Posts tagged ‘Equilibrium Capital’
Impact Entrepreneurs at Portland State University and Ater Wynne LLP presented an impact investing panel the morning of April 19, as part of the PSU School of Business Administration Business Briefing Breakfast series. The series is sponsored by A-dec, Black Helterline LLP, Moss Adams LLP, NW Natural and The Standard. For more information on impact investing, including definitions, resources, and a diagram of the impact investing spectrum, please see our earlier post on the topic. Read on for a recap of the panel discussion.
- Kipp Baratoff, Meyer Fellow, Meyer Memorial Trust
- Bill Campbell, Principal and CFO, Equilibrium Capital Group; Partner Emeritus, Ater Wynne LLP
- Patrick Maloney, Principal, Imprint Capital Advisors
- Moderated by Cindy Cooper, Managing Director, PSU Impact Entrepreneurs
Each of the three panelists approaches the nascent field of impact investing from a slightly different angle. Meyer Memorial Trust is working to identify ways in which foundations can expand how they apply capital to generate positive change, Imprint Capital builds and manages customized mission investment portfolios for institutional investors, and Equilibrium Capital is a platform of asset managers focused on environmental sustainability.
As an example of impact investing, Bill Campbell discussed the philosophy of Equilibrium Capital Group. Their approach is based on a concept Campbell calls “Diamond’s Law,” after the principles outlined in the book Collapse by Pulitzer Prize-winning author Jared Diamond: “When collapse is threatened, financial wealth and ecosystem and social health must create, sustain, and enable each other.” He focuses on investing as an “engineering process,” a method of participating in the creation of value rather than a simple hunt for returns.
Not all impact investors follow the same approach, though, and Patrick Maloney spoke to the importance of institutional investors understanding where they fit within the investing spectrum. Impact investors enter the space for a number of different reasons: because of their values, a wish to use more of their resources for impact, to identify the right resources to use for impact, or to find, support and learn about enterprise models for impact investing. They need to understand what types of impact investments are appropriate for their risk, return, and impact targets.
Kipp Baratoff expanded on Maloney’s definition of the various impact investment tools available to foundations: Mission-Related Investing (MRI) aligns endowment investing policies with a foundation’s mission; Mission-Driven Investing (MDI) typically focuses on direct debt or equity investments in mission-aligned businesses; and Program-Related Investing (PRI) takes the form of low-interest loans or other financial support to both nonprofit and for-profit organizations.
However, a fear of making “jeopardizing investments” constrains many foundation executives from deploying their capital resources in a way that would maximize positive social and environmental impacts. Baratoff argued that a target of 5-10% of foundation assets allocated through MRI is an easily achievable, high-impact step towards more effective use of foundation resources. Unfortunately, few foundations make use of these tools to increase their impact, and as a result, social entrepreneurs and nonprofits face higher financing challenges than necessary.
The panelists pointed to the JOBS Act, recently signed into law, as a major opportunity to expand the capital available to social entrepreneurs and sustainable businesses. Under the provisions of the act, businesses can engage crowdfunding intermediaries to sell shares directly to the public. In this way, anyone can become an impact investor—and, with the right protections, society as a whole benefits.
By Jacen Greene, Ames Fellow for Social Entrepreneurship at Portland State University
Impact Investing: a Definition
Antony Bugg-Levine and Jed Emerson, who respectively coined the phrases “impact investing” and “blended value,” provide a succinct definition in their new book Impact Investing:
Impact investors intend to create positive impact alongside various levels of financial return, both managing and measuring the blended value they create.
We can unpack this statement to reveal four key items: positive impact, intention, management, and measurement. An impact investment is intended to generate positive financial, social and environmental outcomes. Accidental good that results from an investment decision isn’t part of impact investing; the positive impact must be intentional. Management requires an active involvement in investment decisions—no blind trusts here. Finally, accurate measurement is key to verifying, replicating, and scaling impact. Good intentions alone aren’t enough.
A Brief History of Impact Investing
The field of impact investing has a storied history, from Quaker prohibitions against profiting from slavery, to anti-apartheid boycotts, to the modern microfinance and social enterprise movements. The nonprofit Acumen Fund was an early pioneer in making investments to support businesses that generate a positive social and environmental impact. Only recently, however, was the term “impact investing” coined to unify these seemingly disparate approaches. The field gained further definition with the publication of impact investing reports by the Monitor Institute and J.P. Morgan.
Bill Campbell, Principal and CFO of Equilibrium Capital Group, describes the evolution of impact investing and its intersection with socially responsible investing:
We think of socially responsible investing (SRI) as the first generation of impact investing—don’t invest in “bad actors,” where bad actors tended to be identified with particular causes (e.g., apartheid). SRI was impact investing 1.0. Initially it carried the premise that responsible investors should be willing to forego returns—[the choice was] returns OR impact.
More recently impact investing has broadened out; mainstream practices now assert that one should affirmatively select “good actors.” Good actors are known for following best practices in their Environmental, Social, and Governance (ESG) policies. ESG investing is impact investing 2.0; it encompasses SRI as a subset. In general it asserts that “good actors” allow investors to get returns AND impact.
We are pursuing a category of investing we think of as impact investing 3.0—returns FROM impact. Our premise is simple: by identifying business models that are more profitable because they have found how to monetize the value of positive impact, and creating financial products that express that value for investors.
Not all impact investors believe that impact investments can, or should, be as profitable as other investment opportunities. A central debate in the community is whether greater social impact can be achieved by accepting a lower rate of return, as business revenue is reinvested in scaling impact rather than paid out to investors. (See “Impact Investment Spectrum” diagram below).
Bugg-Levine and Emerson argue for the concept of “additionality,” which “calls on investors to target businesses that would not otherwise be capitalized by private investors,” thereby enhancing impact. In this way, clean energy and debt capital (such as microfinance) may no longer be significantly impactful, given the increasing willingness of traditional investors to participate in those sectors.
Measuring and Making Impact
To be considered truly successful, an impact investment must generate not only financial returns, but also significant social or environmental benefits that can be directly attributed to the activities of the organization receiving the investment. Accurate measurement thus becomes critical, but the vast diversity of investees made comparing impact across sectors prohibitively difficult. The Global Impact Investing Ratings System (GIIRS), created with that need in mind, now provides one possible solution for measurement and reporting. A detailed questionnaire generates a numerical score for each participating organization, with random audits ensuring accuracy. A number of organizations have formally adopted the system, and the first GIIRS analytics report was issued earlier this year.
So how can you become an impact investor? Microplace offers retail investors access to a range of both domestic and international impact investment notes, with minimum investments starting as low as $20. The RSF Social Investment Fund targets U.S. and Canadian organizations, and requires a minimum investment of $1000. If you’re an accredited investor—i.e., wealthy—the Global Impact Investing Network’s ImpactBase provides access to data on impact investment funds and products. The recently-signed JOBS Act will enable businesses to offer shares to investors without being listed on a stock exchange, providing an opportunity for social entrepreneurs—businesses created to generate significant, positive social and environmental impact—to raise money directly from the public.
To learn more, follow some of the links above and explore the rapidly expanding, globally transformative field of impact investing.
Change note: this post was originally prepared as an introductory piece for a local panel on impact investing. Text about the panel has been removed, but you can read about the event here.