Impact Investing: The Business of Doing Good

One of the most in-depth articles we’ve seen on Impact Investing was recently published in Hawai’i Business, and not surprisingly, it features the work of our own Michael Kramer.  Impact Investing has emerged in recent years as one of the highest-profile evolutions of the SRI principle of doing well financially while doing good for people and planet.  At the same time, there has been some friction, as some who embrace this new model suggest that SRI is, by contrast, low impact; this article gets at these questions in a more complete way than many.

Much of the piece profiles the Ulupono Initiative, an impact investing project of Pierre Omidyar (the funder behind First Look Media, the independent journalism venture featuring Greg Greenwald, Jeremy Scahill, and Matt Taibbi). Ulupono is actively investing in many initiatives across the Hawai’ian islands; this excerpt captures the essence of the impact investing mindset:

“Pierre has this nomenclature he likes to use,” says Murray Clay, a managing partner at the Ulupono Initiative. “He starts with the idea of ‘charitable giving,’ which he defines as ‘meeting people’s immediate needs.’ So, Meals on Wheels, Habitat for Humanity – people providing food, shelter, cloths, medical care – that’s charitable giving. The next step is ‘philanthropic giving,’ which, unlike charitable giving, is not about meeting immediate physical needs; it’s about solving long-term problems. If you think people aren’t getting good jobs, for example, it might be that better education will help solve that problem over the long term. So, philanthropic giving is about solving those kinds of long-term problems. The next step is either ‘philanthropic investing’ or ‘impact investing.’ Those terms are used interchangeably. The idea is that you’re bringing the for-profit model into play. But, instead of just making money, you’re making money and having impact at the same time to try to solve some of those problems. So, you’re not just measuring returns; you’re measuring returns and impact.”

The article goes on to look at the work of RSF Social Finance (the investing arm of the Rudolph Steiner Foundation) and Natural Investments.  Michael fields questions about the relative impact of the Ulupono model and traditional SRI, noting, “The term ‘socially responsible investment’ has been around for more than 30 years; impact investing has only been around for a few years. The folks who champion that term are generally equity people (ed. note: wealthy, or “qualified,” investors) who invest in startups. That certainly creates impact. The issue is: What kind of impact do you want to make?”

SRI’s impact often takes place within the companies held by SRI mutual funds, owned by “regular” investors. The kinds of impact SRI investors have been creating for decades is now expanding rapidly. Michael shares some good news about Bloomberg, the industry-leading financial data provider, which has added sustainability information to their offerings, thus moving some SRI considerations into mainstream investment analysis.  In addition:

“The other thing Bloomberg recently released was something called the Carbon Risk Valuation Tool, which is specifically related to climate change and carbon cap and trade.” This service, Kramer explains, helps financial institutions analyze the risk associated with so-called ‘stranded assets,’ enormous investments in fossil-fuel reserves that, because of climate change, may never be extracted. Bloomberg calls this $6 trillion concentration of assets a “carbon bubble” that may trigger another worldwide economic crisis.

“There’s serious business risk to investing in those sectors,” Kramer says, “because those assets will likely become ‘stranded.’ And the fact that this is already being tracked by Bloomberg is a sign that the issues of sustainable investing have become mainstreamed.”

We heartily recommend the full article, which fleshes out the full range of impact investing activities with unusual depth and thoroughness.

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