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The mission of the Your Mark on the World Center is to solve the world's biggest problems before 2045 by identifying and championing the work of experts who have created credible plans and programs to end them once and for all.

Crowdfunding for Social Good
Devin D. Thorpe
Devin Thorpe

Impact Investing

This category includes articles about people, firms and foundations that invest in social good by investing in social entrepreneurs, social impact or pay-for-success bonds, etc.

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3 Players That Exemplify The Complexity Of The Impact Investing Ecosystem

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

Three impact investment players provide an interesting view of the broader impact investing ecosystem and how all the parts work together. Their approach helps to make capital more available to social entrepreneurs and investment opportunities open to more investors, including some ordinary investors.

The three include Impact Assets, New Media Ventures and Better Ventures. Impact Assets, a nonprofit asset manager holding exclusively philanthropic capital, serves as a hub in this part of the impact investing world. New Media Ventures and Better Ventures use Impact Assets in strategic but almost opposite ways.

Impact Assets and Donor Advised Funds

Impact Assets provides a place for donors to place philanthropic capital in what is known as a donor advised fund or DAF. As the name implies, funds contributed to a DAF are donations where the donor gets to advise on the final disposition of the funds. DAFs work like small foundations with fewer restrictions and generally more flexibility. Most DAFs don’t give the donor much influence over the investments, only the final charitable distribution.

Impact Assets is different. Built from the ground up to facilitate impact investments, donors also have significant flexibility in advising Impact Assets on the investment strategy. The only investment options available through Impact Assets are impact investments.

Rick Moss, Better Ventures

Rick Moss, founder and managing director of Better Ventures, approached Impact Assets to access some of the capital. Individual donor advisors or clients were given the opportunity to put as little as $25,000 to work in the fund through Impact Assets. Apart from Impact Assets, the minimum investment was $500,000. This works because only Impact Assets is legally an investor in the fund. The individual donors get their information from Impact Assets and are not recorded as investors in the Better Ventures fund. Moss doesn’t have to worry about the number of individual investors participating because he doesn’t have to deal with them.

Tim Freundlich, president of Impact Assets, says you don’t have to be Bill Gates to have sophisticated impact investment options like big foundations see. The nonprofit has about 850 DAFs with an aggregate value of $350 million under management. Hundreds of the accounts are in “the $5,000 range.”

New Media Ventures, led by Julie Menter, its principal, also operates as a 501(c)(3) charity. To create a vehicle for making impact investments and grants, it opened a DAF at Impact Assets. The investors in New Media Ventures get a tax deduction when they make the contribution to the fund and will not have the capital returned to them. New Media Ventures uses the money both to make grants to nonprofits it supports and impact investments in for-profit ventures it decides to back. They can do both via the Impact Assets DAF.

How Impact Assets Supports Both Better Ventures and New Media Ventures

Freundlich explains that Impact Assets does professional due diligence so that its donor advisors don’t have to worry about doing it themselves. For the clients, the risk is mitigated somewhat by the fact that the money is legally a charitable contribution and can’t be withdrawn by the donor for noncharitable purposes.

Impact Assets has a broad range of investments across all asset classes and across all geographies. The company can’t hope to manage all those investments directly. Instead, the firm has brought in 55 funds like Better Ventures to make direct impact investments. The donor advisors can choose whether they want their DAFs to invest and if so how much, subject to the constraints of minimum investment sizes.

Impact Assets also has relationships with about ten firms like New Media Ventures, where they have assets in donor advised funds from which they make impact investments, grants or both.

Tim Freundlich, Impact Assets

Freundlich says not only that Impact Assets was built from the ground up to facilitate impact investing but also that the democratization of impact investing is important. You don’t need to be an accredited investor to establish a DAF and to begin making investments. That said, he acknowledges that to participate in the most sophisticated investment options you may need an account with $200,000 to $2 million. Still, at that level, donors get access to investments that otherwise may be open only to institutions and individual investors with greater than $25 million in net worth.

In addition to the relationships with asset managers like Better Ventures, Freundlich says Impact Assets does make direct investments in social ventures but only on behalf of clients. Last month, he says, the firm made six such investments at the request of donor advisors.

Investment Strategy

Certainly, among the readers of this article will be some who are interested in the investment strategy for both New Media Ventures and Better Ventures.

