ImpactAlpha’s What’s Next series, produced in partnership with the Global Impact Investing Network, provides a platform for practitioners and experts to reflect on the future of impact investing.
ImpactAlpha, March 12 – Agents of impact with an “impact mindset” see impact investing not as a passing fad, but a fundamental shift in the way markets value social and environmental impact.
“The ‘impact mindset’ is no longer the lonely pursuit of a faraway dream that it was not so long ago,” writes Align Impact’s Hummayun Javed, in response to last week’s call for ideas by the GIIN’s Amit Bouri on ImpactAlpha for how to mobilize more talent for impact investing. Says Javed: “Enterprising professionals recognize the opportunity not only in terms of the rising demand for impact investing but, more importantly, the opportunity to be ahead of the curve in a changing environment.”
The talent mobilization is well underway, judging from the strong responses from more than a dozen investment professionals, consultants, academics and other impact investing leaders. Weighing in this week will be agents of impact from Bain Capital, Blue Haven Initiative, Bridges Fund Management, Equilibrium Capital, Flat World Partners, Good Capital Project, Intelligent Impact, Liquidnet for Good, McCombs School of Business, Open Road Alliance, Spectrum Impact, SVX MX, The Legacy Funds and Wharton Social Impact Initiative.
So what is the impact mindset? How can the industry cultivate it? How can money managers recruit for it?
Here’s what five practitioners had to say (in their words):
Align Impact’s Hummayun Javed: The “impact mindset” gives investors an edge
As the impact investment movement has gained currency across all types and sizes of financial institutions, the “impact mindset” is no longer the lonely pursuit of a faraway dream that it was not so long ago. Enterprising professionals recognize not only the opportunity in terms of the rising demand for impact investing but, more importantly, the opportunity to be ahead of the curve in a changing environment. The mindset comes from having assessed impact investing to be more than a passing trend and being backed by strong fundamentals and lasting change. Ultimately, when questions turn from “if” to “when” – it is a sign that taking action is critical and having an “impact mindset” is recognizing that signal and not waiting for the “when” to happen.
Impact-smart investor are just good investors. There is no secret recipe for being “impact-smart.” The attributes that are most important for impact-smart investment professionals are not so different from those needed for success in the investment profession. Advisors and investment consultants who are not moving with the changing market dynamics are also the ones that are lagging in innovation and adaptability. Here are some of the key attributes we see in experienced investment professionals at the forefront of impact investing:
- Ability and willingness to learn. Being impact-smart is not easy – but no other (desirable) aspect of the investment profession is easy. Staying on top of what’s meaningful is critical to a successful career and impact investing is no exception.
- Initiative. Successful (and impact-smart) investment professionals are avid researchers and do not shy away from going beyond the norms to build new paradigms and aiming for more than business-as-usual.
- Adaptability. The rise of impact investing is not the only change that is happening in the investment profession, but it is one of the most significant ones. Being adaptable and nimble in your thinking means not grounding yourself in ages old biases and ways of thinking.
Flat World Partners’ Kate Starr: Money managers are looking for integrated expertise
Impact investing is no longer just a niche part of the asset management industry. Money managers are scrambling to find talent to fit their clients’ growing sustainable demands. Both from a quantity and quality perspective, identifying skilled individuals to form a well-rounded impact team is no simple task. It’s not enough to just know how to build a financial model or read a balance sheet; and it’s not enough to understand climate science or development economics. Portfolio managers and analysts also must be able to understand how social and environmental impact relates to the economic returns of each of their investments.
As invested assets have grown so has investor sophistication, and only by employing integrated expertise can firms appease client demands and avoid criticism of greenwashing. Asset managers looking to be a part of the sustainable investing movement need professionals who can accurately assess performance and set return expectations, as well as communicate these past and future results that can have a multi-dimensional bottom line. In other words, they require employees that can just as easily make an investment case in a room full of bankers as they can in a carbon policy debate.
- Widen the talent pool. It’s not easy to find this integrated skillset, and managers need to be open to a wide range of candidates – from veteran portfolio managers seeking a career change, to recent graduates with environmental science degrees and limited financial experience. Individuals from a variety of backgrounds have realized the asset management industries’ crucial role in achieving a sustainable future and are flocking toward a once exclusive field to offer their skillsets.
