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Impact Investing Crossroads: Where Do We Go Now?

Giving Compass May 8, 2018
This article is deemed a must-read by one or more of our expert collaborators.
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Impact Investing Crossroads: Where Do We Go Now? | Giving Compass
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Impact investing first entered our lexicon in 2007 and more than a decade later, the practice is at a crossroads.

Demand is growing. For many people, “money is a way to express themselves,” said David Bohigian, executive vice president of the Overseas Private Investment Corporation (OPIC), at the Milken Institute Global Conference.

Yet, clear standards and a lack of appropriate capital across the risk/return spectrum exists.

With a wide range of players working in the impact investing space, from financial institutions to private foundations, experts says infrastructure and education are the necessary next steps.

How Did We Get Here?

Impact investing no longer requires the cheerleading it once did. It has reached a fever pitch of its own these days, thanks largely to millennials and women.

“In addition to the $30 trillion wealth transfer to millennials, we’ve already seen $11 trillion in the U.S. transferred to the hands of women in terms of being primary decision-makers,” said John Streur, president and CEO at Calvert Research and Management.

According to John Buley, professor of the Practice of Business Management at Duke University, Fuqua School of Business, millennials are pushing back on older people, institutions and governments to affect social change.

“The millennial generation has already had a significant impact by catalyzing their parents and their employers,” said Buley.

And financial institutions are heeding the call. For example, pension fund management firm APG Asset Management integrates responsible investing across the spectrum and aligns its investments with the UN’s Sustainable Development Goals (SDGs).

It’s an increasingly common strategy (60 percent of investors say they use the SDGs to track financial performance or plan to do so soon), but long-term vision is required. Ann-Marie Griffith, managing director of U.S. Fixed Income for APG Asset Management U.S., noted that it’s important to provide robust financial returns without introducing additional risks to younger groups that are more exposed to longer-term investments.

“What might look good today might not look good in 10 or 15 years,” she said. “That’s incumbent on us as investors and assets managers to pay close attention to those risks.”

Creating Infrastructure and Protections

But while the first step of creating robust demand has been taken, experts at the Milken Institute Global Conference said investors and managers alike need to have a common idea of what successful impact investing looks like.

“One of the critical aspects of the infrastructure that we need across all of these structures are standards,” said Streur. “To develop these markets and to scale these markets, we need sets of standards and we need sets of well-accepted metrics so investors from this diverse set of backgrounds can come together and have devices to measure impact.”

According to Buley, traditional innovators in the financial sector are, for once, behind the government and other corporations in understanding this “new” investment vehicle. This might be most evident with professional credential requirements.

“[CFA Institute] is just really getting with it in terms of creating segments of the CFA exam that relate to understanding the critical role businesses play in informing social and environmental outcomes,” Streur said.

And like any industry, there can be bad actors. The sector will need to look out for potential pitfalls like greenwashing, the practice of using deceptive marketing to create an environmentally-friendly image to encourage investor interest.

Next Steps: Impact Investing Education

The experts agree that impact investing is here to stay, a sentiment widely echoed throughout the four-day conference. The concept has even won over some high-ranking military brass – retired Gen. David Petraeus explicitly noted a new impact investing fund being raised at private equity firm KKR, where he serves as chairman of its Global Institute.

But if it sounds like the Wild West, investors can take heart knowing the sector recognizes the need for increased education around what it is and how it works. In addition to on-the-job learning, “academic institutions are now creating learning tracks and degree programs to train people about these issues,” Streur noted.

Although there are clear growing pains occurring in the sector, it’s not stopping people from investing with their heart. More than $100 billion in impact investing assets are under management in the U.S., and more capital leads to more data and opportunity to learn.

New to impact investing? Learn more:

Impact Investing Basics
Myths of Impact Investing

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Original contribution by Jen Jope, Senior Digital Editor at Giving Compass

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Impact Investing is a complex topic, and others found these selections from the Impact Giving archive from Giving Compass to be good resources.

  • This article is deemed a must-read by one or more of our expert collaborators.
    Click here for more.
    How National Advisory Boards Are Successfully Promoting Impact Investing

    Giving Compass' Take: • Some countries are using National Advisory Boards (NABs) to promote impact investing through collaborative, cross-sector work. Initiative for Responsible Investment unpacks practices of effective NABs.  • How can philanthropy support expansion and improvement of NABs? Are there risks and possible consequences associated with this form of impact investing promotion?  • Consider pay for success as a vehicle for systems change. In 17 countries and the European Union, National Advisory Boards (NABs) have become the go-to resource for promoting impact investment. By bringing together governments, investors, asset managers, intermediaries, NGOs, and market builders such as professional firms, NABs are powerful change agents for developing impact economies that benefit people and planet. They have demonstrated their potential to unlock new sources of impact capital and develop national impact infrastructure and policies. Lessons from effective NABs: The membership, staffing and governance of NABs should be tailored to their purpose. There is no single model for a multi-sector organization dedicated to field-building, because field-building must respond to specific cultural and political contexts. NAB memberships balance active participants in the field with new recruits from whom the field could benefit. The Secretariats drive the work of the NABs, and their ability to function depends on member engagement. Sustainable funding for Secretariats has proved and will likely continue to prove challenging. The Secretariats, in particular their most active staff members on the NABs, derive a great deal of benefit from engaging with their peers via the GSG framework. Mechanisms to promote cross-Secretariat engagement, especially in person, are important. NABs can play important roles in bringing legitimacy and promoting the field of impact investing in their respective countries/regions, but they need work plans and specified strategic goals to be most effective. A distinguishing feature of NABs is their development of public policy recommendations and engagement with the public sector. Finally, the NABs and the GSG globally are seen by practitioners as potential vehicles through which to navigate the rapidly changing landscape of impact investment, and to hold existing practitioners and new entrants accountable to achieving targeted social goals.


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