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. We want to hear from you. Send quick reactions, short blurbs and longer responses (600-800 words) to [email protected] by Friday, Mar. 8.
ImpactAlpha, March 4 – People are at the core of any investment. The entrepreneur, who can grow her mission-driven business now that she has access to more capital. The families in a community that are positively impacted by an investment.
There’s another group of people, one that is often overlooked, that is integral to the success of any deal – the investment professionals themselves.
It is impossible to overstate the importance of human capital to building a market that challenges fundamental norms and achieves impact at great scale.
Those who are making investments, impact or otherwise, apply their education, experiences, cultural background, assumptions, beliefs, and biases to their decision-making every day. Their fingerprints are left on every investment, influencing how they assess a deal, their judgement in the due diligence process, and their understanding of how a stakeholder group may be impacted. It is important to acknowledge that the investments that are made are in fact a reflection of the people hired and how the talent pool is cultivated.
Training impact-smart investors
To transform the global financial system, we must rebuild how we develop talent and build investment teams.
Traditional finance theory taught in MBA programs must incorporate impact alongside risk and return. So too should the curricula of ongoing education and certification programs for the industry. Firms must look beyond traditional networks to recruit talent and look for a broader array of perspectives and experiences in vetting new hires.
The institutions tasked with developing and recruiting finance professionals face entrenched, traditional, and in some cases, outdated practices. If we don’t revise these practices, we will never be able to institutionalize impact as a standard part of the investment process.
Here are four things we must do to develop and grow the talent pool of investment professionals for whom impact is second nature (outlined in our Roadmap for the Future of Impact Investing):
1. Value experience, not just credentials. Unbalanced investment teams lead to unbalanced investments. We need to address the deep power imbalances across the finance sector, evidenced by the lack of racial, ethnic, and gender diversity at many investment firms. To build a new financial system that integrates impact into all decision-making, our investment teams must reflect the great diversity of perspectives and experiences in our society. Making impact investments requires the consideration of the multitude of positive and negative effects that an investment can have on a variety of stakeholders; building teams that reflect a breadth of backgrounds, ideas, and experiences will certainly result in stronger deals. Until we address these imbalances, we only heighten the risk of restricting the values and worldviews of impact investors and, ultimately, sacrificing impact.
2. Build a pipeline of impact-smart investors. The curricula for future investment professionals at both the undergraduate and graduate level needs to be updated. Future investment leaders should learn about impact measurement and management early, so that they can appropriately account for impact when they are sourcing and diligencing deals, managing investments, and navigating exits responsibly. Several pioneering MBA programs are already offering academic coursework on impact investing, such as the Wharton School, which engages students through its Social Impact Initiative and social entrepreneurship coursework. By expanding both coursework and hands-on experiential learning opportunities at the graduate and undergraduate levels, we can expect a larger, stronger cohort of impact investment professionals to emerge.
3. Upskill established investment professionals. We shouldn’t just wait for the next wave of young talent to create change. For the impact investing industry to succeed, we must continue to grow the skills and capabilities of established investment professionals through both in-house and third-party trainings. These efforts are critical if we are to address the skills gaps across the spectrum, ranging from first-time fund managers operating in frontier and emerging markets to tenured institutional investors new to impact investing. Great work has already begun, as organizations like Small Enterprise Assistance Funds (SEAF) roll out training on fundraising and structuring to emerging market funds around the world, and giants like Morgan Stanley offer web-based impact investing education courses for advisors. To scale these efforts, investment firms must incorporate impact into their ongoing training for experienced staff. We need to see leadership among established impact investors to promote good practice, among training organizations to partner in efforts to scale, and among field-builders and networks to ensure that all investors have access to these trainings.
4. Embed impact in investment certifications. Leading investor certification bodies like the Chartered Alternative Investment Analyst Association (CAIA) and Chartered Financial Analyst Institute (CFA) must embed impact into their investor certification programs, to signal the importance of impact measurement and management to investors’ activities, behaviors, and credentials. The CFA has already begun to take first steps—the organization has started to integrate impact investing into its materials and events, increasingly elevating impact investing to the forefront of conversation, but more is needed. Looking forward, there remains opportunity to incorporate principles of impact investing, including impact management, into the full curricula, to ensure that all credentialed investment professionals are aware of the social and environmental effects of their work.
Every day I am in awe of the talented and passionate people who choose to work in impact investing. These are people, in some cases with deep experience in traditional finance, who are willing to tackle the hard work of forging a new way in a complex new form of investing rather than choosing the conventional route. Why? Because they are inspired by the potential of the movement and the promise of positive change it can deliver in people’s lives.
But for the market to reach the scale that is needed, we need to multiply manyfold the number of investment professionals with an impact mindset. We need to do this by taking the above actions and institutionalizing change in our systems.
The GIIN and ImpactAlpha want to hear from you. We invite quick reactions, short blurbs and longer responses (600-800 words) by Friday, Mar. 8.
- What skills and attributes are most important for impact-smart investment professionals?
- What’s working in talent- and skill-development and how might it be replicated
- What does it mean to have an “impact mindset”?
Submit responses to [email protected].