Impact investing is a fairly new concept, dating back only to 2008. But in this short time, the idea of investing in companies to create social and environmental good as well as for financial returns has lit up the business world. Traditionally, a company’s main obligation was simply to return value to shareholders. Now, more and more businesses are holding themselves to a different set of standards. They ask, “how can we create benefits not only for investors, but for all involved: consumers, employees, investors, and the community?”
The term has suffered from some perception problems, so let’s clarify. Impact Investing is not a grant. There is expectation of return on investment in conjunction with social or environmental return. Nor is it only about negative screens which remove ‘harmful’ companies such as tobacco or fossil fuels from an investment portfolio. It’s also not a non-profit venture—impact investors expect a healthy return on their money. This is not about a sacrifice, just a commitment to positive impact.
Can impact investing be a tool for change? An impressive array of stakeholders sat down on February 3rd for an in-depth discussion of the question at the Hub Space offices in Tribeca in New York City. The conference, hosted by the Case Foundation, Arabella Advisors and New Venture Fund, looked at impact investing from a range of perspectives.
Jean Case, CEO of the Case Foundation, in conversation with Neil Blumenthal, Warby Parker’s Co-Founder and Co-CEO, and with The Economist’s Matthew Bishop serving as moderator, discussed a new class of investors that are looking for more than just a financial return. “The world has changed even in the last two years,” says Case. “Suddenly, impact investing is a topic. Business can bring a rigor and discipline to actually make a difference, but the biggest obstacle is how to build a new sector.” She compares its challenges to the origins of venture capitalism, an industry that had to build brand new infrastructure at its inception. Case goes on to lay down three rules for an ‘impact’ company: a clear intention, commitment to measurement, and transparency.
Warby Parker is clearly a company with a mission. Blumenthal speaks passionately about the company’s original objective. It was to solve a problem: glasses were too expensive and inaccessible to a large part of the world. Now, the company sells fashionable and affordable eyewear, a favorite of hipsters worldwide, and makes a healthy profit doing so, with hundreds of thousands of eyeglasses sold, while also partnering with a non-profit to donate glasses and teach people in developing countries to perform eye exams and to sell affordable glasses in their communities, allowing them to make a living. “At the end of the day” says Blumenthal, “consumers create relationships with brands,” and he wants ‘doing good’ to be the defining brand, or main characteristic of his company.
Being a certified B-Corporation allows Warby Parker the transparency and the metrics to prove just how much impact for good the company is actually making. And, of course, B Corp certification for socially conscious companies is like LEED certification for green buildings. B Lab, the company behind B Corp Certification, provides independent rigorous assessment and scoring of companies that wish to show the highest social and environmental performances and complete transparency in their business practices. The B Corp movement currently spans 120 different industries and 39 countries, all with a common goal, to use business to address social and environmental issues, and to show it.
B Lab’s co-founder Andrew Kassoy spoke on a panel with entrepreneurs from SolarCity and Happy Family, discussing the power of story to create real financial growth. Shazi Visram, the founder and CEO of Happy Family, set out to change the way kids are fed. In so doing, she completely disrupted the organic baby-foods market. Visram believes that a genuine and meaningful story is essential for success, and mission-based businesses have stories built-in. Indeed, her company has garnered much attention, including being a finalist for ‘most inspiring business in America’ from NBC and Amex, and a meeting with President Obama in the White House. And these have lead to some real financial growth: from a $550,000 angel investment and subsisting on ramen noodles to a total of $23 million in equity.
As a millennial, Justin Rockefeller, Trustee at the Rockefeller Brothers Fund, didn’t need to be sold on impact investing. His generation inherently understands its benefit. The fund is divesting from coal and tar sands to reduce past harm while focusing on investing in climate change and peace building ventures. “The non-profit sector was never meant to be a scale part of the economy. It was meant as an auxiliary, to take care of problems on the margins,” explained Clara Miller, President of the F.B. Heron Foundation. Understanding that grants would never be enough to help people to help themselves out of poverty, Heron has committed 100% of their assets towards impact investing. The investment banks too, have come around. Prudential’s goal is a $1 billion impact portfolio by the year 2020, while JP Morgan has made a $100 million commitment to social finance. They’re two-thirds of the way there, according to AMY Bell, Executive Director of the bank’s Social Finance division. “In five years, we have seen promising and impressive returns, as well as impact,” she adds.
For investors, impact investing is about demanding more from their money. For companies, it’s about providing more. Every company seeks to attract loyal customers, devoted employees, and trusting investors. For social entrepreneurs who lead with their values as well as an eye towards profits, this goal is clearly within reach.
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