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 March:
Doing The Hard Work, Fueling The Momentum
Our friends at Mission Investors Exchange have been sponsoring an amazing series of articles in the Stanford Social Innovation Review, looking at foundations’ pioneering work in impact investing, and what those mission-investing leaders see next for the field. Over the last few years, foundations have, more and more, realized that if their grant dollars and impact investments work toward their mission, but the investments made with their endowments don’t, they run the risk of hypocrisy or even compromising their mission itself. A new movement among foundation leaders seeks to align endowments 100% with mission – and our friends Heron Foundation are one of the first to get there. See what they learned along the way >
As we move further into the year, more and more investors and market leaders are openly wondering what the future holds for social impact investing with the new administration. Our friend Jean Case has been bullish on impact investing for a long time, and she recently took to SSIR to say that bullishness isn’t wavering. She identifies three major trends that aren’t going anywhere. Read more in SSIR >
In fact, President Trump’s executive orders and proposed budget cuts affecting environmental and social programs are increasing demand for impact and ESG investments. Even without a supportive partner in government, institutional investors and family offices are moving forward faster than ever. More details on Think Advisor >
Morgan Stanley, a mainstream brokerage with enormous amounts of capital under management, just announced the launch of two sustainable investing model portfolios with reduced account minimums of $10,000 on its Investing with Impact platform. Read more >
And Morgan Stanley isn’t the only organization making small-dollar impact investments available to retail investors. Two recent examples are Trilinc Global, a California-based impact fund manager, with a minimum investment of $2,000; and Calvert Community Foundation with one-to-ten-year notes that may be purchased for a minimum of $20. Check out a longer list on ImpactAlpha >
Another perpetual hurdle for impact investors is the myth that there aren’t enough ready-made investible vehicles to meet demand. That myth seems to pop up more and more often in economically underserved communities. For impact investing to realize its true potential, we need to change the mindset and narrative related to there being a “lack of pipeline” in underserved communities—rural and urban—to a perspective that people in communities can create the environments in which outside investments can thrive. Read more >
Short-Term Thinking Leads to Long-Term Damage
CDFIs are the original impact investors, turning small amounts of capital into billions of dollars of economic activity, and hundreds of thousands of jobs. The growth of CDFIs over the past 20 years has come in large part thanks to the CDFI Fund at the U.S. Treasury. Last year, Congress appropriated just $233 million to the CDFI Fund. That led to $2.1 billion loans and investments that created 28,000 jobs in poor communities.
Now, all of that good work is in danger. In his so-called “Skinny Budget” the President eliminates the CDFI fund in its entirety. It also eliminates the New Markets Tax Credit program, which spurs revitalization in low-income communities through offering private lenders a tax credit if they invest in underserved areas.
In calling for the elimination of programs like the CDFI Fund, the President’s budget said that in contrast to 20 years ago, “private institutions [now] have ready access to the capital needed to extend credit and provide financial services to underserved communities.” This is “true” only in the most cynical sense.
Small businesses certainly have “access” to capital, but if these programs are eliminated those sources of capital will dramatically pull back from investing in all but bigger businesses and the richest communities. The fastest growing segments of small business owners are Africa-American women and Latino women, the U.S. Small Business Administration says they’re three-times as likely to be turned down for loans by a bank. The Association for Enterprise Opportunity notes that 2.2 million small businesses in “low-wealth communities” seek credit in a typical year – and 8,000 small business loan requests are declined every business day.
More Thoughts On Incentivizing Investment in “Low-Income” Areas
The Community Reinvestment Act, which turns 40 this year, was passed to spur lending in communities that are often underserved by lending institutions, namely low- and moderate-income communities. But is it working, and did big banks game the system? A new analysis layered loan data over a census map and found that bank loans made through the Community Reinvestment Act favored higher income areas over lower income areas. In fact, businesses in lower-income census tracts, businesses in higher minority or higher Hispanic percentage census tracts are likely to have less access to big bank, CRA-reported bank loans than businesses in more affluent or more white neighborhoods. Read more >
In the midst of the most geographically divided economic recovery on record, it’s no surprise that communities desperate for economic growth often turn to expensive corporate tax incentives designed to produce a quick fix by luring or retaining local jobs and investment. Such incentives totaled a whopping $45 billion in 2015 alone. Those corporate subsidies with taxpayer money only move jobs from state to state, they’ve never created any new net jobs. Now, new ideas are emerging to fill this void, like the broadly bipartisan Investing in Opportunity Act (IIOA) which reimagines how to incentivize private investment in underserved areas of the country. Read more on The Hill >
Speaking of the CDFI Fund: It’s newest program is the CDFI Bond Guarantee Program, created by the Small Business Jobs Act of 2010. The federal government purchases bonds issued by federally certified CDFIs. The bonds are 100 percent guaranteed by the U.S. Treasury, and each bond provides capital at up to 29.5-year terms. The BGP is currently the only source of long-term, fixed-rate capital for community development and small business funding. Read more >
Another major area to explore to bring capital to marginalized communities and underserved areas is the bond market. IFC – part of the World Bank – issued their first “Social Bond” raising $500 million for women-led companies and low-income communities. The California State Teachers’ Retirement System (CalSTRS) and more than 40 other institutional investors bought into the three-year bond. Read more >
Lastly, as the Federal government slows down, local leaders are facing down climate change, population growth, demographic shifts, and huge infrastructure upgrades. But as we saw with “urban renewal” in the 20th century, sweeping infrastructure change can have negative consequences and serve to worsen inequity. A collaborative of funders, investors and NGOs called the Strong, Prosperous And Resilient Communities Challenge (SPARCC) is taking on that challenge. Read more >
Impact Investing And A Greener World
Runaway climate change is the biggest threat to our planet – but as we saw last month, combatting it is also a multi-trillion dollar opportunity for private capital that wants to advance social good. This month, we’ve seen a few awesome examples of how this is starting to play out.
- CoPower, a certified B-Corp, just issued a $20 million green bond, its biggest yet, to let ordinary people invest in clean energy projects across North America
- Hedge Funds across the world are slowly adopting ESG reporting
- The International Energy Agency finds that the transition to sustainable, renewable energy can fuel economic growth and create new employment opportunities globally
- Small-scale farmers are turning to wind power investments into profit, and seventy percent of U.S. turbines are in low-income rural areas.
- Embedding sustainable business practices in the global food and agriculture industry alone could deliver an annual $2.3 trillion windfall
BlackRock, the world’s largest asset manager, put corporate boards on notice that it expects them “to have demonstrable fluency in how climate risk affects the business” and how management is managing that risk. Specifically, to follow the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures, launched in December by Michael Bloomberg and Mark Carney, governor of the Bank of England. Read more >
Rising global demand for water and the decline in reliable supplies means higher prices. That should drive a growing market in water efficiency, as farms, cities and industry value their water properly. And as public policy does the same, conservation efforts that restore degraded watersheds should also become investable. That’s the argument in a new report from the ImPact and CREO, and The McKinsey Global Institute estimates $7.5 trillion of water-related investment will be needed globally in the next 15 years. Read more >