Impacting investing: trends, issues and capabilities
Impact Investing and Me. It’s great to be out and proud
by Suzanne Biegel
Recently, I was asked to be part of a panel discussing whether impact investing is more closely aligned to philanthropy or to investing. At the time I argued that impact investing is much more like investing than it is like giving. As 2013 drew to an end, with a huge growth of the impact investing sector in the UK and in the world, I reflected on this position.
In truth, for me, the old boundaries are not that interesting. What is interesting to me is – how much capital do I need to live, now and into the future? How much can I deploy into other things that have meaning? And for the capital I need to live on for later, or to leave to my family, I need to consider how prudent, or how risky, it is to invest while respecting environmental limits and social and economic justice. In fact, you have no doubt heard of the “Prudent Man” rule, right? My friend Wayne Silby recently asked me what the “Prudent Woman” rule might be?
If I am looking at investments on behalf of a foundation, we think about how much capital we absolutely ‘need’ in order to fulfil our mission, how will we best achieve a capital base to fulfil that – and then think about how much risk can we take investing in a potential new solution or attempting to scale something that works.
Seeing this kind of investing as risky where ‘impact’ is the focus belies the complexity of investments and philanthropy – aren’t some grants also risky? Aren’t some of our ‘mainstream’ investments risky as well? If you look back to 2008, where foundations lost on average over 25% of their value in the market crash, weren’t those ‘solid’ investments also risky? And how is it not risky to take a chance on investing in a company with labour policies, supply chains, environmental impacts, that could go wrong? Or in a financial instrument that assumes that these things have no impact on the underlying assets?
In my experience as an impact investor, as a philanthropist and as someone who supports angel investors who are new to social investing through Clearly Social Angels and other groups that I am a part of, I know that it is false to force impact investing into a checkbox marked either ‘philanthropy’ or ‘investing’.
When I invest my capital to address issues which I believe need to be addressed, or opportunities that are out there with underserved populations, it is certainly not purely philanthropic and yet it is not pure investment either. The reality is that I am in the privileged position of having capital as a tool at my disposal. Because I am in this position, the way I deploy that capital – through investing, philanthropy or even as a consumer – means that I can afford to ask: what are the problems I can see? Where do I want to make a difference with my resources? Which exciting people, and which exciting products, can make the world better for women and girls, protect or restore our environment or institutionalise social justice?
It means that I can stop before I buy a pair of shoes and think about where they have come from, or try to source my food locally, because I have the resource to make those decisions as a consumer. It means that I also have the resource to make those decisions as an investor. I can ask how HIP (Measuring Human Impact and Profit) my investments are. I can buy from and do business with organisations designed as B-Corps. And sometimes it means I can make grants or donations, if that is the best way of supporting a particular change – but if I can make that change with an investment, then I will; I like the opportunity to recycle my money to do more good in the world.
I am not a purist by any stretch; I am sometimes embarrassed to say that I am an impact investor. I still hold investments in businesses with some practices that I disagree with. Those investments are hidden in managed portfolios, mutual funds, even SRI funds - but I have moved almost 40% of my portfolio into what I believe is more socially, environmentally, sustainable and positive investments. I would have hoped by now that this would not something to be calling attention to, that it would be so much more pervasive, but there are still relatively few of us. Despite the trillions in screened funds and portfolios, there are so few that are consciously, positively doing good rather than doing less bad. But its growing. It’s going “mainstream.” And that gives me hope.
So if impact investing is not philanthropy, what is it?
I call it responsible investing from an environmental and social standpoint when I can look at the fundamentals of how a company behaves, its governance, supply chain, labour policies and environmental footprint, and feel that it is making a neutral or a positive difference on a social or environmental level. I call it impact investing when I am specifically investing for positive impact on a social or environmental issue, in a company, enterprise or a fund that is about solving that problem, and aiming for a financial return.
I call it impact angel investing when I am directly investing into a privately held company, where I will take a debt or equity position to help it to grow, and where I will often play a direct role as a non-exec board member adviser, or ambassador for the company. Clearly Social Angels, part of ClearlySo, allows people to invest in socially good innovation, and it also allows them to be part of that process, to grow the idea into a reality.
So, I am not a purist - sometimes I do just buy a pair of shoes and not think about the journey that got them to the shop, and sometimes I do make investments that are focused fully on returns, or liquidity, or less volatility. The brilliant thing about impact investing is that it is part of the world of risk and return, volatility and liquidity, profit and big wins – and it also makes social, community, environmental impact part of that vocabulary.
So much for impact investing as an individual. What about working with other people’s money? Foundations ask, is it really responsible for us to take a risk and do impact investing with our assets? After all, we are accountable to our grantees (and to the public, if it is a public charitable foundation).
As a foundation, you may have invested significant resources in studying a problem and its potential solutions. You might well understand the impacts of various actors or changes to a situation.
