I spend a lot of time thinking about money.
No, not about the accumulation of personal wealth, nor how close I am to meeting my savings goals for an early retirement.
I spend time thinking about the power of money: how it is spent, how it is saved, how it is invested, and how any movement of money can have both positive and negative effects on our community and the world.
Impact investing is the simple concept of aligning your money and your ideals. Once a niche concept reserved for hippie tech founders and millennials with trust funds, today the global impact investing market is estimated to be $502 billion (according to the Global Impact Investing Network's “Sizing the Impact Investing Market,” published in April). Yet the topic is still widely skirted in professional circles, with investors often challenging whether impact investing belongs in the mainstream or whether it should be relegated to the “kids table.”
However, we are learning through recent research and reporting that to ignore impact investing – or the expectation that we can do well by doing good – would be to ignore a massive market segment. According to a recent report by the financial services firm Morningstar, nearly three-quarters of Americans are moderately to very interested in sustainable investing.
If we accept, then, that impact investing is a growing field ripe for opportunity for both investors and investees, there are a few questions we in northeast Indiana ought to ask:
1) Can impact investing truly be profitable?
The Global Impact Investing Network published a study in 2017 analyzing the financial performance of impact-oriented funds in the three largest asset classes in impact investing: private equity, private debt and real assets. Their findings give real credibility to the market, concluding that impact investors seeking market rate returns can achieve them, with top quartile funds operating across various strategies and asset classes.
2) Can the impact of impact investments be meaningfully tracked?
Impact measurement is the hot-button topic among early adopters of impact investing strategies. Good intentions do not guarantee real impact. This uncertainty opens the door for what is sometimes called “green washing” or “impact washing,” where consumers are led to believe they are making a positive impact without solid evidence to support the claim.
However, there are many emerging solutions in the field of impact investing, including software platforms that help hold individual impact organizations and impact fund managers accountable not only for financial performance but also for reporting on their social or environmental impact. Some examples of innovative solutions include the “Impact Multiple of Money” developed by the Rise Fund and Bridgespan, “IRIS+” developed by the Global Impact Investing Network, and SOPACT, a tech solution making great gains in the space. In 2019, impact can be meaningfully tracked, managed and reported to stakeholders.
3) How does this apply to northeast Indiana?
Place-based impact investing is a niche area within the overall impact investing movement. This is an investment strategy that leverages collaborative funding across diverse appetites for risk and return to improve the lives of individuals within a bounded geographic area.
Some examples of the types of capital that could be used for place-based impact investing include 1) grants from a community foundation, private foundation or philanthropic individual; 2) market rate or low interest and/or forgivable loans from a foundation, bank, credit union or community development financial institution; 3) equity investments into affordable housing, downtown commercial development or local startups looking to scale; or 4) public infrastructure investments to attract businesses and homeowners to the region.
When these different types of capital come together with a common goal of improving lives in northeast Indiana, the impact they can individually make is multiplied many times.
I am eager to see how leaders in business, education, faith, government and the nonprofit sector, along with individual citizens of all levels of wealth and influence, will collaborate in support of a unified place-based impact investing strategy in the coming years.
I spend a lot of time thinking about money. But it is only in the act of coming together that our money, not individually but collectively, can make our community the best possible place to call home.
Kristin Giant is a local attorney and impact investing evangelist.