Features | March 13, 2019

Driving “impact-career alpha” and upgrading the talent pipeline

Dennis Price
ImpactAlpha Editor

Dennis Price

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 13 – As the race to attract and retain skilled impact professionals heats up, the industry’s talent pipeline is in need of a makeover.

“The institutions tasked with developing and recruiting finance professionals face entrenched, traditional, and in some cases, outdated practices,” wrote the GIIN’s Amit Bouri in his call on ImpactAlpha for ideas for mobilizing talent for impact investing. “If we don’t revise these practices, we will never be able to institutionalize impact as a standard part of the investment process.”

Blue Haven Initiative’s Lauren Cochran, McCombs School of Business’ Meeta Kothare, SVX Mexico’s Stevie Smyth Valdez, Bain Capital’s Christopher Cozzone and Equilibrium Capital’s Dave Chen weigh in with how to build a stronger pipeline of impact investing talent (in their words):

SVX Mexico’s Stevie Smyth Valdez: Impact is harder to learn than finance

I can’t agree more with Amit Bouri in that we need to value experience rather than credentials. I do believe, however, we need to look to other places aside from investment banks and management consulting for impact investing talent as opposed to just “upskilling” investment professionals.

  • New perspectives. Though these talented professionals want to create an impact, the learning curve is steep to understand the difference between impact washing and real impact. In my reluctant agreement with Winners Take All, these professionals tend to structure transactions they are familiar with and these are exactly the kind of transactions that helped cause the inequalities that we are fighting today. Let’s stop solving our problems with the tools and people that created them.
  • Impact-first. Let’s get people who have been committed to impact from the very outset of their careers, or have a ton of experience working on the ground. Perhaps they need some support learning finance, but that in my opinion is a lot easier to learn than real impact as long as you take a few courses and use finance in your everyday work.

Equilibrium Capital’s Dave Chen: Come for the returns, stay for the impact

The GIIN said what needed to be said since the Ronnie Cohen G20 work on impact investing public policy. As much as we talk about more money coming into the sector, we need to talk about upgrading the fund managers. During the G20, this was a very unpopular position. Most first-generation impact firms grew out of causes and inter-changed the concept of donor with investor.

The reason we pulled together the annual Kellogg global impact investing graduate school faculty convening, started the Kellogg Morgan Stanley Sustainable investing Challenge, and developed the Kellogg impact and sustainable finance class nine years ago, was for this day. The day we realize that impact investing is “investing.”

The second generation firms are investment firms. We want to prepare our students to be investors with sustainability and mission at the core versus the opposite of mission-driven that invests. At Equilibrium, we believe that to scale impact and sustainability you need to “Come for the returns, stay for the impact.”

Amit is right, but we are now running to catch up. It may be too late.

Blue Haven Initiative’s Lauren Cochran: Mainstream firms should ante up for impact talent

“Entrenched practices for developing and recruiting finance professionals,” as Amit writes, are there for a reason. Good investing process is still investing and requires understanding of financial modeling, company and industry analysis, as well as basic understanding of how companies get capitalized. It won’t help anyone to throw out the basics of the financial systems we’ve already built, including well-trod principles of valuation, capitalization and markets. Here’s what I think is needed:

Widen the funnel. Yes to the call for diverse experiences! This will require major financial, consulting, accounting and other firms with the resources to offer hard skills training to broaden their recruiting funnels. This is happening. Gone are the days where investment bankers are culled from five highly ranked schools. We know that diversity results in better decision making, but we can’t make decisions that stand up to mainstream financial markets if we don’t have the same basic skills. Blue Haven and many impact investing firms are too small to do this training on our own and we will continue to rely on mainstream institutions to provide this skill set

Train-up mainstream investors for impact. Mainstream firms now dominating the impact investing conversation should invest in training up individuals for impact measurement and diligence and revise training programs for the youngest recruits to include modules on impact investing. If TPG, Goldman Sachs, UBS, Morgan Stanley, Bain Capital, Blackrock and others are serious about the integration of impact into their work and culture, then ante up. Build impact measurement into training programs, another skill to master alongside financial analysis. Large, well-resourced firms have captured some of the impact investing halo, perhaps they’ll earn their place in the spotlight by supporting the talent ecosystem. How much are Larry Fink and Bill Mcglashan, everyone’s favorite god-fathers of impact investing, spending on training and keeping their disciples?

