Greetings, ImpactAlpha readers! We’re taking a break next week, but will be back for another eventful year on Jan. 2. We wish you all very happy holidays and a healthy and happy New Year. Thank you for your support.
Year in Review: Impact Investing
Since January, ImpactAlpha has brought you 222 daily editions of The Brief, with more than a thousand deals, signals, features, podcasts and guest contributions from leading lights of impact investing. This week, we’ve rounded up ImpactAlpha’s highlights in Women Rising, Impact Tech, Inclusive Economy and 2030 Finance. To cap off the year, we’re taking stock of impact investing itself. Like Santa, we know whether you’ve been naughty or nice.
#Featured: Returns on Investment Podcast
Revving up supply and demand as ‘impact investing’ turns 10 years old. A decade ago, no one had heard of AirBnB, Uber, Spotify, Instagram or Snap. Or “impact investing.” The term was coined, or at least adopted, at a 2007 gathering hosted by the Rockefeller Foundation at their Bellagio retreat center on Lake Como. (There was a follow-on Bellagio gathering in 2008 as well, so we’re straddling 2017 and 2018 for the 10-year anniversary.) But while those post-2007 startups have gone on to become proverbial “unicorns,” impact investing remains a marginal part of the worldwide financial markets, ever on the cusp of a tipping point.
Or does it? When we took up the question in our year-end Returns on Investment podcast, even our resident curmudgeon Imogen Rose-Smith acknowledged, “It has gained traction within the investment community.” Added Imogen, late of Institutional Investor magazine and now an investment fellow with the University of California, “To shift trillions of capital, it needs to be more than a niche, boutique-y conversation. It has achieved that.”
Read (and listen to) “Revving up supply and demand as ‘impact investing’ turns 10 years old” (podcast). Catch up with (and subscribe to) all of ImpactAlpha’s Returns on Investment podcasts.
#Impact Investing on ImpactAlpha
- How much capital was pointed toward impact in 2017? The 2016 number of $114 billion, tallied by the Global Impact Investing Network, or GIIN, from 208 investors, remained a rounding error in the global financial markets. Optimists can point to the growth (from $77 billion in 2015), major new entrants and increasing maturity. A broader set of “sustainable” and “responsible” assets, including negatively and positively screened public equities and green bonds, hit $23 trillion. That total, rolled up by the Global Sustainable Investment Alliance, is up 25% in two years. How much money is there in impact investing?
Dig deeper: Global sustainable investment trends
2. Who will move money in 2018? Some are betting on family offices, which are moving to reflect the values of their clients, particularly those of the next-generation of wealth holders. Others say huge pension and sovereign-wealth funds, once laggards, are poised to lead the global capital shift. And still others are counting on the more than 50 million small but mighty retail investors in the U.S. alone.
- Making impact investing the new normal for wealthy families
- 25 sovereign wealth and pension funds with “responsible” investment strategies
- What we know about Ford Foundation’s $1 billion commitment to impact investing
- Retail platforms that let you, yes you, invest responsibly
3. What we know about financial performance. Of course there’s a spectrum, and of course “concessionary” returns are at one end. But the other end of the spectrum is not “market-rate.” The leading edge of investors are looking to impact megatrends as a source of outperformance. Dare we call it “impact alpha”? (Playing along with the podcast’s drinking game? Have one on us.) Takeaways from recent research: market-rate returns are achievable. Small funds can perform in-line with their large peers. Opportunities exist for all risk-return appetites. A pocket guide to impact investing financial performance.
4. Measurement matters. 2017 is the year impact measurement went from an overhead cost to a strategic imperative. More than 60% of 168 impact investors surveyed measure impact because of its business value. “The increasingly sophisticated practice of impact measurement and management is enabling impact investors to manage their impact performance with the same data-driven approach they apply to financial performance,” writes the GIIN’s Amit Bouri on ImpactAlpha. Understand, expand, and deepen your impact.
- Get smart quickly. One-stop for best practices in impact measurement
5. Practical solutions to impact management. ImpactAlpha’s Operation Impact series, produced with the Case Foundation, highlighted ways to add “impact” (to risk and return) in investment decision-making. The series explored the new culture of transparency around impact financing and performance; how to collect high-value, low-cost data; and managing impact with crisp, comparable data.
- Case Foundation: Putting impact investing on the map
- Acumen Fund: Lean Data
- Impact Management Project: Driving performance for people and planet
- ImpactAlpha: Impact data flywheel starts to spin
6. People to watch in 2018. This year, we kept an eye on impact champions “in the belly of the beast,” including Andy Sieg, head of Merrill Lynch Wealth Management, and Audrey Choi, now Morgan Stanley’s chief marketing officer. “Outside agitators” included Caprock’s Matthew Weatherley-White and Cornerstone’s Erika Karp, as well as industry conscience Andrea Armeni of Transform Finance. Among the “billion-dollar babies” are Andrew Kuper of Leapfrog Investments, Nancy Pfund of DBL Partners and Dave Chen of Equilibrium Capital. Who will make news in 2018? Name-checking the headliners.
- Bill McGlashan and TPG Growth’s $2 billion Rise Fund
- Deval Patrick and Bain Capital’s $390 million Double Impact Fund
7. And the winners are… The GSG (short for the Global Impact Investing Steering Group) asked ImpactAlpha to help identify the year’s standouts as Entrepreneur (Rajeev Kher of 3S India), Asset Owner (Christian Super in Australia), Asset Manager (the Reinvestment Fund) and Market-Builders (Intellecap and IIX). B Lab, meanwhile, identified 28 Best for the World impact funds, based on the GIIRS Impact Rating system. Among companies, 846 best “B Corps” “prove that there is a viable alternative to business as usual,”B-Lab co-founder Jay Coen Gilbert wrote on ImpactAlpha.
8. After the tax bill, all eyes on impact investors. Dictionary.com made “complicit” the word of the year, even before Republicans passed a tax cut that transferred wealth to the rich. Impact-oriented advisors and money managers can pat themselves on the back for moving billions; the tax code is set to move trillions. The politics of the day is the elephant in the room.
9. Engage communities. Don’t be extractive. Balance risk and return fairly.Getting back to that naughty or nice question, Morgan Simon lays out three principles for impact investors in “Real Impact: The New Economics of Social Change,” her new book. “There are a lot of impact investments that are better, but that doesn’t mean they’re fair,” Simon said in a podcast interview with ImpactAlpha’s David Bank. For impact investors, engagement with on-the-ground communities and grassroots activists is essential for driving real impact and avoiding unintended consequences. To social-justice activists who may have a reflexive antipathy to Wall Street, she says, “The opportunity is so massive if we’re able to change the way the global economy functions.” Listen in.
- Bonus: People are not externalities
That’s a wrap! Happy holidays and see back here on Jan. 2. Please send news and comments to TheBrief@impactalpha.com.