Impact investing has been around in one form or another since the late 1960s—when legislation to create program-related investments was included in tax legislation.
However, the term impact investing wasn’t coined until decades later, in 2006, when the Rockefeller Foundation came up with it to define capital deployed with the intention of having a positive impact alongside a financial return.
Those facts are offered in the introduction to a new handbook on impact investing published on Thursday by Rockefeller Philanthropy Advisors (RPA)—a step-by-step guide, two years in the making, designed to assist new or existing investors.
Impact investing has steadily gained momentum in recent years, with at least US$715 billion specifically directed for impact, according to the Global Impact Investing Alliance. Under a broader definition offered by US SIF: The Forum for Sustainable and Responsible Investment, US$12 trillion was in sustainable strategies as of 2018, up 300% from 2012.
Today, the impact approach seems even more relevant as more individuals and institutions seek to find ways to ensure their investments are addressing societal injustices and inequities revealed by the coronavirus pandemic, and made even more visible by protests in response to the killing of George Floyd in Minneapolis last month.
A huge motivation for the handbook, essentially updating a guide created about 10 years ago, was to help investors navigate what impact investing really is, and put in place a strategy that works to achieve their goals, says Patrick Briaud, senior advisor, impact investing, at RPA, who co-authored the report with Steven Godeke of Godeke Consulting.
“There is so much noise, so much more interest, so much branding related to this, which is fantastic, yet there’s [also] so much less clarity of what are good tools and products, and how do I, with my particular interest, do this,” Briaud says.
But, how to begin? One of the keys that the guide articulates is for investors to come up with their own “theory of change,” that is to “take a deep breath before they get started,” by asking questions like: “Why am I trying to do this? How do I define impact investments?” Briaud says.
This is critical because if an investor is seeking a specific outcome, it informs how the result of the investment is measured or tracked. “It’s not measurement for the sake of measurement,” he says.
Briaud recalls working with an investor with a Ph.D. in statistics, who wanted to apply the most “rigorous approaches on social return on investment.” But when asked about what he was looking for out of a particular investment, this investor said what was important to him was to get to know the founder and to “be sure they are doing what they say they are doing.”
Briaud says that to him, that’s a more valuable measurement, and doesn’t extract as much time and effort from a busy founder as a detailed measurement survey would.
To Justina Lai, chief impact officer at Wetherby Asset Management, a U.S. firm with US$5.8 billion in assets under management that works with high-net-worth individuals and families, it was important in this guide to create a theory-of-change framework as a foundation for developing and implementing an impact investing strategy.
“Having it laid out in [a] step-by-step guide we hope will help get people off the sidelines and started on their journeys,” says Lai, who was an advisor on the handbook. The new guide will “make it potentially less intimidating.”
The guide is laid out to allow investors to dip in wherever it makes sense for them on this “journey,” with chapters that walk through: “The Why,” which focuses on creating that theory of change through merging impact goals with investment goals; “The How,” tapping the tools and structures available; “The So What,” which focuses on how to measure outcomes; and “The Now What,” which focuses on implementation and best practices.
The handbook guides readers through the eyes of an avatar dubbed Sophia—a 45-year-old investor who became wealthy from a successful fast-fashion business that she sold, and is now focused on tackling the issue of heavy water usage in the fashion industry. While she has donated money to water-related causes, she wants to have more of a direct impact, and to shift her investment portfolio to be in sync with her values.
Using this avatar allows the guide’s authors to show investors the choices they can make along the way to developing and implementing their own plan. They used an avatar, Briaud says, because they couldn’t find an example of an investor who “had done this whole thing up to a standard we thought was excellent.”
Still, the guide offers more than 40 case studies of foundations, wealth managers, and impact funds to show how an array of investors have tackled various impact investing issues. For example, Catalyst at Large details their gender lens investing approach, while Austin Community Foundation and Aragona Family Foundation, also in Austin, discuss co-investment and collaboration.
The guide is most relevant, the authors said, for “mission-driven asset owners,” including foundations, endowments and wealthy individuals and families “seeking to drive social and environmental changes through their investments.” But it’s useful for any retail investor “wanting to integrate values” into their investing approach, Briaud says.
While the guide was issued in printed form, it will be continually updated in an online interactive version that will be available later this year. It’s also an open-source document, supported with grant funding. “It’s intended to get into as many hands as possible,” Briaud says.
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