Learn by doing. As an impact investing firm, Blue Haven values people with exposure to some form of social impact and have dedicated time to pursuing impact in their careers. But no one training will work for every impact organization and certainly not for every family office. We see impact through both the lens of our principles and the information we gather as we do our work. I cannot rely on an independent body to teach why hiring people faster (Shortlist) or enabling SMEs to take multiple forms of payment (Paystack) contribute to the formalization of economies, economic growth and job creation in frontier markets. The GIIN doesn’t even include environmental impact in its frontier finance working group. What body can we rely on to train for a catch all on global, cross industry, cross impact area certification? Existing ways of measuring impact aren’t awful. We salute the people who continue to iterate on better, more informative measurement tools and frameworks, but in the meantime, we have to do the work with what we’ve got.

Incentivize impact professionals. Perhaps another place to start may be for large firms to pay impact professionals the same as their mainstream finance teams. Bain, TPG, and others pay their impact investing teams less than the firm’s mainstream talent, making joining these teams an economic decision, requiring a sacrifice. Hiring for impact investing is harder than a regular old finance job, it requires an extra skill set that is hard to train without experience. Impact investing professionals must be able to maintain flexibility when it comes to impact measurement and attribution. Navigating the choppy waters of this new and increasingly high profile industry will snag a few people away from higher paying jobs, but if everyone agreed that impact investing professionals should be incentivized at least on par with their mainstream investing peers, we’d get the best of the best. The promise of adventure will only get us so far.

McCombs School of Business’ Meeta Kothare: Build the evidence base to change the curricula

For impact investing to become mainstream, it has to get off the sidelines in Masters and Bachelors Business Administration programs.

As Amit Bouri mentions, several MBA programs now have a course or even a few courses on these topics, but until all students are exposed to these ideas, these future business leaders will continue to lead with the same ideas as their predecessors in the 20th century. Their collective might will drown out the voices of the minority and nothing will change. Unfortunately, this mainstreaming will not happen without the support of research faculty.

Build the evidence base. Teaching will change only when faculty are incentivized to explore and research how capitalism can be adapted to solve this century’s challenges. At the moment, few academic journals will brook any disagreement with existing theories that have given rise to firms solely focusing on increasing shareholder value, even in the short term.

Program + purpose. Furthermore, the curriculum on impact investing, sustainability, ESG investing, etc. cannot exist in isolation. A diverse student body, an environment where all voices are included and respected, experiential and interdisciplinary learning, even some community service components, will help students carry out this work with deeper compassion and empathy. Absent such understanding, impact investing will lead to inconsequential and even dangerous results, while providing a false sense of purpose to a new generation of businesses and their leaders.

Christopher Cozzone, Bain Capital: Promote “impact-career alpha”

Many investment professionals still expect trade-offs in choosing an impact investing career. These are legitimate doubts and, as an industry, we haven’t always done the best job addressing them. Take these comments I recently heard from business school students about impact investing:

  • “Impact investing is aligned with my personal values but seems like a risky career choice. I want to learn. I’m going to follow a traditional investing career for 5-10 years and then I’ll reconsider.”
  • “I’m passionate about impact investing but I don’t want to make any sacrifice at this stage of my life, I have a family. I’ll join a non-profit on the side of my day job.”

Are there fundamental long-term upsides in choosing a career in impact? At the image of impact fund returns, is there “impact-career alpha”?

Most of us will argue that passion, purpose and doing-the-right-thing should be enough of an alpha. I will argue today that we could build a better case to join our exciting industry, that we have the responsibly to go out of our way to attract the most talented “missionaries” out there. Here are a few ideas how:

Make the rational case too: Appeal to the head, not only to the heart. We are on the right side of an irreversible mega trend and the math is simple: there is growing awareness of our social and environment issues, consumers care about them and are voting with their wallets, impact deal flow is increasing as millennials become mission-driven entrepreneurs and managers, and large institutions are increasingly looking for impact managers. This is a fast growing industry and the train has left the station!

Learn about role models and promote them. Inspiration goes a long way. Case studies do too. We need to compile more stories of relatable “heroes” who took the risk to go in impact, made a difference and experienced success. Promoting role models will inspire more entrepreneurs to innovate in our field. Who will be the “Zuckerbergs” of impact?

Don’t expect to get the best impact talent at a discount. There’s sometimes an assumption that mission-driven talent comes cheaper. An “impact fund discount” makes it harder to attract top talent from business schools/investment firms, sets the wrong reputation for our industry, can impact team culture, can create adverse selection, and therefore does a long term disservice to the industry.

Same job but different, talk about the opportunity for creative thinking. Einstein said we cannot solve problems with the same thinking we used to create them. To scale impact investing, we need fresh thinking from investors who are ready to nudge how we do business. New talent has the opportunity to both learn hard investing skills and unleash their creativity, imagine “design thinking” for more responsible capitalism.

Celebrate the community. One of the most understated alphas of an impact investing career is the power of our community. Mead’s quote could not resonate more: “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.” The level of daily collaboration and thought-provoking debate across impact investors accelerates learning, increases the sense of purpose and is fun!