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 April:
Now’s the Time for Foundations to Invest for Mission and Impact
The big news this month was The Ford Foundation’s announcement that it was putting $1 billion dollars of its endowment toward social impact investments. Foundations pioneered impact investing – or mission investing – with their program dollars, but it’s taken the maturation of the field for them to start putting every dollar where their mission’s mouth was. On the heels of fellow foundations Heron and Calvert putting 100% of their investment dollars toward meeting their mission, Ford — one of the largest foundations on the planet – is pursuing the same goal. Read more on Bloomberg >
Ford, along with its president Darren Walker and their board, understand that all eyes are on them right now. Critics of impact investing will look at the successes and struggles of this place with a keen eye, as detailed in Institutional Investor. But now that we have ten years of lessons learned behind us on impact investing, they see the time as right for a bold move. According to Walker, “The time is right for us to look at this paradigm with fresh eyes—to consider how we might start to bridge the gap between philanthropic impact and investments. Indeed, we have come to believe that if we expect to overcome the forces of injustice and inequality, we need to expand our imaginations and our arsenals. In short, we must begin to more deliberately leverage the power of our endowment.” Read more in SSIR >
CDFIs and Local Investing
Another big first happened this month, when our partners at LISC issues the first ever CDFI bond. At the moment, we’re seeing community development and job-creating programs at Housing and Urban Development, the Treasury Department, and the Department of Agriculture are on the budget chopping block. That makes it all the more significant that this $100 million general obligation bond succeed in raise capital for community development work. The projects to be funded span 31 urban and rural areas in 44 states. Standard & Poor’s, or S&P, has given the offering a ‘AA’ rating, and Morgan Stanley is underwriting the 10- and 20-year bonds. Read more on ImpactAlpha >
The bond markets represent serious capital. At the end of last year, the U.S. bond market stood at $39.3 trillion, including $3.8 trillion in municipal bonds. By comparison, HUD’s Community Development Block Grants in 2016 totaled just $3.2 billion. This kind of experiment follows on the success of green bonds, and the continuing growth of social-impact bonds. A new report from the Centre for Public Impact says the complexity of the deals and the high cost of evaluation means social impact bonds may continue to need subsidies unless average deal size increases. Larger bonds like LISC’s will help to meet this goals.
Another important need that these kinds of bonds meet is that of local communities. Cities, towns, and counties have big social and environmental needs that aren’t being met by states and the federal government. Our friend Lauryn Agnew of the Bay Area Impact Investing Initiative has a great explainer on what place-based investing is and how it works. Through a centralized approach that enables collaboration and community involvement, combined with transparency and stringent due diligence, we can direct pools of wealth (retirement plans, community and family foundations, corporate charitable assets and endowments) into our local economy.
A new report from CDFA hits on local impact investing as a solution. Many, if not most, central city or neighborhood urban areas are seeing an increased interest in revitalization. Office buildings are being converted to condos or rental units. Companies are relocating from suburban campuses to denser downtown areas. Older factories and Class C office buildings are being upgraded or converted to
residential and tech spaces. Retail, restaurants, grocery and hardware stores, and other commercial businesses are looking at downtowns as the place to be. Yet, despite all of this economic activity, major metropolitan areas still struggle with disinvestment, poor or insufficient infrastructure, and declining housing stock. Targeted and specialized financing through public private partnerships is required to see a true urban renaissance occur.
Another new vehicle to drive local investments are Guarantees — a powerful credit-enhancement tool that can provide investors with the ability to leverage more capital to address social and environmental challenges. According to our partner The GIIN through guarantees impact investors can leverage relatively small amounts of capital into high-impact deals while addressing the real and perceived risks of impact investing.
There’s a bunch of great examples of how local organizations and agencies are using impact investing to do that. In Minnesota, local foundations have invested $17 million in an affordable housing and small business bond. In Vermont, a new Vermont investment firm plans to invest $50 million in Vermont companies through its social impact fund. Calvert Foundation and Upstart Labs identified a $1.54 billion pipeline of 26 creative places and creative businesses seeking impact capital over five years beginning in 2017. California Wellness Foundation is committing $50 million over five years to expand access to healthcare services in underserved communities.
Who Is Impact Investing For – And Where Is It Going
A big new report from Oxfam and Sumerian Partners questions some of the assumptions around impact investments, and highlights the experience of enterprises contributing to poverty reduction so that they might be better served by the field. It argues that the sector risks being discredited due to rising, unrealistic expectations about financial returns alongside a mismatch between supply and demand for investment vehicles.
This tracks alongside another report and opinion piece from The 300 Club, saying that the modern world requires investors to evolve from simple allocators of capital to its steward, with far broader responsibilities. Maximising holistic returns represents practical action of the responsibility by investors, and stretches far beyond creating wealth simply for its own sake. Sounds like someone is arguing for social impact!
While some big mainstream investors like BlackRock or Goldman Sachs have started allocating pools of capital for social and environmental impact, right now it’s more the exception than the rule. The UN Sustainable Development Goals provide a great framework for the future of capitalism. At the conversation moves from agreeing on the global goals to funding them, investors have a trillion-dollar opportunity looking them in the face. Investor are already integrating ESG into their governance and decision-making, and seeing the financial benefits. Now a new report from Harvard provides insights into the views of more than 320 institutional investors on nonfinancial reporting by publicly traded companies and the role ESG analysis plays in their investment decision-making.
Sustainable Investing Is The Future
Shareholder resolutions are one of the only ways for investors to have an impact on public companies. And they’re under threat. A bill making its way through Congress would make it harder for shareholders to get a vote on issues of concern, including corporate responsibility and sustainability. The legislation would require shareholders to own one percent of a company’s shares for three years in order to propose resolutions — a sharp increase from today. That means, for example, shareholders of a big bank would need to own billions of dollars of shares to influence it, which means almost no one – and no accountability.
This regressive bill comes at a time when sustainable investing and investments for environmental impact are taking off. The World Bank just passed a major, major milestone with $10 billion of green bonds. The Global Sustainable Investment Alliance showed that socially responsible assets under management grew to $22.9 trillion at the start of 2016, 25 percent more than 2014. Wind power is adding jobs nine-times faster than the rest of the economy – and tens of times faster than dirty coal. Clean water investments are drawing more interest across the globe. And investors are seeking out innovative businesses that tackle problems and like food waste, and access to healthy food.
Right now capital is not the problem – ImpactAlpha points out that we need more projects. According to a report last year, “State of Private Investment in Conservation,” private capital committed had reached a new high of $8.2 billion, but investors were still looking for deals, with a reported $3.1 billion undeployed at the end of 2015. At this crucial juncture, our representatives in Washington should be doing everything possible to each these goals, not taking us backward.