The 4 Key Parts of Impact Investing
The Four P’s of Impact Investing
By Justin Conway, Vice President of Investment Partnerships, Calvert Foundation, a nonprofit financial services firm that has helped thousands of investors channel over $1 billion in impact investments to social enterprises throughout the U.S. and around the world
I decided to focus this article on what I often refer to as the 4 P’s of Impact Investing. These are related to the barriers our industry faces in making private impact investments more accessible to potential investors…specifically those offered by community development and other impact investment firms and managers.
The first P is the resounding refrain we hear from investors and advisors – we need “Product.” There are many impact investment opportunities for those that can source and structure unique private transactions, but very few opportunities that have been productized to access a broader set of institutional and retail investors. While in some cases accessing a broad investor base isn’t appropriate, for those that can actively use investment dollars to help them scale their work, it’s a question of how their capital needs match with what specific types of investors will expect in terms of risk, return, liquidity, structure, and other elements of an investment’s overall package. And whether those needs and the investment package should be focused on high net worth and institutional investors that are able to be more flexible in terms of their approach, or whether they could be suitable for a broader range of investors that often require a more standardized product structure like retail investors and financial advisors.
The next P is Platform, which goes hand in hand with product. Platform is the distribution piece impact investments need to reach investors. These can be unique to a specific product, an online marketplace of options, and/or established platforms at brokerage firms. There are a number of promising efforts underway to create platforms of impact investments with industry credibility and the flexibility in structure and terms that many impact products need. Given that the majority of investment dollars are in the brokerage world, there is even more demand and potential for impact products to raise capital there. The brokerage barriers to entry are significant though, with initial requirements of having a product that has a good track record, with national registration and appeal that is structured similarly to other products can be electronically traded, and is looking for at least $100 million.
So you’ve got a product and a platform, now you need to focus on the third P – Promotion. Let’s face it; most people are not actively looking for impact investments on a regular basis. Tons of potential, but if you build it, they don’t just come. While people are saying in survey after survey they want to align their investments toward creating a better world, and we see increasing signs of this playing out, it takes getting concrete opportunities in front of people for them to take action. Significant education and marketing efforts are needed to bring opportunities to investors in a way that resonates. Promotion doesn’t necessarily mean mass-marketing, but you have to think through how to get this in the eyes and hands of people you think will be inclined to take action…and be prepared to do so many times, as it often takes reaching people multiple times over extended periods before they are comfortable to take action. Even the most outwardly committed investors often move very slowly with their decisions. Financial advisors who are often the gateways to investors of all sizes need to be effectively educated about available impact investment opportunities, which are growing but still very limited at this time.
Creating a compelling product and platform, and effectively promoting it is hard work, and that’s where the fourth P comes in – Partnership. The social and environmental issues we are grappling with are tough; the investment models to address them can be complex; the barriers to entry for accessible investment products are high; we’re all limited in resources and time. Therefore it is very important for players to recognize the specific value they bring, and partner with other players to advance mutual goals more efficiently and effectively. Fortunately, our industry works together well and there are significant opportunities to collaborate with others and leverage our strengths.
In addition to collaborating with those deeply involved in impact investing, it is also important to look to those currently outside of our industry to leverage their capabilities as well. Technology is dramatically changing the way people invest,
Read the Full Blog Post here- http://www.greenmoneyjournal.com/january-2016/impact-investing/