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 February:
What Impact Investors Need to Know to Create Good Jobs
We’re excited to announce our newest report on how mission investing can create good, working-class jobs across underserved rural areas.
Over the past ten years, the Northwest Area Foundation has invested in a total of 20 companies across various sectors through its pioneering Invest Northwest mission investment program. These investments have directly impacted local communities across 8 states through the creation of quality jobs with good wages and greater levels of benefits than most private sector companies.
During those years PCV has worked with the Northwest Area Foundation and the Annie E. Casey Foundation to annually assess the social performance of the program. This report represents the culmination of our work evaluating Invest Northwest and documents important lessons and reflections that the entire impact investing community can draw from. Our report also shares the origin story of Invest Northwest, provides an overview of the fund’s financial performance, and describes in detail the fund’s strong social performance in supporting businesses and creating quality jobs over the last ten years. Read the report >
Mission Investing Hits Its Stride
Our friends at Mission Investors Exchange have been sponsoring an amazing series of articles on mission investing from foundations, and the amazing array of opportunities it presents.
Foundations have an important role to play in impact investing—in building platforms and products that efficiently mobilize capital, mitigate risk, and improve liquidity. Julia Stasch of the John D. and Catherine T. MacArthur Foundation writes that foundations need to being market making for their missions. In addition to their traditional grantmaking of about $250 million each year, they’ve expanded their impact investing strategy, working in new ways and tapping a dedicated pool of $500 million to help make the global impact investment marketplace more inclusive, efficient, and effective. Read more in Stanford Social Innovation Review >
Kate Wolford of the McKnight Foundation echoes this. Most foundations have endowments with invested assets—but many don’t see themselves as institutional investors. As a result, they are leaving behind some of their influence. The philanthropic community, she writes, should change the lenses through which they choose to see themselves to include institutional investor, and it could very well open the door to powerful new networks, new conversations, and new market-driven strategies. Read ore on Stanford Social Innovation Review >
One example comes from the Annie E Casey Foundation. To bring more resources to bear on the challenges facing children and families, funders can step outside their traditional grantmaking role to invest in innovative and mission-focused efforts. Our friend Patrick McCarthy from the foundation talks about how they began exploring social investing in the late 1990s as a way to put even more assets to work in advancing their mission, without jeopardizing the foundation’s long-term viability. Casey saw this kind of investment, using a percentage of their endowment to finance projects beyond the limits of their grant budget, as another tool to advance their mission. Read more in Stanford Social Innovation Review >
A second example comes from our Calvert Foundation. They’re partnering with U.S. Bancorp Community Development Corporation to back a new $20 million fund for small business lending in U.S. communities. Greenline Ventures, a minority-controlled and employee-owned firm in Denver, will manage the fund, and it will leverage federal programs that incentivizes investment in low-income U.S. communities to provide credit to women, veteran, and minority business owners. Read more on Impact Alpha >
Another example comes from Omidyar Network. They’re investing $2.9M in a new Latin American Alliance for Civic Technology to accelerate and scale innovation across the region. ALTEC is the next iteration of the hugely successful Accelerator Fund for Civic Innovation, which was created in 2013 by Avina and Omidyar Network and has been credited with kick-starting the civic tech sector in Latin America. The Accelerator Fund invested $2.3M over three years in the development and promotion of 26 platforms and apps in 9 countries in Latin America: Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Paraguay, Peru, and Uruguay. Read more on Omidyar >
Funding The UN Sustainability Goals
In September 2015, the UN General Assembly formally established 17 Sustainable Development Goals (SDGs) to be addressed by 2030, thus providing a common framework for public and private stakeholders to set their agendas and define their policies and strategies over the next 15 years.
