Investing

Four Recent Reports Shed Light on the State of Impact Investing

Randy Mueller | June 21, 2018

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Having trouble keeping up with the latest developments in the world of impact investing? Allow us to help. We dove into the weeds of four of the field’s most notable recent studies, extracting the most interesting findings for you.

Some of the key themes involve the mainstreaming of impact investing, the vital role that women investors play, and the rise of place-based investing. Here are highlights from each of the four:

There’s No Place like Home: Interest in Place-Based Investing Grows
Place-based investing is all the rage among foundations and other big impact investors, and it’s a group sport. In cities and regions across the country, impact investors are coordinating their efforts, capital and due diligence to achieve more impact and scale in catalyzing local change. The Urban Institute recently examined this trend in Emerging Approaches in Collaborative Place-Based Impact Investing, the first in a series of reports on the topic.

The report breaks down the various players and the different approaches they take to place-based collaboration, from information sharing networks to deeper alliances and platforms. Examples include Benefit Chicago, a collaboration of The Chicago Community Trust, The John D. and Catherine T. MacArthur Foundation, and Calvert Impact Capital. The initiative aims to mobilize $100 million in the Chicago-area social enterprises, including $50 million issued in community investment notes earmarked for Chicago, which earn 1% to 4% return.

Another example is the Western NY Impact Investment Fund. The alliance brings together private investors, foundations, and corporations to direct $8 million in capital to the Buffalo-Niagra region of New York, seeking market-rate returns.

The key to successful collaborations, the report notes, includes sharing a common vision and purpose, accountability measures, mutual learning, and authority over decision-making. Through pooled resources in place-based funds, each stakeholder can de-risk their investments by spreading out costs and making direct investments together.

Our one quibble: The report glosses over the role of retail investors and community capital, and in the discussion of platforms omits mention of the intrastate crowdfunding sector, exemplified by locally-focused platforms such as Milk Money Vermont, Hatch Oregon and others.

Women at the Wheel: Gender Influence in Impact Investing
How does gender influence impact investing? And when women practice impact investing, are their reasons for doing so different from men’s? Those are some of the questions explored by the Women’s Philanthropy Institute recently, in a survey of wealthy individuals.

It turns out high net worth women and men are just as likely to be aware of impact investing (81% and 82% respectively), but women show more interest in wanting to learn more. Each demographic is equally likely to be actively involved in making impact investments, and participants tend to be younger than those who do not.

Women impact investors show strong ties between higher levels of education and deeper involvement in the practice. They cite intersectional social and environmental issues like human rights, climate change, and race relations among their targeted impact outcomes.

Perhaps the most important difference between male and female impact investors lies in the potential for “additionality.” Researchers found that men tend to replace some of their charitable giving with investments, while women seek to make impact investments in addition to their philanthropy.

Are We There Yet? Impact Investing is (Still) Going Mainstream
The amount of money going towards impact investments continues to balloon. The Global Impact Investing Network (GIIN) released its annual survey of large-scale impact investors, highlighting an impressive $228 billion in impact assets, exactly doubling last year’s $114 billion. More than half made their first impact investment in the past decade.

Institutional investors, including pension funds and endowments, seem to be driving the rapid increase. They report encouraging figures: Most respondents are meeting or exceeding both their expected financial and impact performances (91% and 97% respectively). Almost two-thirds seek risk-adjusted, market-rate returns in their impact portfolios. And amid fears of “impact washing,” 80% support efforts to increase data transparency and third-party oversight of impact measurement.

The GIIN’s methodology excludes individual investors, both accredited and unaccredited. Going forward, challenges remain, with survey respondents citing appropriate capital across the risk/return spectrum and the lack of a common understanding and definition of impact investing segments as two key issues. Our question: will big players support efforts to democratize impact investing and make it more accessible for retail investors?

Social Enterprises are From Mars, the General Public is From Venus
Before impact investing truly catches on with the mass market, we have some education to do— at least judging by the results of the 2018 World Value Index. Enso, a social impact consulting agency, surveyed thousands of individuals to determine America’s favorite 200 mission-driven brands.

The results were striking. While some of the most recognizable nonprofits, such as the Red Cross and Habitat for Humanity (#2 and #5 respectively) ranked highly, Amazon was the only for-profit business to crack the top ten. Many of the other companies accompanying Amazon in the top 50—such as Nestle. Home Depot, Walmart and Coca-Cola—similarly might fall short of your definition of “mission-driven.” The chart below breaks out the top ranked for-profit companies.

The Top 10 Ranked Businesses (Source: Enso)

Social movements like #MeToo and Black Lives Matter made the list. And some B Corp favorites dotted the roster as well, including Ben & Jerry’s (#51), Kickstarter (#120), and Patagonia (#183). The survey asked about specific brands, which might account for the Ku Klux Klan making the list. It came in dead last at #200, just under Marlboro, Breitbart and Goldman Sachs.

Enso cofounder Sebastian Buck explained the results this way: Consumers deeply value the affordability and convenience of companies like Amazon and Walmart, he says, noting that higher-income respondents disproportionately favored the Tesla’s and Patagonia’s, while lower-income consumers supported McDonald’s and Campbell’s Soup.

The message is clear: The public’s conception of mission and values is highly subjective, and affordability is a key consideration. Sustainable brands that are not accessible risk being viewed as elite. That’s something to keep in mind as mission–driven businesses evolve their models and brands. The good news is, 81% of respondents believe that businesses can be a force for good.

Randy Mueller is an undergraduate student at Fordham University who is interested in localism, worker ownership, and impact investing.

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