This month, Impact Engine, Arabella Advisors, and Forefront hosted an Impact Investing Bootcamp to educate and equip people to begin impact investing in their or their clients’ portfolios. Participants ranged from family offices and foundations to philanthropic and wealth advisers. They came with varying degrees of experience in impact investing, but all shared a common interest and commitment to action.
The day began with Tasha Seitz, Chief Investment Office of Impact Engine, and Julia Sze, Managing Director of Impact Investing at Arabella, running the group through an overview of impact investing and a discussion around the investment spectrum. They highlighted how each part of the spectrum might be relevant for different types of investor, and a debate unfolded around maximizing returns versus maximizing impact and where there are opportunities to have both. They shared the example of the KL Felicitas Foundation, which made a pledge to transform its portfolio into an impact portfolio a number of years ago. Since then, the foundation has reported on its track record and its specific investments and has demonstrated that a portfolio that considers impact can deliver market rate returns.
Tasha and Julia also outlined three potential approaches to implementing an impact investing strategy in one’s own portfolio. The “Learn By Doing” approach entails making early stage direct investments and “seeing what sticks.” It is a good approach for those who are comfortable with risk, enjoy being up close and personal when working with entrepreneurs, and want to learn by doing and getting personally engaged. The “Assess and Upgrade” approach encourages investors to take stock of their public equity and debt portfolio, and to identify where to incorporate impact investments. It is a useful approach when investors have a lower risk tolerance, want to optimize or improve the impact of existing portfolio, and want their portfolio to reflect values (through negative and/or positive screens). The “Mission Extension” approach starts with nonprofit grantees and a mission lens. It is relevant for those who want to activate capital to serve a mission, and who are willing to think “outside the grant box.” The primary screen is impact (and type of impact), and is suitable for those who are willing to consider higher risk and concessionary returns to drive greater impact.
The group then heard from Sam Bonsey, Director of Operations at the ImPACT, a network of families that is committed to make more impact investments more effectively. He shared the process that his family office and he as an individual investor went through to transition their portfolios to an impact orientation. He has utilized the “Assess and Upgrade” approach over the last 6 years, and currently about 56% of his portfolio has impact.
One topic the group was eager to discuss with Sam was how he measures impact. Across his portfolios, he has different impact expectations for different asset classes–with his public equities he is “playing defense” (protecting return, less strict about impact), while his venture capital and fixed income investments are more about “playing offense” (higher impact, higher risk or lower return). For his private equity and venture capital investments, he looks at impact measures that are directly aligned with the business model. Sam views investments in community banks, community development finance institutions (CDFIs) and ESG funds as easy ways to start transitioning an investment portfolio towards impact.
Julia and Tasha also shared a structure for thinking about impact measurement: outputs, outcomes and impacts. Outputs are direct, immediate results associated with a specific project. Outcomes are medium-term consequences of a project that relate to its goal or objective. And Impacts are the long-term consequences of the project that address the underlying social issue. Ultimately, investors are striving towards impacts, but in the short and medium term it can be effective to measure put outputs and outcomes in order to track the progress and the social return of an investment.
Our lunchtime guest, President of the IDP Foundation Irene Pritzker, wants to get even more granular on impact metrics. She discussed the UN’s Sustainable Development Goals (SDGs), which are 17 goals along with targets and indicators that a measurement framework has been built around. These 17 goals have been prioritized by the UN as the most critical to ending poverty, protecting the planet and ensuring that all people enjoy peace and prosperity over the next 15 years. She encouraged attendees to ask their fund managers to start tracking how many of the goals, targets and indicators they are addressing in order to evaluate the impact of their portfolios. This call to action has been echoed by organizations including the Global Impact Investing Network.
Alison Ehlke, IDP’s Administrator & Grants Manager, and Linda Stephans of Graystone Consulting, the foundation’s investment manager, talked about how they each play a role in its overall strategy. The foundation’s mission is to encourage and support the development of innovative and sustainable solutions to complex global issues, particularly in education. The 5% of the foundation that is distributed annually in the form of grants and program related investments (PRIs) is done with that mission in mind, but so is the other 95% that is the investment corpus. Because of this holistic thinking, when the foundation sees an organization that it wants to support, it can utilize the full range of its portfolio–from making a direct equity investment to providing a loan to giving a grant–depending on what type of capital best suits. This flexibility enables the foundation to achieve maximum impact with its dollars, and also to play a catalytic role in bringing capital to these organizations.
Overall, the bootcamp touched on a range of current themes in impact investing from a variety of perspectives, and raised as many new questions as it answered. We will be exploring some of these topics in further depth in future blog posts.
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