An estimated $5-7 trillion a year until 2030 are needed to realize the SDGs worldwide, including investments into infrastructure, clean energy, water and sanitation and agriculture. Blended finance, venture capital, impact investing, crowd funding and environmentally or socially oriented market instruments such as green bonds are among a range of mechanisms designed to bridge the gap, but none of the current approaches seem sufficient to reach the necessary scale. Now, 19 banks and investors launch financing principles aimed at funding the UN sustainable development goals with $7 trillion. Read more on the UN >
Good Business Is Good For Business
The business case for adopting sustainability goals into a company’s strategy is still under debate, but a report released at the World Economic Forum by the Global Business and Sustainable Development Commission aims to change this mindset by mapping $12 trillion of market opportunities for businesses that develop responsible models as part of their core strategy, using the U.N. Sustainable Development Goals (SDGs) as a framework.
The report cites over 25 case studies of giants such as Nissan, Unilever, Mahindra, Ericsson and Merck, as well as ‘disruptive innovators’ like Safaricom’s M-Pesa, TransferWise, Peek Vision, and Bla Bla Car — which have successfully tapped into opportunities by addressing some of the world’s most pressing challenges such as climate change, economic inequality, and the gender gap. Read more on Triple Pundit >
From sustainable “blue economy” projects to restoration projects for wetlands, streams, and animal habitats, conservation-related projects have been drawing a significant amount of investor money in recent years. Investments that produce a financial return and a “measurable environmental result” climbed 62% from 2013-2015, according to a new report from Forest Trends, indicating that traditional divisions between conservation, philanthropy and for-profit finance may be withering. Read more at Fast Company >
This is all just the tip of the iceberg. Government commitments to reduce carbon emissions also represent a huge opportunity for public and private investors. The World Bank’s International Finance Corporation projects a $23 trillion investment opportunity between now and 2030 in just 21 emerging market economies if these countries deliver on their national climate commitments made as part of the global climate agreement. Read more at Impact Alpha >
Opportunities And Risks In The Coming Year
Impact investing is expanding, and that is creating new opportunities for social enterprises, including Benefit Corporations, women-led firms and community-based ventures. For the first time since the study was started in 1995, gender lens investing was tracked separately. The advancement of women is a factor for $397 billion in institutional investor assets and nearly $132 billion in money manager assets. Another growing trend has been a focus on place-based investing, especially in underserved communities. Community investing institution assets grew by almost 90%, from $64 billion to nearly $122 billion. Read more on Locavesting >
It’s a well-worn maxim that if investors want higher financial returns, then they need to take higher risks. Balancing risk and return is, in fact, one of the most fundamental elements of investment management. But there’s another way to look at risk-taking in the investment arena, especially if investors want to make deep social impacts with their capital, which is increasingly the case, especially among younger investors. If we want to create a deep social impact with our capital, then we need to realize that avoiding risk shifts it onto the very people we’re trying to help. Read more on Conscious Company >
We’re seeing a trend of asset managers, wealth managers, and investment advisors adopting the practice of integrating ESG into their core investment process. This trend has been driven by market demand and evidence that careful inclusion of ESG factors can improve risk adjusted results. Carefully optimizing on ESG scores, while neutralizing other systematic risks in the portfolio such as sector, country, and beta, has provided added value in the past. There are several empirical studies that support the argument that integrating ESG factors into the portfolio construction process can improve risk adjusted results. Read more on ETF Trends >
There are also investment opportunities that offer competitive financial returns while helping to address concerns about increasing levels of inequality and income stagnation. Investors can address concerns about inequality responsibly by selecting managers who employ a number of sustainable investing strategies. Inequality cannot be addressed without supportive public policy. Yet, investors can still make a substantial impact through certain strategies outlined here on Cornerstone Capital >
More than $560 million is invested with a “gender lens” in public equities and debt, up five-fold since 2014. That’s great news and seems like a lot of money — until you measure it against the opportunity: $28 trillion. That’s the potential addition to global GDP by 2025 if women participated equally in the global economy, according to an estimate by McKinsey Global Institute. The 26 percent boost to the global economy is equal to the size of the U.S. and Chinese economies combined. Read more on Impact Alpha >