Menter’s New Media Ventures developed her vision for investing after realizing that business as usual could solve some but not all the world’s problems. She recognized that our beliefs are influenced by the media we consume and so she wanted to invest in and support media companies and nonprofits that support her progressive view of the world. She’s raised $2.6 million to do so and has invested in “nine or ten” media companies.

She describes three buckets into which the firm invests or makes grants. The first is media, companies like Upworthy, Daily Kos and Blavity. The second bucket is what she describes as movements and the technology to support movements. Examples of investments in this arena include Indivisible, Swing Left and Sister District. The third and final bucket she describes as non-partisan civic engagement platforms like Vote.org and Turbo Vote.

“We’re interested in how we essentially bring the levers of power into the hands of more people and we believe that over time that will create a more just, environmentally friendly world,” she says.

She acknowledges that the media space is challenging. “It’s still not clear how you make money in media.” She hastens to add, however, that Young Turks just raised $20 million, suggesting hope for the media industry.

Moss’s Better Ventures begins with this: “Our basic investment thesis is that mission-driven entrepreneurs outperform.” He believes that passionate entrepreneurs will work harder.

He focuses on firms that have impact with every sale so “the bigger they get the more good they do.”

Moss indicates that they look to invest in companies that have at least two founders that are solving an important problem. He notes that the companies don’t need to have a lot of revenue or historical growth. Typically, they have an MVP or minimum viable product in the market before Better Ventures invests.

Message to Those Passed Over

Most people don’t get investments. Moss acknowledges that when he started the fund he expected to be writing checks all day and instead ended up saying “no” all day.

To the companies he likes but doesn’t invest in, he usually says, keep making progress. He finds they come to him too early, before they are ready for his investment. He encourages them to raise money from family and friends and from angel investors first.

Menter reflects on the difficult “power dynamics.” She says, “I have all the power yet the entrepreneur is actually the one who’s actually making the world a better place.” Motivated by this philosophy, she says she’s developed the ability to deliver bad news well.

She tries to give specific feedback, identifies gaps in the team, business model or marketing strategy that need to be closed. She also encourages social entrepreneurs to get creative with funding, recognizing that not everyone has a network that will support them financially. Some, she points out, finance a startup by winning lots of business plan competitions, others keep their day job to support the work until outside financing comes in.

Evolution of Impact Investing

Freundlich has been working in impact investing for 20 years. A lot has changed in that time with a great deal more attention and capital devoted to the space today. Of the momentum in the impact space he says, “I remember 20 years ago thinking that it was like watching icebergs melt.” He reminds himself—and the audience—that others in the sector had been there for 20 years before he got there.

He sees the entrepreneurs as the real heroes, echoing Menter’s remarks. “Every single one of these tenacious, crazy people who are living a dream, eating ramen soup with the extra job while they crowdfund their way into some amazing venture… deserve the most support and admiration.”

He also admires the successful entrepreneurs like Seth Goldman of Honestea who sold his business to Coca-Cola and now gives back by investing much of his capital in startups and by serving actively on boards.

Business Models

The three firms profiled in this piece participate synergistically and differently within the impact investing space. Impact Assets, a 501(c)(3) nonprofit, earns fees from the clients that contribute to donor advised funds, much of which is tied to the size of the portfolio.

Julie Menter, New Media Ventures

New Media Ventures gets donations, earns some revenue from events and service contracts, plus takes a percentage of the donations to the NMV Innovation Fund. The nonprofit operates with just three full-time employees with the help of some contractors and volunteers. Menter describes the firm as an impact first investor.

Better Ventures relies on venture capital returns for its operating revenue. The seed fund has $21 million under management. He notes that the operates are profitable today. Moss says the firm seeks to back those who can achieve impact on a massive scale using technology. He says, he like to give founders a safe place to admit they care more about doing good in the world than they do about making money.

These three impact investing players don’t encompass and represent the entire spectrum of activity within the impact investing arena but they do help to demonstrate the breadth of approaches, business models and the necessary collaboration that make it work.

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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

 

The Role Of Entrepreneurship In Ending Poverty And Homelessness

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

“Social entrepreneurship has proven to provide impactful innovations for poverty alleviation ,” says Abby Maxman, President of OxFam America. Maxman was among a diverse group of people working on poverty eradication who contributed to a recent roundtable discussion on ending extreme poverty and homelessness.

