What’s New In Impact Investing? July Roundup

Patrick DugganImpact Investing, InSight

impact investing esg

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 July:

The Future Of Impact and Mission Investing

The United Nations estimates that achieving its 17 Sustainable Development Goals by 2030 will require trillions of dollars. The global goals aren’t the only way to measure our challenges, but they do paint a clear picture: given the scale of the problems the world faces, it’s clear that traditional sources of capital, like government aid and philanthropy, simply won’t be enough. To help close that gap, a lot of hope is being put on blended finance––the practice leveraging risk-taking public and philanthropic funding to attract private investors to deals in sectors and markets critical to sustainable development.

That gap is also why foundations have been leading the charge to use their programmatic investments and their endowments to positive social and environmental impact. Foundations created the field we now call impact investing, and now the leaders of some of our biggest foundations are forging ahead with the U.S. Impact Investing Alliance.

The U.S. Impact Investing Alliance is a field-building organization that works with partners across the American impact investing ecosystem. They’re working to transform finance by putting measurable social and environmental impact—alongside risk and financial return—at the core of every investment decision. And to make that vision a reality, the group’s developed a three-pillar strategy.

  1. The Alliance will advocate for a policy environment that enables the impact investing industry to mature and grow.
  2. The Alliance will mobilize the supply of impact capital, with an initial focus on institutional investors such as foundations and pension funds.
  3. The Alliance will bring together leaders across the ecosystem to help advance the impact investing movement.

It isn’t just America’s biggest foundations that are driving the financial world to do social good. In a new post on their site, McKnight Foundation asks how a comparatively small foundation can get fund managers — with $1.5 trillion dollars — to stand up and be counted on climate change? The answer is to ask! Every endowed foundation is an institutional investor, paying fees to its fund managers, and therefore every foundation is a client. And when a client asks a financial service provider to do something, the provider considers it and determines how to act.

These are all very welcome developments at a time when impact investing is grappling with it’s soul, so to speak. Mainstream asset owners like Bain Capital are on a journey to make their investments a powerful force for good, but many pioneers in the field are wary of the kind of “greenwashing” that took place with the sustainability movement. Over on ImpactAlpha, our friend Amit Bouri from The GIIN says that in the impact investing community, there is continuing talk about whether “the big tent” — created by the diversity of strategies and approaches pursued by investors– is too big.

Big Things Are Happening Locally

Our friends at the Silicon Valley Community Foundation announced an investment of $8 million in local Self-Help Federal Credit Union to accelerate impact investing in very low-income communities. Based on Self-Help’s average loan sizes, SVCF’s $8 million investment will provide enough capital to finance the equivalent of 58 mortgages, 3,745 personal loans, 665 car loans, or 11,204 credit-builder loans to a diversity of borrowers.

The Reinvestment Fund in Philadelphia raised $50 million with one of the first public bond offerings by a CDFI. The unsubsidized bonds, rated AA- by S & P were snapped up in less than an hour by a half-dozen insurance companies and a large foundation. Reinvestment Fund’s bond offering followed a $100 million offering by the Local Initiatives Support Corporation (LISC), another CDFI with an AA rating from S&P. As many as a half-dozen more such bonds are in the works, though experts warn that most of the 900 CDFIs are not yet ready to tap public capital markets.

Making Markets Work For Our Shared Climate

Big news from the sustainable investment world this month, as The Guardian reports that institutions worth $2.6 trillion have now pulled investments out of fossil fuels. Over 2,000 individuals and 400 institutions are now committed to pulling their money from fossil fuel companies, and the value of the funds committed to selling off their investments in coal, oil and gas companies has rocketed in the last year, rising 50-fold.

Also this month, The Nature Conservancy’s NatureVest program chose four U.S. projects for grants to spur investment in conservation. One of the projects is developing an “environmental impact bond” to protect coastal areas in Louisiana. After wading into this impact investment, Nature Conservancy CEO Mark Tercek put out a piece discussing how, sure, we can reverse climate change by scaling up renewable energy, but there are many more ways to invest to fight climate change: educating girls, family planning, and reducing food waste. If achieved at scale, these together would do more than any single strategy.

Rise Of The Robots

The Wall Street Journal has a new report on U.S. robo-advisors launching socially responsible investing platforms. Betterment and Wealthfront, which collectively manage more than $15.5 billion in assets, are rolling out stock portfolios that screen for human rights, health and safety, environmental impact and strong corporate governance. Both firms are among the top five U.S. digital investment advisors, or “robo-advisors,” by assets under management. The sector has more than $100 billion in assets in the U.S. and could reach $2.2 trillion by 2020.

The ”S” in “ESG”

Social issues have traditionally been viewed as the weakest link in investment analysis. Now, a plethora of new initiatives and engagement activity is driving more meaningful disclosure of data on human rights and labor standards by companies and across supply chains. These are welcome changes, and are giving investors better data. For example, the Committee on Workers’ Capital recently launched its own Guidelines for the Evaluation of Workers’ Human Rights and Labor Standards, which trade unions have developed to help investors scrutinize social issues such as labor relations in the investment chain. Better metrics on the treatment of workers, employee engagement, training and staff turnover can be strong indicators of the health of a business.