For some, making money is the be-all and end-all of the investment game. Be it securities, commodities, cryptocurrency, or real estate, the goal remains the same – to create the largest return on your investment, so the money can be shuttled toward other pursuits. Sometimes, just money itself is the end-game, as in retirement investment accounts. Sometimes, it’s something concrete, like a new car, a bigger house, or a more luxurious vacation destination.
For a certain class of investor, however, money is sort of tangential to the investment’s real goal. These so-called impact investors have combined the best aspects of capitalistic investment with social responsibility to create a hybrid that’s changing the world even as it’s lining pockets. We’re going to take a brief survey of the impact investment field to see who’s involved, what projects are underway, and where the trend may be heading next.
The Investors
Impact investing is also known as social enterprise, and it exists on a spectrum somewhere between purely altruistic charity, which takes losses for granted, and amoral investment, in which the almighty dollar is the investment’s reason for existing. Legally, these kinds of financial vehicles are distinct from nonprofits and not-for-profits, in that a portion of the money raised by the organization can be used to enrich shareholders.
The Bill and Melinda Gates Foundation – the largest such private foundation in the world – is not itself a social enterprise investment, despite the foundation’s charitable work. However, it contains a social enterprise arm.
“When we discover an innovation, a resource that could unlock opportunity for under-resourced communities, or a great idea that needs additional funding to get off the ground, our first step is to identify the right tool to support this promising work,” the foundation wrote on its Strategic Investment Fund site. “Is that a grant? An equity investment or loan? Or would an investment paired with a grant, a combination our team often leverages, be most effective? It’s a personalized approach to philanthropy that ensures we are providing the right funding tool to support entrepreneurs and organizations—both nonprofit and for-profit—working on solutions for the world’s most important problems.”
So, impact investors are not simply charitable contributors. At the end of the day, profit is still a motive. And impact investors come in all shapes and sizes, from the strategic arm of the Bill and Melinda Gates Foundation to so-called microloans in the cryptocurrency sphere.
The Investments
The breadth of investment subjects is as diverse as the folks making them. Moreover, the mechanisms for the investments themselves can be highly diverse.
One of the current standouts in the space is State Street Global Advisors’ Gender Diversity Index ETF (exchange-traded fund). Like other ETFs, the Gender Diversity Index – traded as SHE on the New York Stock Exchange’s Arca exchange – is a security that tracks a certain index or collection of different funds. In SHE’s case, the index follows “…the performance of US large capitalization companies that are ‘gender diverse,’ which are defined as companies that exhibit gender diversity in their senior leadership positions.”
One of the oldest established impact investment firms is Investors’ Circle, which regularly brings in more than $10 million per year for angel investment causes, with more than $200 million tied up in various investments. The collection of investments that Investors’ Circle has been involved in over the past 20 years is legion. San Francisco’s AlterEco America is one such project, which aims to improve fair-trade farming supply lines. Another is American Prison Data Systems, an organization devoted to finding new technological ways to improve the cost and safety of correctional institutions. Finally, Cardinal Resources is a solar-focused project that is looking for ways to improve access to safe community drinking water, in addition to auxiliary environmental services. Investors’ Circle currently has about 100 active projects listed on its website.
“We see an opportunity to set a new norm of inclusiveness and collaboration among investors, entrepreneurs, donors, policymakers, and thought leaders – moving forward together as a single organization meets the needs of the field by capitalizing on this opportunity, and it positions us to boldly guide the industry going forward,” Investors’ Circle declared on its site.
Finally, a variety of online and/or cryptocurrency-based microlending firms exist. One such online portal is MYC4, which began operations in 2006 from its home base in Copenhagen, Denmark, and its regional office in Nairobi, Kenya. MYC4 is a vehicle for investors to issue small-scale loans to African projects. Since it started operations, investors have pumped more than $28 million into countries like Côte d’Ivoire, Rwanda, Uganda, Kenya, Ghana, Senegal, and Tanzania.
“MYC4 is an internet marketplace where you and investors from around the world can lend money directly to entrepreneurs who are doing business in Africa and create growth together with them,” MYC4 explained. “That means when the African business makes money as a result of your loan, you can also make money. MYC4 is a business – a business that creates growth – growth created by you.”
The Impact
Foreign aid is a $200 billion per year enterprise, and additional global challenges triggered by climate change and rising population levels signal that an additional $70-100 billion per year will soon be needed, according to Overseas Private Investment Corporation (OPIC) CEO Elizabeth Little in her “Impact Investing: Roots & Branches” report.
“Instead of a policy of excluding undesirable investments or an engagement as shareholders to improve investee companies, impact investors seek those rare investments whose very business model is geared toward having a positive impact on a social or environmental need,” she said. “They aim from the outset – frequently before an enterprise is created – to hardwire positive social and environmental returns along with sufficient financial returns into their investments.”
And their impacts are being felt globally, Little said –a trend that will only grow with time.
“The result has been an outpouring of innovation and groundbreaking initiatives ranging from mobile phone banking to advance market commitments for vaccines to projects that monetize the benefits of biodiversity,” she said.
