More Impact Investors Are Going "All In"

If you want to keep up with the latest buzzwords in impact investing, here’s an important one starting to hit its stride:  “all in.”  It means placing your whole portfolio into assets with a positive social and/or environmental impact. Putting your money–all of it–where your mouth is.

Recently technology executive, entrepreneur and investor Charly  Kleissner started a network of  super high net worth individuals  aiming to do just that, called the 100%IMPACT Network.

For Kleissner and his wife Lisa—she is president of the KL Felicitas Foundation, a 14-year-old family foundation based in San Francisco supporting social entrepreneurs the two formed—it started back around 2004 when they  began  to get serious about completely aligning all their investments with their values. It was easier said than done. “There weren’t that many products in different asset classes,” says Kleissner. That led to the founding of Toniic, a global group of impact investors  aggregating  their capital and investing in early stage social enterprises. Then more recently they got the idea to start a network for compatriots who were similarly interested in going all in.

They wouldn’t pool their investments, but they would compare investments, results, and, perhaps most important, impact measurements. Also they would serve as a model for other investors. According to Kleissner, there are now 35 participants with $3 million to $650 million in assets and a total of $3.5 billion in commitments.  That includes 25 family offices and about six foundations. Over the next three years, Kleissner says he’s hoping to prove that the bigger the portfolio, the better the return. So a triple digit portfolio could have triple digit profits, and so on. Further, Kleissner says that there are at least 10 million Americans with $1 million or more in investable assets–“if we show over the next couple of years you can build million dollar portfolios that are all in–it could release a movement.”

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Majority of HNWIs Rate Social Impact Investing as ‘Extremely Important’

More than 60% of global high net worth individuals (HNWIs) see driving social impact with their investments as “extremely or very important”, with Asian HNWIs valuing it higher than any other region in the world. According to research by RBC Wealth Management, HNWIs in India put the highest emphasis on social impact in the Asia-Pacific region, with over 90% citing it as a key concern, followed closely by China and Indonesia at 89% and Hong Kong at 82%. RBC said its research also showed that HNWIs want more support from their wealth managers in achieving their social impact goals, suggesting socially responsible investing, impact investing and donations as potential solutions. In addition, wealth management firms that invest time in understanding the importance clients place on driving social impact, and work to identify “appropriate mechanisms” to fulfil these goals, have a better chance at creating “deeper” HNWI relationships over time. Age is also a huge factor in socially responsible investment, with three quarters of HNWIs aged under 40 citing it as an important factor compared with just 45% of those over 60, siting that the most popular way they invest in such global causes is by making investment choices with a “clearly defined objective to create positive social impact.”

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What is Next For Impact Investing?

Impact investing represents a potential additional funding stream for development, but the field is still evolving and those working in it warn investors may be expecting too much, too soon. While the field may be beyond its initial phase, stakeholders focused on building the infrastructure and proving its case agree that there is still much work to be done. Impact investments are made with the intention of generating measurable social and environmental impact, along with a financial return.

It’s clear that the sum invested in this way is growing — a recent study showed that last year about $10.6 billion in impact investments were made and investors intend to commit this year a further $12.7 billion or 19 percent more, with about 70 percent of the total money is invested in emerging markets. Though there is more clarity now about what impact investing is, one of the greatest challenges remains how to define and talk about those investments. And, those definitions would help to tackle what is one of the most often discussed challenges that is impeding growth in impact investing — accurately measuring and tracking outcomes. This article explores both, and what is being done to mitigate them.

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Impact Investing in Asia: Poised to Grow

Impact investments are expected to increase globally this year, with South Asia and Southeast Asia among the top target regions, according to a recent survey by JPMorgan and Global Impact Investing Network (GIIN). This could bode well, in particular, for India’s nascent impact investment sector, which is one of the most active in the region.