To lose the opportunity to have that represented as investors go out to make positive impact on those same problems is what I would call irresponsible. Not to participate in this marketplace when you have the intelligence, the capital, the networks to help catalyse new business models, solutions, is irresponsible.
To whom is your fiduciary duty? I would argue that it is to society - to all stakeholders. Some regulations have kept up with that, some need to be fixed. In more cases than not, the law is ahead of what people who are investing, are aware of.
I have invested over the past 13 years in so many different types of impact and responsible investments: Community Investment Notes, impact venture capital funds, screened portfolios, sustainable real estate, angel investments, microfinance, and screened mutual funds. They are tangible and intangible, more liquid and less liquid, higher risk and lower risk. They are vehicles that aim for a higher financial return and vehicles that modestly and transparently provide a lower financial return.
When the capital I have invested in RSF Social Finance or New Resource Bank, Calvert Community Investment Notes, or Root Capital notes goes to work (while I sleep), it is working hard. It is being lent to, invested in, many small and medium sized enterprises and charities that are specifically there to make a positive difference in society and the planet. That is where my money is working.
When my capital is sitting in large cap public equities, it is just not clear to me what positive impact it is having.
When I take the time to speak up as a shareholder, vote, participate in shareholder action, I feel empowered. Sometimes I feel small. But then I remember Anita Roddick’s line “If you think you’re too small to have an impact, try going to bed with a mosquito in the room”. For me, impact investing is personal, too.
Often investment professionals will say: do not think about your own personal experiences, it biases investing; just go with what the experts say. But, as a cancer survivor I have to say, my experience – good, bad, and ugly – with the healthcare system, has shaped some of my thinking about healthcare and healthcare investing. I was truly lucky to have good care and I think about people who do not have that access. I had (relative) nightmares (first world problem) dealing with bad bureaucracy and I think how much that just should not be. I think about solutions that should be available to more people. We should be able to solve this. We are smart enough and we do have enough resources. Our capital needs to go along with policy change, with advocacy, with smart communications and social change strategies – all good places for philanthropy to play a role.
In my earlier life I was not overtly focused on women and girls. But now, I see how much injustice is done to women and girls and I think: right – if not me, then who? Am I really expecting that other people will care about this if I don’t? And why are we not using the markets to help solve these issues, why do people mostly talk about philanthropy and public sector policy or advocacy work? Yes, those things are essential. But we are not going to solve these issues without business, investment, use of our capital.
Fiduciary duty used to mean ‘make as much money as possible from every investment so we have more in our coffers to give away’. Now some people get that it is more responsible, better fiduciary duty, to take into account potential risks and negative consequences. Look at the work around stranded assets from groups like Carbon Tracker and the Generation Foundation. Look at what happened in Bangladesh when brands and retailers were not paying attention to the conditions of factories producing their goods, and when we as consumers were not paying attention, and we as investors in those companies were not paying attention.
Everyone can be an impact investor.
Everyone can look at their role as an investor, a trustee, an alumnus, or a shareholder activist.
Those of us with more resources can play a bigger role.
Is it philanthropy, or is it investing? I honestly do not care. You might be in a place where there are tax incentives for you to invest, but not to do philanthropy, or to be philanthropic, but not to invest – or both, or neither.
Pick the issues you care most about. One friend says it the lack of access to arts and music for young people. Another says its food security. A third says its modern day slavery and trafficking. Another says access to clean water. Another says it is the crisis of youth unemployment. Whatever it is, there is an impact investment you can get involved in.
Are we allowed to talk about fun? Joy? The enterprises with which I invest, and the entrepreneurs, give me more hope, more joy than anything else in my portfolio. These things should give you joy. It is hard work – so you should also have the joy. And this gives me more than I could ever have imagined.
From my experience of the exciting world of impact investing, some things to think about:
1. Do not go this alone. Educate yourself. There are brilliant, passionate people working on impact investing who can be your colleagues, your guides, your advisers. There are angel networks, foundation networks, philanthropic networks that you can join. Explore and find the right fit for you.
2. Do not wait for advisors to come to you. Ask hard questions of your existing advisers and take them on a learning journey with you. Our advisers will only become involved in this to the extent that we ask them to and to the extent that we demand that they do. We need collective and individual demand generation for more products, more services in impact investing.
3. Make a difference now: learn by doing. You don’t have to become part of an angel group (although I’d love it if you would - its an amazing way to learn and collaborate) – instead, sign onto some lists, go to some events, and dip a toe in the water of impact investing before you dive in. Make an allocation to get started and just get started.
4. Tell the world. Use your influence as a grant-maker, a professional adviser, a trustee, a partner, a family member, to move others. Write and speak about what you are doing, it will encourage others.
5. Be responsible. Be accountable. Do not invest more than you can afford, and do not invest in something illiquid when you need liquidity. Be as patient as you can be and demand responsibility from those you invest in and with.
It is a privilege to be in the position to do this – do it, and be joyful while you do.