company's supply chain. Some of the change under way in our world is about simple self-preservation (if you're a beverage company operating in emerging markets and are not taking water issues into account, perhaps you will be in a different line of work five years from now!); other parts come from those intentionally seeking to use investment capital to drive positive social and environmental impacts.
This book is just the latest stepping-stone in a growing body of research across the fields of social entrepreneurship, blended value, community development finance, microfinance, workforce development, impact assessment, sustainability, corporate responsibility, and socially responsible investing. In the past five years, more has been written about the purpose, scope, and activity of these fields than ever before, with increasing speed and regularity, from more diverse and global voices.1
What we add to the nearly daily drumbeat of new blogs and reports is a deeper empirical look at what is being done and accomplished by funds that have established a tangible track record, in order to understand this emerging field with fresh eyes and to more confidently predict what will come next.
What this track record of research points toward is the reality that impact investing is moving from anecdote to analysis, from the whipsaw opinion of hopeful pundits to perspectives informed by sharp experience and insights grounded in practice. Our research is drawn from the concrete experiences of twelve funds precisely because that level of in-depth analysis is what is now required to move our collaborative efforts from the initial questions of “Impact Investing 1.0” to the next level of informed execution.
It is no accident that Morgan Stanley, Goldman Sachs, UBS, Deutsche Bank, RBC, Bank of America, National Australia Bank, all of the High Street banks in the United Kingdom, and dozens of other major financial institutions throughout the globe are making strong plays in the impact investing arena. Other investors should take heed:
The train has left the station.
The tremors are being felt.
Mainstream investors are reframing assumptions governing traditional investing just as traditional philanthropists and socially responsible investors are reconnecting with their initial motivations to effectively manage assets and make use of capital to create a changed world – at the levels of individual, community, company, and market.
The rise of impact investing takes place against a larger backdrop of innovation within mainstream capital markets and newly emerging visions of the future of business. And much of this is now being driven by shifts in “consumer” demand, whether at the neighborhood level of individuals seeking to better the possibilities before them; the customer level of those seeking to align the power of their dollars with the world they seek to create; or the consumers of investment strategies and vehicles who are demanding greater transparency, less financial leverage, and expanded understandings of potential value creation generated by their capital.
The funds profiled in this book show us, concretely, what this collaborative new world looks like – in the emerging era of Impact Investing 2.0. The work of the twelve funds stands as a testament to the fact that capital can be structured to change the economic conditions of those who remain largely outside the economic mainstream.
While a great deal has been achieved, a great deal more must be done. We do not pretend to offer “the answer” to the many debates and discussions currently taking place in regard to the ability of capital and companies to advance positive change in the world; nor do we provide a template or defined road map. What we offer in the following pages is a set of organizational data points, experiences, and analysis to inform our next steps as we move forward together. We owe a great deal to these funds willing to open their balance sheets and reflections to outside researchers. And we are pleased to bring their lessons to all those committed to investing with impact to help advance the world to which we aspire.
August 2014
Dedication
This book is dedicated to J. Gregory Dees.
1950–2013
Mentor, Colleague, Friend
For using the power of words to plant a vision that has inspired a generation to think about how we each can use our talents to make the world better.
For defining social entrepreneurship as a discipline and not a personal hobby, drawing out in nearly every person he met the desire to engage with others collaboratively toward shared goals.
And, most of all, for quietly, sneakily nurturing the societal institutions, in education, finance, consulting, government, journalism, philanthropy, nonprofits, and business, making that vision come true.
Introduction
You don't need a weatherman to know which way the wind blows.
There was probably no point in history when life was truly simple and uncomplicated. Every age, every time, every life has its challenges, its complexities, its moments of uncertainty and change. Yet, in the midst of each age's challenges comes a moment of clarity: the need to engage in the Civil War, the ultimate validity of battling the Axis powers, the compelling righteousness of the civil rights movement.
Our moment is no different than others that have come before, save that the clarion call is for a new generation – figuratively and literally, as the Millennials step into new leadership roles – to advance new thinking with regard to the nature of capital and the practices of investing. We now live in a world where injustice and poverty, down the street or across the world, may be felt in an instant. One where environmental degradation threatens not just some future generations we'll never know, but the quality of life of our children. And what's being demanded, more clearly than ever, across generations, is the opportunity to align every facet of our lives with making a positive difference, with a broader vision of a life well lived.
In this respect, in a world that technology renders increasingly open and interconnected, capital markets remain one of the last bastions of imperviousness. Even though capital flows around the globe are one of the most powerful forces shaping our societies and economies, most of us still invest under the pretense that the impact of capital is divorced from its uses.
Yet even as our moment in history demands nothing less than a full accounting of the positive and negative outcomes of capital, a thorough understanding of our role in bending environmental and social systems toward justice, there will be those who continue their efforts to play the role of pundits on the sidelines as our modern Rome devolves into seeming chaos. Even as trillions of dollars continue to be invested with the sole consideration of financial return, and even as companies continue to be managed with an eye to a single, supposedly unencumbered bottom line of financial performance, the majority will see that larger forces are being unleashed in the form of a new capitalism – capitalism focused on the generation of financial returns, yes, but a larger, more holistic economic system operated with reference to previously “off-balance-sheet” factors, such as stakeholder interests and carbon footprint – and a host of additional factors increasingly understood to have influence on long-term value generation and financial return to investors, as well as to our well-being on the planet.
Capitalism will continue its evolution of past decades but increasingly turn outward, recognizing that economics and finance may no longer be viewed in isolation from those elements on which the capitalist engine itself draws. The new
For a brief but concise overview of the trends in impact investing, see the Case Foundation's “Short Guide to Impact Investing,” at http://casefoundation.org/impact-investing/short-guide.
