space. A new report details how meeting the challenges of the food and agriculture sectors sustainably could unlock 14 major business opportunities worth $2.3 trillion annually by 2030. Each opportunity has an estimated value range: from cattle intensification where sustainable improvements could increase value by $15 billion a year, to reducing food waste in value chains worth $405 billion to the private sector. With an annual investment of $320 billion, fully pursuing these sustainable opportunities would deliver a 7-fold return on investment. Read more on Business Commission >