- Invest in human capital. With more competition than ever for investor capital, asset management firms can set themselves apart by aggressively investing in human capital. A diverse, multiskilled investment team can mean the difference between winning new mandates and suffering continued outflows of capital. An investment in talent may be the best defense against asset attrition, even as managers make significant contributions to addressing climate change, economic disparity, and social inequality. The bar is moving higher.
Spectrum Impact’s Rehana Nathoo: Look beyond finance professionals for would-be impact investing practitioners
Amit and the GIIN team express a very real need to raise the bar on practitioner training in impact investing. The range of recommendations – from embedding expertise directly into investment teams to changing the requirements for certification – all paint a promising picture for how we on-board a new generation of impact leaders.
But we would be better served if we start by putting an end to a conversation that is intended only for investment professionals.
- All hands on deck. As we wrote in ImpactAlpha last year, (see, “Development professionals-in-training make good impact investors, too,”) training has to include a growing class of cross-sector professionals. With each successive generation, job tenure decreases while interest in cross-sector exploration is on the rise. A career that features a single employer, sector, or even geography is (increasingly) a thing of the past.
- Learn by doing. People in investment roles no longer require MBAs or CFAs. They can build that knowledge on-the-ground, on-the-job, and even on their own time. More importantly, they can come from other disciplines, trained in essentially additive ways (like keeping the impact on end-beneficiaries front and center.) A good example of this evolution of one-sector thinking can be found in social entrepreneurship. Founders don’t need to be credentialed. They can find or acquire the technical expertise that they need. They can even learn it themselves. What is required of them is a deep understanding of the problem they are trying to solve.
- A chorus of voices. As we continue to up the rigor on how we think about training, let’s widen our scope. Our audience of engaged and enthusiastic would-be practitioners is already broader than we think. Our best chance of building a resilient and complete impact ecosystem is one where we have multiple voices at the table.
Open Road Alliance’s Caroline Bressan: Flip investor-investee power dynamics
I believe we as a sector are at an inflection point. There is an enormous opportunity and as industry practitioners we have the imperative to do it right. As someone who has spent my whole career in impact investing, I see three things to watch in terms of talent development for the sector: (1) Avoid formulas for recruiting, (2) Increase our focus on talent pipelines from investees and end-users and (3) Diversity, equity and inclusion.
Avoid formulas for recruiting. I’m asked time and again from current MBAs, “how do I get into impact investing?” Many seem to believe investment banking is a necessary stop in the formula to getting an impact investing job. However, I’ve often seen ex-investment bankers go through a hard transition into the world of social finance because their skillset is not as analogous as they expected. We don’t do business the same way as Wall Street for a reason – we’re trying to come up with a more compassionate and sustainable form of capitalism. At Open Road for example, compassion and humility are equally essential traits of our team as analytical problem solving. We should be pulling in talent from a more diverse set of sectors and geographies to generate the “outcome” of a fairer form of capitalism, instead of the “output” of simply moving more money.
Find impact’s operator-investors. Where we go next in large part depends on who we are listening to for directions. In impact investing, the proverbial navigator’s chair is too often occupied by capital holders and fund managers rather than the entrepreneurs and ultimate customers where the capital is being absorbed. To disrupt the current inequality in our capitalist system, we need to at least strive for balance in listening between those providing the money and those taking the money. One way to do that is to cultivate and recruit people with experience running social enterprise businesses to advise the capital holders. As seen in venture capital, there are more and more “operator-investors” out there who have previously founded or worked for start-ups.
Returns on inclusion. Diversity, equity and inclusion are in the DNA of impact investing. This one should be obvious. We have, of late, been inundated with the stats. Female founders received 2% of the venture capital invested in 2017. Less than 3% of VCs employ black or Latino investment professionals. How can we as a sector expect to reduce inequality in our society if we do not have an explicit imperative to bring more people of diverse backgrounds into decision-making positions? Shortlist, based in both Kenya and India, is making great progress in hiring local talent in part by anonymizing the resumes seen by their hiring clients. There is ample evidence and promising work taking off on this front (see Segal Family Foundation’s Africa Visionary Fellowship, Backstage Capital and others) and it must be a key component of our sector’s strategy moving forward.
Liquidnet for Good’s Brian Walsh: Change the composition of investors to change the outcome
Smarter investment decisions and stronger social equity are the result of conscious efforts to ensure that the people making investment decisions include representatives from diverse backgrounds. We need more leadership to move from lip service to action when it comes to issues of equity, diversity, and inclusion in the composition of the people making capital allocation decisions.