Goldman, Morgan Stanley launch social impact funds

By James Frazier

The big boys are coming out to play!  Both Goldman Sachs and Morgan Stanley have announced significant new initiatives aimed at joining the trailblazers in the impact investing world who have been engaged for years in channeling investment monies into companies with a strong positive social and/or environmental impact. It seems likely that they’re hearing from their clients, their younger associates, and their colleagues (Rockefeller Foundation, etc.) that this is an important area, not to be missed out on.

Goldman is putting a toe in the water with its $250 million “social impact” fund, which will provide up-front capital for priorities that aren’t immediate pressing needs, like early childhood education or energy efficient building retrofits, that would nevertheless result in lower costs down the road, while forging some complex metrics to determine how to split the money that’s saved. Goldman CEO Lloyd Blankfein explains, “It’s going to be managed with a view to returning principal and earning a little money for the people who invested in it, so that people do okay in it. We want it to be a combination of people’s better instincts, and their desire not to lose money, to get them over the threshold. If it works, it’ll get bigger and bigger and bigger, and have a life of its own…Anytime you can get natural forces to do what you want to have done, that’s perfect.”

Meanwhile, Morgan Stanley appears to be diving right in, establishing the Morgan Stanley Institute for Sustainable Investing, and setting a goal of having $10 billion in assets in its Investing with Impact Platform within five years. This would be huge, as a comprehensive report published in 2012 pegged total private equity in the US engaged in impact investing at just $4 billion.   The Morgan Stanley initiative also includes a separate $1 billion “sustainable communities initiative” being pursued in concert with community advocacy organizations including the Local Initiatives Support Corporation (LISC), and funding for a Sustainable Investing Fellowship at Columbia Business School that includes an internship at Morgan Stanley.

These big players are, of course, stressing the profit potential; they don’t want anyone to think that they have gone soft on making money—and indeed, financial returns have always been a part of social impact investing. The impact may be less important to them than it is to many of us, and so their version of social impact will likely not be as “deep green” as others.  However, they should be able to create more scale than prior efforts have, if they are successful. I wish them luck and hope that they get some real institutional buy-in from within, so that these do not go down within the mainstream financial world as “impact investing projects that failed”.

It would be great for everyone if Wall Street got some traction in this area; how can we expect to see investing help change the world for the better if the lion’s share of the money doesn’t get on board?

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James Frazier

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