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 May:
Investing In The American Dream
CDFIs were perhaps the first impact investors in America, and as an industry we’re continuing to pioneer new ways to align investors and capital with social good. This month, after the recent news that our friends at LISC had issued the first-ever CDFI bond, we’re seeing a private bond market emerge for low-income community development. If you need an example of how public and private impact capital can open private capital markets for low-income communities, our friends at Impact Alpha say look no further than the scene at The Reinvestment Fund in Philadelphia as bids came in for the organization’s $50 million in S&P-rated bonds, only the second such bond offering ever. Read more >
One of the major ways that CDFIs keep the American Dream going is by funding and empowering small businesses – and that’s never been more necessary. The basic idea of the American Dream, that anyone who works hard and has a great idea can succeed, isn’t true for most people. While big companies have never been more successful, new firm creation is at a 30-year low. I
In America today, more firms (and the dreams of the entrepreneurs that start them) are dying than starting every day. According to the Kauffman Foundation, nearly 100 percent of net new jobs in America come from new businesses. So what is Kauffman doing to change that? The Zero Barriers movement is a trillion-dollar moonshot that’s forced the conversation around entrepreneurship to become more honest about the real barriers in the way of starting a business, including for minority communities and other demographic, socioeconomic, and geographic segment. Read more >
A “jobs bond” could provide liquidity to private investors in startups and small businesses based on the number of jobs created. Aggregating community banks into a “super-regional” bank could bridge between large capital providers and organizations that create entrepreneurial ecosystems. Those are some of the ideas surfaced in a two-day Kauffman Foundation-mobilized design lab to imagine ways to jumpstart U.S. entrepreneurship.
Who Manages Impact Investments?
It was part of the credo of socialism back in the day to look at who benefits, and who owns the means of production. In a not dissimilar way, it’s important to look at who benefits from the innovations of social impact investing, and who’s actually making the decisions about which deals are pursued and where capital’s being allocated.
The Ford Foundation made waves last month by committing a large portion of its endowment toward mission-related investments. Now the Knight Foundation, which works to build engaged and informed communities, is trying to address a more creeping societal issue: discrimination against who exactly is enabled to make these investments.
According to a Knight Foundation report, women and minority-owned money management firms are getting shut out of the asset management industry–not just by philanthropies, but by public funds, high-net-worth individual and family offices, and especially corporate interests. The group hopes the change that practice across the entire investment landscape by calling more attention to it. Read more >
As impact investors, we must confront racial injustice. Inequality and injustice based on race, after all, were founding economic realities of American life. Two centuries later, inequality, abuse, and discrimination are still present in every sector — in education, housing, healthcare, and policing. One group that’s talking about the intersection of race and impact investing is Zevin Asset Management, with a call to action to other investors to follow suit. Read more >
New Benchmarks, New Tools, New SDG Alignment
Our good friends at The GIIN released a report this month on the financial performance of private real assets impact investment funds. The report analyzes the financial performance of 55 real assets impact investing funds from 1997 – 2014, grouped into three sectors: timber, real estate, and infrastructure. Real assets can play several roles in institutional portfolios, providing diversification, current income, the potential for strong, long-term returns, and an inflation hedge. Read more >
The report shows need to foster even greater collaboration and mutual respect among those impact investors that require market rates of return and those that target important business models that might not be as profitable. Both types of investors are absolutely essential, individually and together.
One of the biggest impediments for impact investors is risk. What if you put too much of your assets into an affordable-housing project or low-income health-care center that eventually fails in its mission and leaves you sitting on a sizeable loss? That’s a thought scary enough to steer away risk-sensitive impact investors. Recognizing this conundrum, the Global Impact Investing Network did a deep-dive study on unique finance options that might be attractive to skittish impact investors. Read more >
The GIIN is also out with their annual impact investor survey report, and it’s jam-packed with extensive information on many aspects of today’s impact investing market. Some key topics from this year’s survey report include:
- The overwhelming majority of respondents reported that their investments have either met or exceeded their expectations for both impact (98%) and financial performance (91%).
- There have been an increasing number of large, well-known asset managers and other financial firms entering the impact investing space.
- Commitment to the Sustainable Development Goals to track impact investment performance. The SDGs have served as a rallying cry for many impact investors to link their investments to a broader international initiative.
- Nearly universally, respondents measure the social and/or environmental performance of their impact investments, using a mix of proprietary metrics, qualitative information, IRIS-aligned metrics, and other tools and frameworks.
Speaking of the UN Sustainable Development Goals – Katherine St. Onge of Calvert Foundation recently sat down to discuss how the Foundation aligns its work to the SDGs. The Calvert Foundation is working to bring impact investing to the people. Calvert Foundation offers investors an accessible way to invest for social and environmental good with a fixed-income investment opportunity in which more than 18,000 investors have invested a total of $1.4 billion. Read more >
When it comes to new tools and practices, big-name VC fund Andreessen Horowitz is backing impact investing robo-advisor OpenInvest. The socially-responsible online-investment platform for retail investors raised $3.25 million in seed financing. Unlike many online passive investment options, OpenInvest allows users to manage their portfolio around themes such as climate change, fossil fuels, gender and LGBT equality, or political affiliation, and collectively invest and divest with other investors. Read more >
Local Impact and Place-Based Investing
While impact investing continues to grow apace both globally in across North America, many institutions pursuing impact investments are finding ways to really go deep and invest in a community. One of the biggest examples is in Detroit. Encouraged by its return on a $100 million bet it made on the Motor City three years ago, J.P. Morgan Chase & Co. is planning an additional $50 million investment in Detroit’s revitalization efforts. Read more >
And speaking of Detroit – the Michigan Good Food Fund passed a major milestone, having raised $10 million for statewide good food investments to bring healthy food to families and combat food deserts. Read more >
In the Pacific Northwest, The Oregon Community Foundation announced a new mission-investing fund, Oregon Impact Fund, which will provide impact investments in organizations that are addressing problems facing urban and rural communities, such as access to affordable housing, health care, and jobs. The Oregon Impact Fund will create a vehicle for investing more of the endowment in Oregon nonprofits and mission-oriented for-profits in ways that are greatly beneficial to Oregon communities. Read more >