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 June:
Impact Investing And The Fight Against Climate Change
This past month the global efforts to combat climate change suffered a blow in Washington. But follow the money — signals for climate action are in the capital markets, not the Rose Garden. BlackRock Investment Group —with $5 trillion in assets, is bullish on electric cars and renewables — and their global head of infrastructure investments declared this month that “coal is dead.”
In the short-run, watch whether others step up to fill the void of U.S. funding. Former New York Mayor Michael Bloomberg anted up $15 million to make up for the shortfall in U.S. funding for U.N.’s climate secretariat itself, mission investors like Calvert are banding together to help coastal areas adapt, and there’s a $2 billion hole in the Green Climate Fund. Those figures are a drop in the bucket of the “clean trillion” needed annually to fulfill the goals of the Paris agreement, tripling 2016 investment of less than $300 billion. Falling costs for renewables may drive even more ambitious investments as project developers scale up, cutting carbon emissions and driving economic growth.
If investments accelerate, it will signal the markets believe the low-carbon transition is inevitable, and they want to stay on board. Read more.
Intermediaries And The Growth of Impact Investing
More major mainstream investment managers are flocking to impact investments. Already, funds invested in it are well into the tens of trillions and some foundations are committing to invest their endowments in it. The growing demand and increasing capital for impact investment products and services means a growing network of consultants and advisors, broker-dealers, investment clubs, online platforms, and membership organizations. This is actually a very welcome development, as intermediaries can help with deal discovery, portfolio construction — and impact measurement.
On ImpactAlpha this month, Fran Seegull, Executive Director, U.S. Impact Investing Alliance, writes that what’s needed aren’t fewer intermediaries but “rules of the road” that make sense of the crowded intermediary landscape in impact investing. It’s a good problem to have: The growing network of players is starting to cause traffic jams in impact investing because of so much increased demand. These intermediaries are the connective tissue that binds asset owners and investment managers. But there are signs the market is not linking supply and demand as efficiently as possible. Read more.
Beyond the growth of intermediaries, the growing important of ESG to investors and capital markets is another signal of what’s ahead. Environment, Social, and Governance (ESG) factors represent risks and opportunities that may have financial effects on a financial asset’s performance, but may not be reflected in traditional financial data. For institutional investors, ESG principles can help deliver their core mission: superior, risk-adjusted performance over the long term – and maybe trillions of dollars of new capital. Read more.
According to the Global Sustainable Investment Alliance’s 2016 Global Sustainable Investment Review, sustainable, responsible and impact investment assets – which by definition include ESG considerations – reached nearly $23 trillion last year, a 25% increase from 2014.
Innovations And Very Big Deals
A first-of-its-kind $10 million fund from Reinvestment Fund hopes to accelerate the pipeline of pay-for-success transactions (also known as social impact bonds) by changing the way investors get involved in financing projects designed for social good in the U.S. Instead of bringing on investors one deal at a time, Reinvestment Fund is taking a portfolio approach and pooling money into a single fund that will only make pay-for-success investments. Read more.
In other news, Apple issued a $1 billion green bond. The offering from the world’s most valuable company is the first corporate green bond since the White House announced the U.S. would pull out of the Paris climate agreement. “Leadership from the business community is essential to address the threat of climate change and protect our shared planet,” Apple’s Lisa Jackson said. Proceeds will be used to finance Apple’s sustainability agenda, which includes greening its facilities and its supply chain. Read more.
The Continued Rise of Place-Based Investing
This past month, our friends at the Federal Reserve Bank of San Francisco issues a new report encouraging banks and investor across America to put their dollars into local communities and build more wealth from the bottom up. Read more. The Treasury Department also quietly released a report saying that CDFIs – which the administration wants to cut funding for – are maybe the most effective way to provide financial services to the most underserved communities. Read more.
Our fellow CDFI Virginia Community Capital has just launched LOCUS Impact Investing. LOCUS is a social enterprise to empower place-focused foundations to invest their capital locally to build prosperous, vibrant communities. Through their own experience, they’ve seen that place-focused foundations are looking to complement traditional grantmaking with direct community investments, and they seek to do so in a way that manages risk and aligns with their charitable purposes. To unlock this new source of capital for the benefit of communities, foundations need access to a different set of capacities. Read more.
Place-based impact investing and community wealth-building is also taking off in Colorado. The state is “uniquely positioned to establish a new paradigm for investing and community wealth-building that is inclusive, equitable and replicable,” according to Katherine Pease, Director of impact investing at Cornerstone Capital Group. For example, the city of Denver now provides loans to a neighborhood cooperatives that link low-income food producers, processors and grocery stores. A pay-for-success bond is financing supportive housing for 250 homeless adults in the city. And, the Denver Community Foundation has more than $1 million in impact investments, including a coffee house that trains hard-to-hire youths and a fund for transit-oriented affordable housing. Read more.
In Massachusetts, a new social-impact bond seeks to fund immigrant, refugee workforce development. The goal is to build a model for improving employment rates and earning potential among Boston’s 230,000 non-native English speakers who, on average, earn $24,000 less per year than similarly-skilled English speakers. Jewish Vocational Services will work with 2,000 adults in Boston for three years, offering vocational English classes, job search support and coaching. Investors will recoup up to $15 million based on the organization’s ability to deliver on three outcomes: participants’ earnings, transition to higher education, and program engagement. Read more.
What’s Next? Measurement And Transparency
One of the great challenges of impact investing is knowing how much impact reporting to require from the ventures you invest in, remembering that startups face plenty of challenges without layering on needless reporting. On the other hand, impact investors want to know about the good that comes from their investments. To find answers to these questions, our friend Devin Thorpe from Forbes reached out to nearly two dozen impact investing experts to learn how they think about this dilemma. Read more.
Jean Case issued a “clarion call” to impact investors and entrepreneurs to #ShareYourData about financing, returns and impact. “It is your early activity and data—made transparent—that will propel the drive to the mainstream,” she writes in the Stanford Social Innovation Review. The CEO of the Case Foundation calls for a behavioral shift across the nascent industry, “one that disrupts current behavior around a lack of disclosure, limited transparency, and underdeveloped standardization.” Read more.