Toniic Releases Groundbreaking T100 Report on Impact Investing
Toniic, a nonprofit global impact investor network, has launched T100, a groundbreaking new report on the state of impact investing.
The report shows that 100% values alignment with capital is possible, investments can realize impact across all asset classes, and the range of impact investments is much wider than previously understood.
Furthermore, T100 underscores the important role impact investment advisors play in accelerating the transition into impact.
The T100 report and dataset includes more than 50 portfolios of select Toniic 100% Impact Network members, representing $1.65 billion committed to impact investments, with $1.14 billion already deployed. The findings provide meaningful context and insight into the transforming role of impact investing as an increasingly powerful economic vehicle for financial and values transformation.
Toniic has simultaneously released a public version of the Toniic Directory, a searchable directory of over 1,000 actual impact investments made by its members. The Toniic Directory is searchable by impact categories, themes, asset classes, management structure, liquidity profile, and geography. The Directory will continue to grow with new impact investor information, providing deeper datasets over time and supporting further reporting from Toniic in the coming months.
I spoke with Adam Bendell, Chief Executive Officer of Toniic (pictured), on the topics of the T100 report, Toniic’s role in impact investing, the current state of the industry and challenges, and Toniic’s initiatives for 2017—Jason Howell
Toniic’s Role in Impact Investing
“Toniic is a community of impact investors. Members share what they are learning about impact investing practices as well as potential investments they have identified. As investments are introduced by members, other professionals in the network will often piggyback on opportunities and provide additional funding for worthwhile ventures.
“Toniic works with investors through the investment process. We will work with entrepreneurs to clarify their investment thesis and make sure they have an impact management and measurement strategy before putting them on our deal flow platform. If a proposal for investment is accepted, members of the network will perform their own due diligence by looking at the business model, potential financial targets (ROI, IRR), and exit strategies. Bottom line: we are able to help with the investment process and allow entrepreneurs and funds to leverage our network through education and feedback from other members.”
Toniic’s Groundbreaking T100 Report
“The T100 report shows how investors can bridge corporate social responsibility and investing. Investors are using their impact investing skill set and analyzing both financial and social impact. The statistics are revealing: 83% of respondents expect market rate returns and, coincidentally, 83% of those met or exceeded expectations. The results of this study demonstrate that, even though impact investors’ primary motivation is to invest with measurable impact, their financial motivation is the same as traditional managers: to preserve capital and generate a financial return for the asset owner.
“Asset classes of the portfolios surveyed were primarily comprised of private equity, public equity, and fixed income, with smaller allocations dedicated to real assets, hedge funds, and cash.
“In terms of asset composition specifics, there is a desire in the Toniic network to see direct impact in their investments. Respondents are finding it more difficult to express their views in public equities due to lack of corporate disclosure, leading to a somewhat lower allocation in this sector than expected. Disclosure transparency tends to lead to more private equity investments as they provide the opportunity for more direct impact, which guides capital to companies where you can make that judgment. On the other end of the allocation spectrum, the low percentage dedicated to hedge funds may be due to the lack of impact hedge fund product, lack of disclosure, and hedge fund investments: if a particular strategy does not invest in the real economy but instead achieves financial return through financial engineering, it may cause impact investors to shy away.
“Other surprising findings were the percentage of respondents that have achieved 90% impact in their individual portfolios. Additionally, 64% of all portfolios surveyed were impact invested. This is extraordinary. We expect that to be up to 82% in three years. The journey from non-impact to impact can be made much more quickly now and is a testament to new products, skills, and, opportunities.
“What is truly unique about T100 is the level of detailed disclosure provided by foundations, family offices, and high net worth individuals. By revealing portfolio’s composition and investments, investors are displaying a high level of trust and confidentiality with Toniic. One of the biggest impediments to impact investing gaining more traction has been a lack of understanding in the sector and lack of evidence regarding financial returns. Our hope is that other investors will consider impact investing based on T100 and with increased participation, our metrics can improve year over year. There is a great feeling in being able to align investments with values.”
Impact Investing- Financial Returns/Impact
“Traditional investors assert that impact investors haven’t been looking at deals with enough financial rigor. The truth is that impact investors are seeking “impact alpha” in addition to financial return -- they might accept a lower rate of return to get larger impact. With the Toniic network, investors can review opportunities with other members and examine risk/return calculations while overlaying impact risk. We find that most investors in impact investing are looking at market rate returns. Those looking at sub-commercial returns are really focusing on having a much larger impact, an example being foundations investing to align the investment of their endowments with their mission.
“A smaller subset of impact investors is focused on outsized returns, basically espousing the view that 'we’re solving outsized world problems; we deserve outsized returns.' Climate change and global energy are two of the more widely used sectors to express this view. Look at investments in fossil fuels/renewables; there are great winners and losers in the capital markets. Investors seeking opportunities in this area believe they will be big winners (investing in the long-term strategy of renewables over fossil fuels) but the risk/reward is high.”
Impact Investing Measurement/Industry Challenges
“We are in the very early stages of impact measurement. The larger the company, the more complex to assess overall impact. Members are interested in the way a company operates and its overall impact but there isn’t one uniform measure. It’s difficult to ascertain whether a company is truly operating in an environmentally, sustainable way as there are many competing standards. Toniic plays an ecumenical role and encourages many views as we feel a clear common denominator is not happening anytime soon. Everyone understands traditional financial measures; clean water, sanitation, gender fulfillment, hunger aversion, and education provided are much harder to measure and roll up to common denominator. Carbon emissions standards are somewhat set; others not nearly as clear. The U.N. Sustainable Development Goals are providing a cross-sector framework that many, including Toniic members, are starting to use to help with alignment. We have created an open-source, SDG-aligned impact theme framework as part of T100 (available on our website) to help.
“As measurement presents a complex framework, we are interested in an approach spearheaded by Acumen which focuses on lean data. The basic thesis is: what is the minimum amount of data needed to assess an investment for measurement and evaluation (M&E). Traditionally, philanthropic grantors supporting international development projects demand that programs be measured and evaluated as a condition of funding, adding a significant level of overhead, and often preventing early stage entrepreneurs from participating. The lean data approach helps to overcome this.
“Knowing what to measure (impact management) is as important as measurement. The falsehood that financial return is not important in impact investing also presents a large challenge. A final impediment to industry growth is that institutions are typically very cautious and slow moving. High net worth individuals, family offices, and family are more nimble/quick movers and leading the way. By sharing their investment results publicly, we are hoping this will inspire other families/foundations to join the impact investing sector. Ultimately, institutions will follow.”
“One of our largest initiatives for 2017 is providing more in-depth data and analysis on topics highlighted in the T100 report. This includes: reporting on the role of financial advisors as their clients are more involved in impact investing, more detailed analysis on asset classes (obtaining more information on public equities and real estate), refreshing/refining current data, and enhancing the portfolio tool on our website. We are also looking to expand the Toniic Directory with more input from network members.”