It has been estimated that US$1.6 billion of capital has been invested in more than 220 impact enterprises across India, with more than half of the investments in microfinance. In addition, impact equity investments in India are estimated to grow 30% this year. Along with microfinance, enterprises in agriculture, health services, clean energy, and education are attracting investments. Narayan Ramachandran, CFA, Unitus Capital’s co-chairman, has said, “the biggest challenge is the market/business plan challenge, which is, if you invest in something, can it grow big enough and profitable enough for you to have a range of exit options?” He noted that while there have been successful exits recently in financial services enterprises, there isn’t a long list of companies in India “that have been sold in subsequent rounds to different and new kinds of investors.”

  Operating impact businesses in areas such as agriculture, health services, and other sectors “have really only been invested in over the last five to six years.” The support of impact investing around the world needs to come to small businesses in such a manner that they are helped, facilitated, and nurtured to grow into bigger mainstream businesses rather than a large impact business, which mainstream investors are not interested in.

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Measuring the "Impact" in Impact Investing

Without solid metrics to quantifiably measure results in social and environmental terms, the whole “impact” part of “impact investing” would be worthless. The Aspen Network of Development Entrepreneurs (ANDE) is working to build an understanding around impact measurement, and they have collaborated with their members, TriLinc included, to write a report on the “State of Measurement: Practice in the SGB Sector,” which was released this past month.

ANDE is a global network of organizations that propel entrepreneurship in emerging markets with a mission to understand the impact of supporting small and growing businesses (SGBs). As a rule of thumb, they aim to create a measurement system to figure out how well companies are doing, and help them to improve.

Recently, ANDE conducted a survey and follow-up phone interviews with 34 of its members. TriLinc’s Marni Hodder and Kathryn Haugen contributed to the survey and participated in a follow-up phone interview. TriLinc helped ANDE gain an understanding of the struggles and triumphs it has endured thus far with impact measurement. Further, Joan Trant and Ms. Haugen joined the network on a Metrics group working call to help make changes and improve upon the rough draft of report.

As depicted in the report, ANDE found that most impact investors in this market are operating using three key “lenses:” collecting metrics related to both the scale and depth of impact, tracking economic development indicators such as job creation, and collecting specialized sector metrics to benchmark their portfolios. Then, a majority of firms and funds report these results to their current funders, and often use the results in their discussions with prospective investors.

However, 40% of ANDE’s survey respondents indicated that they believe the largest challenge they face is the lack of stability and resources for their investees concerning their impact measurement. Additionally, social metrics need to “balance and align” with financial performance indicators. This would place greater emphasis on transparency and attribution, as well as help to develop more efficient and effective ways of data collection and management.

All in all, there has been tremendous advancements in measurements in the past five years. ANDE has been encouraged by the organizations they surveyed, who have all either implemented some measurement strategy or are in the process of doing so, lending to their early efforts centered around the need for such “accountability” (Metrics 1.0) and “standardization” (Metrics 2.0), and are now moving on to “value creation” (Metrics 3.0). Together, they have proved it is possible to collaboratively create reasonable, sustainable metrics that funds and investors across the globe can utilize.

What’s Holding Back Impact Investing?

With the unveiling of a new report at the White House last Wednesday, the investors who have pioneered the impact investing movement are now urging the U.S. government to create policies that will turbocharge its growth. Seasoned impact investors say there is much more potential to direct private capital towards addressing the world’s pressing social and environmental challenges than what is done today–especially if a number of policies can be tweaked.

Their report details more than two dozen government actions that could both remove existing barriers to impact investing, increase the effectiveness of the government’s own programs, and proactively provide new incentives to encourage growth. “If you were to imagine a crew team on a river, it’s like we don’t have all of the oars in water, because private enterprise has, for the most part, sat on the sidelines,” says Jean Case, CEO of The Case Foundation and an advisory board member. There exists a fear that social and environmental goals of good organizations will be diluted as financial interests blend with what is traditionally charitable work. But advocates say there are safeguards and transparency will help in many situations, and the potential to do good far outweighs the downsides.

In the end, what is needed are more standardized ways for people to access social impact investing opportunities.

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