What is Giving Compass?
We connect donors to learning resources and ways to support community-led solutions. Learn more about us.
Giving Compass' Take:
• More philanthropists and institutions can explore impact investments that meet capital market demands and match them with an individual's interests.
• Who are successful philanthropists that are aligning impact investing strategies to their mission goals?
• Here are three ways to engage in impact investing.
As Calvert Foundation’s business has grown and evolved with the rapidly shifting impact investing markets, we have the benefit of seeing emerging trends and market-wide challenges that are hindering the growth and scale of the activity we—collectively as investors—are financing.
One of the challenges we see today is a lack of urgency and organization among groups of similarly minded investors seeking to address our shared global challenges. While there is exciting growth in the number of organizations seeking to make private impact investments—financial institutions, faith-based organizations, foundations, and family offices—the marketplace lacks the mechanisms to move capital efficiently to meet its respective demand. Impact investments remain a “nice to do” rather than a “must do” for most organizations. This investor behavior—understandable in individual cases, but harmful in the aggregate—is creating a capital-raising process for businesses, funds, and institutions seeking capital that is costly, inefficient, and wildly time-consuming.
We see two driving reasons for these market challenges: investor approach and a lack of options. Many investors approach the impact markets as they would approach philanthropic grants. They first set their impact preferences and restrictions, and then seek opportunities to invest in these areas. On the surface, this makes complete sense. These investors do not have endless amounts of capital to invest, and if they want to move the needle in a particular impact area, their investments need to match their interests as closely as possible.
This approach works in philanthropy, but it does not translate well in the capital markets. It is hard to imagine a traditional investor saying, “I want a mutual fund that is only investing in pharmaceutical companies in Europe and consumer package good companies in the United States,” and asking an asset manager to custom build that fund. Instead, that investor can either find an existing fund that most closely aligns with their interests, or they can pick individual stocks to purchase that meet their criteria. In other words, investors respond to the products available in the capital markets, rather than trying to create their own.
For impact investors who have the capacity and desire to do one-off, direct deal picking, an individually tailored approach limited to their specific areas of interest may work. But for the vast majority of institutions, it is a less-than-ideal method of creating an impact investing portfolio.
We are eager to continue bringing new investors into the diverse impact debt markets we love to serve. These markets are maturing quickly, and seek aligned investors to promote and enable their growth. We invite other investors to join us in meeting the exciting demand we see.
Read the full article about impact investing for market investing by Beth Bafford at Stanford Social Innovation Review.