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 October:
Impact Investing Keeps It’s Foot To The Pedal
This month was exciting, as we saw the first ever ‘impact rating’ issued for a publicly traded mutual fund, as our friend Oscar Perry Abello details in ImpactAlpha. Just as third-party ratings have become essential for judging financial risk of an investment, third-party verification of impact is essential if impact is to become a core component of investment decision-making. As large investment houses start to bring capital to bear on the world’s social and environmental challenges, analysts will be on guard for “impact-washing” — dilution of meaningful impact in the service of marketing.
Also this month, Dennis Price writes about B Lab’s annual list of top-ranked impact funds, which includes some you may not have heard of. More than 90 funds have now opted to have their portfolios independently measured and verified by B Lab’s GIIRS Impact Rating system, a rating system analogous to Morningstar. Of those, B Lab identified 28 funds for their outperformance in social and environmental impact. B Lab has assessed more than 30,000 companies, enough to allow fund portfolios to be benchmarked and compared. This year’s list recognized top performers in six categories: overall, environment, community, governance, workers and customers. Dennis also details 58 funds that are investing with a gender lens across the world, to drive capital into the hands of women.
The rising social and economic power of women is a global mega-trend that venture capital is beginning to notice. Our friend Lisa Woll, CEO of US SIF, has been watching the slow and steady march of capital for good over the past two decades. This month, she wanted to reflect. The field has grown from $639 billion in assets in 1995 to $8.72 trillion in 2016. It will be very surprising if the next decade does not bring continued expansion in assets and in the types of investors who control those assets, as well as further growth in the products and services available.
Do You Know What Your Personal Savings Is Actually Up To?
The Oakland-based startup CNote wants to reward everyday savings-account holders with more than a fraction of a point of interest. Hundreds of billions — or even trillions — is sitting in low- or no-interest savings accounts. “There’s no reason we can’t unlock it for good by putting that money to work in our communities, while driving better returns,” CNote’s Catherine Berman says. The first product is a “high-yield savings product” that pools deposits and invests them in Community Development Financial Institutions.
Unlike banks, which use the cash for credit cards or loans and typically offer depositors less than 1% interest, the CDFIs invest in women and minority-owned businesses or local infrastructure. CNote’s product returns 2.5% to depositors. CNote first attracted $9 million in savings from accredited investors. It is now making the Securities Exchange Commission-qualified product available to everyday savings account holders.
Institutions Are All-In On Impact
One could never accuse Salesforce founder and CEO Marc Benioff of being shy about social and environmental causes. Now Salesforce Ventures — one of the most active investors in the corporate venture capital world — is creating a $50 million fund dedicated explicitly to software startups with working on services for workforce development; tools that promote opportunities for women or under-represented groups; companies creating better access to clean energy options or that improve supply chain performance; and apps that help non-profits or non-governmental organizations achieve their missions and interact with partners, donors and volunteers.
At the same time, JP Morgan Chase — who have spearheaded inclusive growth investments in Detroit — unveiled a $10 million, three-year investment to help drive inclusive economic growth in underserved Washington, D.C. neighborhoods, most notably in Wards 7 and 8. This long-term commitment is the firm’s third investment in a major U.S. city. It combines the firm’s business expertise and collaboration with local business and community leaders to invest in four key drivers of inclusive growth: jobs and skills, minority-owned small business expansion, neighborhood revitalization and financial health.
Even Ace Hardware, the 93-year-old national hardware retailer, is getting in on the game. They’ve invested in their first startup, The Grommet. Ace is an employee-owned company that believes in local economies and community wealth, and their hoping that The Grommet’s mission of supporting entrepreneurs who are bringing new products to market.
Seeing big moves like this is heartening, and trillions of dollars are needed each year to achieve the U.N.’s 2030 Sustainable Development Goals. For impact investors to make a meaningful dent, better impact measurement is needed. The U.N. Development Programme is turning to some of the world’s leading universities to come up with a comprehensive yardstick for measuring SDG progress.
The new council, said the group in statement, “will undertake research to improve the analytical frameworks, evidence, and policy environment that encourage and guide commercial capital flows in support of the UN’s Sustainable Development Goals.” The SDG Impact Finance Research Council includes Penn’s Wharton School, Oxford’s Saïd Business School and the University of Cape Town’s Graduate School of Business.
The Power of Capacity Building In Investments
Capacity-building support, or technical assistance, is a versatile, widely-applicable tool that offers multiple direct benefits to both investors and investees. Our partners at The GIIN issued a new brief this month, Beyond Investment: The Power of Capacity-Building Support, provides an in-depth look at capacity-building practices in the impact investing industry. The report documents how capacity-building support can contribute to the impact that investors seek to achieve, and surfaces three key insights about the current state of such support in impact investing.
Speaking of support, a new toolkit from our partners at CASE, Duke University’s impact investing initiative, helps entrepreneurs raise impact capital. CASE Smart Impact Capital is a set of online resources to help entrepreneurs raise money from impact investors. The toolkit features guides, short videos and calculators and is targeted at entrepreneurs, accelerators, universities and other groups supporting entrepreneurs. Check it out!
Search-ing for Impact
Impact investments typically seek to disrupt industries through external pressures by supporting innovative but unproven business models. By contrast, Stanford Social Innovation Review details how impact search funds seek to disrupt industries from within by acquiring successful businesses, implementing robust sustainability initiatives in their operations, and demonstrating superior returns. Impact search funds represent a particularly powerful tool for investors looking to address social and environmental issues―such as human trafficking and deforestation―within opaque industries and supply chains dominated by businesses that are privately owned or family-owned.
The full and original article can be viewed on PacificCommunityVentures.org
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