Impact Investing 101: Where to Start?
I am asked pretty frequently if I pay attention to Social Impact Investment, ESG focused ETF funds, etc. The answer to both questions is yes, and yes. As with most everything in the world of Social Entrepreneurship there are a variety of groups at the table leading the conversation with their own goals, motivations and perspectives about the right way to invest funds to increase social impact.
It’s worth mentioning that I am NOT a financial advisor, so none of this information should be considered a substitute to an experienced, accredited advisor. This post is intended to serve primarily as a space for those who are interested in learning more about this topic.
I generally break down the landscape of Impact Investment into three primary areas:
Foundations who are looking to invest in nonprofits while creating some sort of flow of income back into the endowment. These tend to be innovative and forward thinking, but their key focus is still on outcomes and social impact. Oftentimes likely to invest in a lower return in exchange for a proven impact, although again, depending on the vision and mission of the organization. In Ed Tech/ DEI initiatives, Lumina Foundation is a great example locally.
Venture Capitalists who see the long-term potential of social entrepreneurship and want to invest in these solutions. Often times these individuals are focused on a specific area of social impact/ expertise. Proof of impact is important, but they are less willing to take a lower rate of return. You can find a great post with more insight and examples in this CrunchBase article.
Institutional investors/ Mutual funds. These tend to be ETFs based on a specific area of social impact, and traditionally use 3rd party measures of impact (IE: ESG, Environmental, Social, Governance) metrics to guide their decisions. Oftentimes, these turn out to be more ‘exlusionary’ than forward thinking. Blackrock Social Impact Investing (Is the one I consider the current primary benchmark in the space.)
Of course, if you’re really interested to learn more about this space, you can’t do any better than to go straight to the biggest research group in this space, the Global Impact Investment Network.
In short, balancing the social impact of a mission alongside financial returns is a balance that depends heavily on the investor’s preferences. As a social entrepreneur, your job in having these conversations is to be able to:
Understand the detail on the investor’s preferences
Be able to prove that you’re meeting (or exceeding) the expected level of social impact and financial return
Build an honest relationship that drives a mutual understanding for why you’re both in this work.
The more we’re able to drive clarity, understanding and success, the more investment we’ll see coming towards social entrepreneurs.