The idea of ending poverty seemed absurd a generation ago. Today, the idea has been enshrined officially in the United Nations Sustainable Development Goals or SDGs as something the world should achieve by 2030. The roundtable participants addressed a range of topics, including a focus on how social entrepreneurs would help achieve the SDGs. Watch the 80-minute discussion in the video player above.

Judith Walker, the chief operating officer for African Clean Energy, which sells clean cookstoves that generate electricity, explains the need for social entrepreneurs to see problems as opportunities. “Energy costs are very high compared to income in the markets we deal with, meaning its either not realistically accessible or almost certainly not reliable. This should be seen as an opportunity to improve the goods and services available in order to relieve burden and create other options for those struggling with any or consistent income.”

Judith Walker

She adds, “Where we see the most potential for impact is actually by catalyzing this potential by having access to the most desperately needed energy.” What customers are able to do to improve their own lives with the tools inspires her to continue working.

Why Entrepreneurs Should Care About Ending Poverty

Entrepreneurs solve problems. Social entrepreneurs solve problems that matter. Eradicating poverty pegs the mattering meter.

Haiti’s former Prime Minister, Laurent Lamothe, is now an active impact investor, supporting social entrepreneurs in Haiti. Everyone benefits from helping the poor. “Poverty is not solely the problem of the poor, the same way as climate change is not solely the problem of one country. It has consequences and implications for all of us because we live in an increasingly open and interdependent world. Improving the prospects of the most disadvantaged will improve prospects for all. ”

Anne Kjaer Riechert, a recipient of a Rotary Peace Fellowship and social entrepreneur in Germany, founded the ReDI School of Digital Integration to teach refugees, mostly from Syria, how to code. She says our focus shouldn’t be on helping people living below an arbitrary income threshold but on the income gap itself. “Poverty is relative. It is not a question of income, but the gap between the ‘haves’ and the ‘have-nots. ’”

Anne Riechert

OxFam’s Maxman agrees. “Our research has shown that since 2000, the poorest half of the world has received just 1% of the total increase in global wealth, while the top 1% received 50% of the increase. Inequality is bad for us all – socially, morally, ethically, economically and politically.”

Why Social Entrepreneurship is a Key Part of the Solution to Poverty

Entrepreneurship—especially social entrepreneurship—brings value to the fight against poverty that other players—governments, corporations and non-governmental organizations (NGOs) don’t.

Alicia Wallace, president of All Across Africa, which sources handicrafts in Rwanda for sale in the United States, points out the speed of entrepreneurship. “Entrepreneurship can be harnessed to fuel positive, sustainable global impact much faster than any other form of social good .”

“I definitely see competition as creating an urgency for solving poverty and homelessness,” she adds, helping to explain why entrepreneurs can have faster impact.

Social entrepreneurs have a unique mindset, according to Arlene Samen, founder of One Heart World-Wide, a nonprofit that uses a grassroots approach to improving maternal and child health in Nepal and Tibet. “Social entrepreneurs never give up, they think outside the box and are willing to empower ‘others’ to help solve their own challenges.”

Carla Javits is the CEO of REDF, a nonprofit that invests in social enterprises that serve people who are often considered unemployable, including those who have completed jail and prison sentences, recovering addicts and people who have experienced homelessness.

Javits says social entrepreneurs are flexible. “By developing new models that cut across and blend the assets of various sectors without being stuck in orthodoxies about what each sector can or should do, social entrepreneurship opens up new possibilities to solve stubborn, seemingly insurmountable challenges.”

She also points out that social entrepreneurs think outside the box of either operating as a nonprofit surviving on donations and grants or being fully supported by revenues. Operating in that middle space creates opportunities for social entrepreneurs to leverage donor dollars with revenue generating services.

Effective social entrepreneurs relieve burdens by selling products that customers need to improve their lives. The profits from the sales create sustainable impact and provide returns to investors.

Mari Kuraishi, CEO and founder of Global Giving, a crowdfunding site for nonprofits serving communities in the developing world, points out that social entrepreneurs can experiment and then scale up. “Social entrepreneurship can play a big role in experimenting within smaller jurisdictions and communities to demonstrate how to overcome issues like poverty and homelessness.”

Mari Kuraishi

She also notes that such innovators may be able to attract resources even when government grants are not available. “When political will is missing, it’s possible–but by no means a sure thing–for social enterprises to get access to the kind of resource flow that might begin to make a dent.”

