I hope you enjoyed your Holidays with family and friends as much as I did. In talking with mine about what we’re thankful for, health is always is at the top of my list, which then elicits my mother’s story of how my strong health foundation started with her making all my baby food rather than buying processed options. I don’t remember, but supposedly my diet consisted of lots of pureed peas. They also were part of a recent family meal (fortunately not pureed), so amongst all the talk and eating of peas, I decided to focus this article on what I often refer to as the 4 P’s of Impact Investing. These are related to the barriers our industry faces in making private impact investments more accessible to potential investors…specifically those offered by community development and other impact investment firms and managers.
The first P is the resounding refrain we hear from investors and advisors – we need “Product.” There are many impact investment opportunities for those that can source and structure unique private transactions, but very few opportunities that have been productized to access a broader set of institutional and retail investors. While in some cases accessing a broad investor base isn’t appropriate, for those that can actively use investment dollars to help them scale their work, it’s a question of how their capital needs match with what specific types of investors will expect in terms of risk, return, liquidity, structure, and other elements of an investment’s overall package. And whether those needs and the investment package should be focused on high net worth and institutional investors that are able to be more flexible in terms of their approach, or whether they could be suitable for a broader range of investors that often require a more standardized product structure like retail investors and financial advisors.
The next P is Platform, which goes hand in hand with product. Platform is the distribution piece impact investments need to reach investors. These can be unique to a specific product, an online marketplace of options, and/or established platforms at brokerage firms. There are a number of promising efforts underway to create platforms of impact investments with industry credibility and the flexibility in structure and terms that many impact products need. Given that the majority of investment dollars are in the brokerage world, there is even more demand and potential for impact products to raise capital there. The brokerage barriers to entry are significant though, with initial requirements of having a product that has a good track record, with national registration and appeal that is structured similarly to other products can be electronically traded, and is looking for at least $100 million.
So you’ve got a product and a platform, now you need to focus on the third P – Promotion. Let’s face it; most people are not actively looking for impact investments on a regular basis. Tons of potential, but if you build it, they don’t just come. While people are saying in survey after survey they want to align their investments toward creating a better world, and we see increasing signs of this playing out, it takes getting concrete opportunities in front of people for them to take action. Significant education and marketing efforts are needed to bring opportunities to investors in a way that resonates. Promotion doesn’t necessarily mean mass-marketing, but you have to think through how to get this in the eyes and hands of people you think will be inclined to take action…and be prepared to do so many times, as it often takes reaching people multiple times over extended periods before they are comfortable to take action. Even the most outwardly committed investors often move very slowly with their decisions. Financial advisors who are often the gateways to investors of all sizes need to be effectively educated about available impact investment opportunities, which are growing but still very limited at this time.
Creating a compelling product and platform, and effectively promoting it is hard work, and that’s where the fourth P comes in – Partnership. The social and environmental issues we are grappling with are tough; the investment models to address them can be complex; the barriers to entry for accessible investment products are high; we’re all limited in resources and time. Therefore it is very important for players to recognize the specific value they bring, and partner with other players to advance mutual goals more efficiently and effectively. Fortunately, our industry works together well and there are significant opportunities to collaborate with others and leverage our strengths.
In addition to collaborating with those deeply involved in impact investing, it is also important to look to those currently outside of our industry to leverage their capabilities as well. Technology is dramatically changing the way people invest, and an increasing number of public and private organizations are beginning to see how impact investing aligns with their work. There is so much impressive experience and innovation that has gotten our industry to this point, and now it’s a question of how impact investment firms continue to innovate and evolve to make broader connections that continue to advance our efforts.
While perhaps not framed this way before, Calvert Foundation is really focused on these four Ps. Twenty years ago, our visionary founders at Calvert Investments, and the Ford, MacArthur, and Mott foundations recognized a gap in how community-based organizations were able to access private investment capital. Since then, we’ve focused on developing a convenient, standardized investment product that allows all types of investors to support high impact organizations and projects serving real community needs. We’ve taken our product, the Community Investment Note, and made it a CUSIPed offering available on hundreds of brokerage platforms so that investors and their advisors can do impact investing alongside their other investments. We’ve also recently created our own online platform www.Vested.org to provide a convenient way for people to invest online in the places and causes they care about, with as little as $20. Of course product and platform developments are ongoing, but we are really focused on promotion and partnerships.
Calvert Foundation is seeing a surge of demand from community organizations and new models for impact capital both in areas we’ve supported for a while like affordable housing, small/micro business, and education, as well as in newer sectors ranging from new clean energy technologies and global health. In order to meet these growing and evolving needs, we’re very intentionally leveraging partnerships with organizations like Capital Impact Partners, MicroVest, and the Inter-American Development Bank to get more capital effectively working in communities; partnering with foundations like Ford, Heron, Kresge, and MacArthur to create new structures and opportunities for investment capital to serve unmet needs in specific cities and themes; partnering with government entities including the Overseas Private Investment Corporation, US Agency for International Development, and the State Department to support efforts to open-up new areas for impact investing; partnering with technology and financial services firms to make impact investments more accessible; and partnering with organizations like AARP Foundation and those active with Latino and Indian diaspora communities to extend the impact investing conversation to new audiences. The result of these partnerships is a growing list of investment options and campaigns that allow investors to respond to the local needs that are of interest to them – from Ours To Own campaigns in Baltimore, Denver, and the Twin Cities…to Raices and the India Investment Initiative seeking to engage Latino and Indian disasporas in supporting social enterprises in their communities…to Age Strong supporting the needs of a growing, aging population.
In all, Calvert Foundation is about turning all the interest in impact investing into action that meets the needs of both communities and investors. Effectively matching those up isn’t easy and takes many forms, and we seek to collaborate with other organizations in addressing these P’s and other challenges so that impact investing realizes its potential.
Of course there are many other important P’s to impact investing – from people being the most critical element of our work, to policy advances that can help us really develop the field, to place-based investing and pay-for-success becoming increasing focuses of our industry – but these four P’s are how I organize key challenges in making community and impact investing more accessible. In closing, I’d recommend two industry reports that provide a deeper and different dive into many of these issues: Scaling U.S. Community Investing: The Investor-Product Interface by the Carsey School of Public Policy and Global Impact Investing Network, and Expanding the Market for Community Investing in the United States by US SIF, Initiative for Responsible Investment, and Milken Institute.
Finally, thanks Mom for all the peas!
This was originally posted on Green Money Journal January 2016
This post was originally published on CalvertFoundation.org
Visit the Invest With Values - Resource Directory to access leading investor information, opportunities, organizations, events, groups and tools.