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 November:
[custom_headline type=”left” level=”h3″ looks_like=”h4″]What can impact due diligence tools do for you?[/custom_headline]
Many impact investors – be they individual or institutional, public or private, don’t do impact measurement. They don’t like to admit it, but in conversation will tell you they think it’s a waste of time and resources because it burdens investees and distracts from supporting the growth of businesses tackling social and environmental challenges.
However, as an organization that’s pursued triple-bottom-line investments for 15 years and provided social impact evaluations to impact investors around the world, we can say this position is no longer defensible. There’s a growing body of evidence that the practice of measuring and managing an investment’s social or environmental impact during the underwriting process can enhance, not detract from, financial performance.
In a new piece for ImpactAlpha, our team drew from two decades of experience evaluating the social and environmental impact of billions of dollars across a range of asset classes to work through some of the prevailing myths about impact measurement and explain how developing rigorous impact assessment tools for use within due diligence and underwriting represents a critically important — yet underdeveloped — practice within the field of impact measurement. Read our latest in ImpactAlpha >
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Speaking of financial performance…[/custom_headline]
A new report from our partners at The GIIN — Evidence on the Financial Performance of Impact Investments — provides investors with a comprehensive review of available research to date on the financial performance of impact investments. The report evaluates over a dozen studies—produced by a wide range of organizations—on the financial performance of investments in three common asset classes in impact investing: private equity, private debt, and real assets, as well as individual investor portfolios allocated across asset classes. As a complement to that paper, The GIIN’s also assembled a handy cheat sheet of the last couple years of research on impact investing financial performance.
Another new report —Roadmap for a Sustainable Financial System, from the World Bank and UN Environment –lays out an audacious goal: a financial system that integrates sustainability into decision-making, fully accounts for both positive and negative externalities, and allocates resources toward inclusive and sustainable initiatives. The big idea: Mainstreaming the alignment of the global financial system with sustainable development has to move beyond marginal innovations and shape the system’s underlying architecture.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Impact capital of all shapes and sizes[/custom_headline]
And speaking of the global financial market, a new piece from our friend David Bank talks to the potential for “universal owners” to shift the tide of global capital. As more pension and sovereign wealth funds align with the 2030 Sustainable Development Goals, the apparatus of global finance now has a center of gravity around which to do its thing. The new list of the world’s “25 Most Responsible Asset Allocators,” representing $4.9 trillion, is an excellent tool for tracking the early adopters. The question for large asset holders now is not whether they can afford to make investments in social impact, but whether they can afford to miss the opportunity. When you own the universe, there are no externalities.
UBS this month became the latest megabank to roll out a stock fund aimed at positive social and environmental impacts. UBS pledged earlier this year to commit $5 billion towards the U.N. Sustainable Development Goals and raised $325 million for TPG Growth’s $2 billion The Rise Fund. UBS Asset Management’s open-ended impact fund will target 40 to 80 companies focused on “solutions to global challenges such as climate change, air pollution, clean water and water scarcity, treatment of disease and food security.”
While some of the biggest foundations on the planet have driven the push toward mission investments, there is opportunity for private family foundations of all sizes, including small and mid-size foundations, to bring impact investing—particularly through program-related investments—more fully into their portfolios. In this month’s Stanford Social Innovation Review, more than 98 percent of all foundations have assets less than $100 million. These foundations accounted for more than 50 percent of all grants made in the United States in 2014. Yet this influential group has lagged in adopting impact investing practices.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]The case for impact investment in business[/custom_headline]
Can businesses profitably serve the poorest of the poor? A new study, “Reaching Deep in Low-income Markets,” suggests yes. This report was developed jointly by Monitor Deloitte, the MacArthur Foundation, the Omidyar Network, and the Rockefeller Foundation to help provide transparency and guidance to advance the broader field of funding for businesses serving the deep bottom of the pyramid – the global poor. Many of the enterprises reaching the global poor are operating fairly successfully, both in terms of financial viability and growth.
Here at home, we have our own neglected areas to reckon with. And for investment capital, those areas include basically anywhere that lies between the coasts. Steve Case looks to do something about it by raising $100 million for entrepreneurs in his Rise Of The Rest fund. At the same time, public companies are starting to see how they can create impact simply due to their global reach, deep supply chains, and communities where they operate.
Another promising sign that investors are finally, thankfully, looking beyond a few key cities, is the fact that they’re starting to get their hands dirty. Food and agriculture have emerged as two of the most promising areas to achieve social and environmental objectives, and the New York Times has a great story of impact investors making financial and social gains all across America in it.