How to unlock millions of dollars for social good

Thursday, 8 May 2014 19:48 GMT

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Impact investing is poised to reach a much broader market as more products become available for retail investors and the global appetite for them grows.

LONDON (Thomson Reuters Foundation) - Helene Marsh, a San Francisco-based environmental consultant, spent years building an environmentally sustainable house for her family but she wanted her values reflected in all aspects of her life, including her investments.

 Marsh did not have investment experience or enough assets to establish a family foundation or lock up her funds in long-term, illiquid investments.

She decided to educate herself about sustainable investing and found Veris Wealth Managers, an advisory firm that helps clients align their money with their mission. She initially placed $1 million with Veris and the following year placed all her investable assets with the firm to put her money into opportunities that generate a positive impact on the health of the planet.

"I feel there are a lot of things that I can't change in the world," Marsh said. "But I can change my personal choices."

 A NEW WAVE OF IMPACT INVESTORS

Marsh is quoted as one of the examples of a new wave of investors in "The Power of Impact Investing", a book released this week that aims to shed light on impact investing - investments intended to generate both financial returns and social impact.

Judith Rodin and Margot Brandenburg, two leading experts on the subject, argue in the book that unlocking even a small percentage of the trillions of dollars in capital markets for impact investments would dramatically expand resources available to address the world's biggest social and environmental problems.

Such investments are much needed because philanthropic funds and aid money are not sufficient to deal with threats such as climate change, water scarcity, food shortages and lack of access to health care, education and affordable housing, the authors say.

Often perceived to be the province of rich individuals and family foundations, impact investing is poised to reach a much broader market as more products become available for retail investors and as appetite for such investments is growing globally, both as a destination and as a source for impact capital, according to the book.

 "Impact investing is one mechanism for unleashing private capital," Rockefeller Foundation President Rodin, co-author of the book, told Thomson Reuters Foundation. 

"We see several trends that say the timing is right...the first is the growing number of investors, particularly younger ones, that really do want to blend their investments, if possible, so that that they can both achieve financial and social returns...," Rodin said. "The second trend...is that businesses around the world are seeking new business lines that are good for social progress and the environment as well as for long-term growth and profitability."

Impact investing, a term first coined by Rockefeller Foundation in 2007, goes beyond ethical investing. It does not just screen out the "baddies" - companies that make arms, alcohol, tobacco or other harmful substances or engage in practices that pose a danger to the environment-- but gives investors a choice to invest in enterprises whose goal is not just profit.

GLOBAL CHALLENGES

Impact enterprises - businesses that pursue social impact and profit by creating jobs, essential goods and services as well as environmental benefit - are at the heart of impact investing.

If you want to play a part in improving sanitation in Africa, for example, you could give money to a charity. As an impact investor, you may choose to put your money into a sustainable enterprise such as Kenya’s Ecotact, which developed a waterless toilet that is funded through modest user fees and local advertising. In a country where less than half the population has access to basic sanitation facilities, the impact of such a product is hard to underestimate, the book notes.

The sources of impact investment capital may be diverse, ranging from individuals and foundations to banks and institutional investors.

"Something that I hadn't fully appreciated is what a hunger there is among individuals, some high-net worth, some very high-net worth, some average people who are retail investors, to really align their investment practice with their world view and with the problems that keep them up at night," co-author Brandenburg, former head of Rockefeller Foundation’s impact investing practice, said.

Another example is Liberty & Justice, Liberia's first Fairtrade-certified company. The company produces clothing and accessories for export to U.S. retailers and provides work, education and dignified working conditions for Liberian women whom founder Chid Liberty sees as the primary victims of economic exclusion in the aftermath of the country’s civil war.

To start the company, Liberty raised more than $3 million in funding from private investors and organisations such as Humanity United. Liberty wants the company to become part of a broader network of African textile companies that meet the same standards, and he wants to spread his model to companies in Asia and Latin America, according to the book.

The Rockefeller Foundation has given more than $40 million in grants to build what Rodin calls the “scaffolding” for the impact investing field - a growing support infrastructure built through investing in initiatives such as the Global Impact Investing Network with a focus on building metrics for investors. The foundation has also provided start-up capital to help build the impact investing field.

Read Judith Rodin's and Margot Brandenburg's blog "How the millennials are driving the momentum behind impact investing"

 

 

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