Impact Investing: Financial and non-Financial Returns

A recent article by Devin Thorpe in Forbes summarized the encouraging trends in impact investing that he encountered while moderating a panel discussion and points to the promise and challenge that faces the impact investing community. On one side, the panel demonstrated that US investors are increasingly looking at their investment portfolios as one of the more powerful instruments at their disposal to engage with major challenges facing us in the coming years: climate, poverty and inequality, gender and health. On the other hand, we impact investment managers continue to disseminate a confusing message about how impact investing differs from conventional investing:  is it a way of doing good by matching or bettering conventional returns, as panelist Paul Herman suggests? Or does it represent a fundamental reconsideration of our definition of “wealth” such that competitive financial returns become just one consideration and not necessarily the most important in judging investment performance, as suggested by panelist Seth Streeter?

Grassroots has participated in initiatives mentioned in the Forbes piece like the Public Benefit Corp and B Certification since their inception because we believe this shift in investment philosophy is essential to creating a better and more just world. Grassroots’ view of the differing Herman / Streeter perspectives is that what is most important is that impact investment managers and advisors acknowledge that the different strategies with respect to trading off financial for non-financial returns are both valid and have their place, and encourage investors to understand what they can and can’t expect to accomplish by implementing the different strategies in their portfolios. The viability of these different approaches to impact investing is supported by recent reports from the GIIN and JP Morgan.  The GIIN report “Introducing the Impact Investing Benchmark” finds that impact investing does not necessarily entail a sacrifice in financial return.  The JP Morgan 2015 impact investor survey “Eyes on the Horizon” confirms, once again, that nearly half (45%) of the 145 impact investors surveyed with $60 billion in total assets target returns below market or principal preservation.  The team at Grassroots Capital welcomes this steady increase in impact investments and we are glad to see articles like Devin’s continuing to bring impact investing to the forefront of the public’s view and promote greater understanding of the alternative approaches.