Impact investing is about using markets and money for social good. Impact investing is built on the belief that financial tools and 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 February:
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Putting A Stop To Inequity In Investing[/custom_headline]
The Community Reinvestment Act (CRA) is important and simple: Banks that operate with taxpayer-funded support must reinvest in the communities they serve. Congress intended CRA as an antidote to redlining, the discriminatory practice of not lending in communities of color. For its first 30 years up to the Great Recession, CRA drove billions of dollars into disinvested communities that may have otherwise been overlooked. However, the rise of predatory lending that led to the Great Recession is evidence of CRA’s shortcomings. Many banks turned to non-bank lenders that were unaccountable under CRA to make loans that they knew were not going to be repaid.
With concerns that CRA financing for underserved communities is declining, leaders in the CDFI industry argue that there is an opportunity to emphasize high-impact investing. As CDFIs, organizations like PCV are more effective at putting capital to work — and demonstrating the social outcomes of that capital — in ways that truly improve underserved communities. As the industry re-focuses regulatory policies, bank activities, and public priorities on this issue, we are eager to see the ways in which our country’s major financial institutions can continue to support CDFIs in spurring economic development and driving job creation in underserved communities.Read more >
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Tilting Businesses Toward the Needs of the Poor[/custom_headline]
There’s an interesting new pay-for-success case study out of the EU. A pilot program funded by the Swiss government will pay bonuses to Latin American businesses that can prove that they are improving the quality of life of their poor customers. The enhanced revenues should make such high-impact businesses more attractive to private investors. That capital, in turn, should enable the businesses to expand sales, reduce costs and serve even more low-income customers. Read more >
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Where Have We heard This before?[/custom_headline]
Substitute the word “impact” for “social performance,” and current debates in the investment community sound exactly like the ones the microfinance industry had 10 years ago. As microfinance emerged as a compelling tool for alleviating poverty, it was often criticized for not paying sufficient attention to measuring the social impact of its loans. It took a decade and intensive collaboration among all the major stakeholders, but today the microfinance industry has their accepted, credible Universal Standards for Social Performance. Drawing from history, the impact investing community has an opportunity to emphasize the significance of impact measurement and work towards widely-held standards for social impact. Read more >
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Next-Generation Social Sector Initiatives[/custom_headline]
Major nonprofits, foundations, and social enterprises increasingly believe that a structural change in the social sector will happen when like-minded players start working collaboratively. More and more, the success of new philanthropic models like impact investments and pay-for-success depend on investors’ abilities to demonstrate impact evidence. This post from Next Billion explores the key challenges in building an efficient collective impact measurement system. Read more >
Policy plays a large role in this, too. To achieve broad social impact, we need systemic solutions and an outcomes-focused mindset. Business as usual is not working or producing results. The majority of public dollars usually pay for prescribed government activities that may or may not be producing their desired outcomes. Adopting an outcomes mindset—meaning government defines the problem to solve, identifies the desired results, and creates the appropriate incentives to pay for those outcomes—is a way for government to target resources toward real systemic solutions. Read more >
[custom_headline type=”left” level=”h3″ looks_like=”h4″]A New Model For Philanthropy[/custom_headline]
The Heron Foundation is calling on its fellow foundations to jettison older operating models that leave resources untapped in the face of systemic social ills, just because many foundations are structured to meet—and rarely to exceed—the IRS requirement of five percent minimum annual charitable payouts. Heron President Clara Miller makes the case that the modern economy demands a different practice of philanthropy, one that makes use of all of its resources to actively engage with the capital markets for the public good. Read more >
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Impact Investing Is The Right Tool At The Right Time[/custom_headline]
In this interview with Goldman Sachs, Rick Scott, Vice President of Finance and Compliance at the McKnight Foundation, discusses his views on environmental, social and governance (ESG) and impact investing with GSAM. While McKnight started with 10% of its endowment dedicated to impact investing, they see value in using an ESG mindset in approaching both their dedicated impact investments as well as their entire portfolio. Now they’re finding more levers for advancing their goals by merging their $2 billion grantmaking endowment with their ESG- and impact-conscious institutional investments. Read more >
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Why Does Measuring Social Impact Matter?[/custom_headline]
When City Light Capital began capturing impact data 10 years ago, many of its portfolio companies agreed to quantify, monitor and measure their impact. They’ve since learned that the practice of consistently measuring a company’s social impact can meaningfully contribute to its value. Whether its a startup looking to integrate an impact agenda into its business or an established company looking for new ways to measure impact, this post breaks down five areas to keep in mind when developing a successful impact investing plan. Read more >