Javits agrees, noting that the use of hybrid solutions can reduce public costs with other benefits to the community and the beneficiaries. “Social entrepreneurs identify hybrid solutions that can reduce but not eliminate public costs, increase individual initiative, and generate much greater value for all of us.”

Haiti’s Lamothe cautions, however, that social entrepreneurship got its start decades ago and we’re still dealing with some of the same challenges. “Poverty is a complex issue and, since the advent of social entrepreneurship in the 70s, no social enterprise has been capable of solving poverty all by itself. After decades of social entrepreneurship, it becomes obvious to me, as to many others, that reducing poverty takes a concerted, cross-sector effort that focuses holistically and long-term on the problem.”

Social entrepreneurship is becoming a primary weapon in the war on poverty but it isn’t a magic bullet.

What Social Entrepreneurs Can Do to Help

Having established that social entrepreneurs have the ability and flexibility to contribute meaningfully to the end of poverty and homelessness, let’s look at some specific things that they can do that can help to end poverty.

All Across Africa’s Alicia Wallace says one key is to equitably divide the gains and benefits. In her model, the US corporate customers are not the beneficiaries—the artisans in Africa are. She expects the corporate customers to pay fair prices for the products that will in turn allow her to pay fair wages to the largely female workforce producing mostly baskets.

African Clean Energy’s Walker agrees, though her lens is slightly different. Her customers in Africa are her beneficiaries. She explains, “We need to consider the beneficiaries as customers, and treat them with the respect they deserve, rather than just as victims or poor. ”

The division of value among entrepreneurs, customers and investors “only needs to be a little more balanced,” she says.

James Mayfield, the founder of CHOICE Humanitarian, highlights the power of income opportunities for the extreme poor. “The key to the eradication of poverty is the creation of income and employment enhancement programs. Such programs are best stimulated by the poor themselves supported by organizations that facilitate social-oriented enterprises.”

Dr. James Mayfield

After more than 30 years in the field, Mayfield highlights the importance of empowering women with income. “The missing ingredient in many unsuccessful poverty eradication programs is the importance of women participating in village decision-making , especially their role in ensuring village leaders are willing to adhere to the villager-determined core values that emphasize behaviors showing among other things integrity, generosity, service, tolerance.”

John Hewko, the general secretary—the professional head—of Rotary International, who has built his career almost entirely in international development, says that the way people think about their entrepreneurial prospects is as important as their structural access. He cites a report that women in Latin America have lower confidence in their own abilities and have a higher fear of failure. Providing training and encouragement is as important as providing access to financing.

Mark Horvath, an advocate for the homeless and producer of the popular YouTube show Invisible People, points out one limitation that impairs the work of nonprofits. Well-funded Silicon Valley companies provide lavish coffee stations with fresh fruit while nonprofits provide access to a coffee station with an honor jar for people to contribute money to keep it supplied.

Mark Horvath

He sees the problem as limiting the effectiveness of nonprofit social enterprises because foundations are risk adverse not funding new ideas or allowing autonomy for a nonprofit to do what they do best.

Government’s Role in Supporting Social Entrepreneurs

One surprising theme that developed in the discussion among these advocates for ending poverty was the need for governments to structurally support social enterprises.

Riechert, the young entrepreneur who founded the coding school for refugees in Germany, says, “I would love that there would be more collaboration between the government learning from the social entrepreneurs and entrepreneurs getting more capital from the government to continue growing and scaling their solutions.”

Relatively small amounts of capital infused in a revenue-generating business can have the impact of allowing the enterprise to scale. The closer the business is to complete self-funding, the higher the impact of grants or patient investments.

She notes, too, after her recent visit to the Zaatari refugee camp in Jordan that government policies in the camps inhibit the ability of the people there to care and provide for themselves. The government doesn’t allow refugees there to engage in any entrepreneurship.

“I would love to see a big change because if refugee was actually seen as an asset and it’s an opportunity for the Jordanian people to make money and to have more cash flow into the country by having these entrepreneurs coming from outside. I think everyone would stand to benefit from it,” she says.

Eytan Stibbe, the founder of Vital Capital, an impact investor actively serving in Sub-Saharan Africa, has achieved remarkable scale, building tens of thousands of moderate-income housing units. He says, “What we found is that the most important issue is sharing in order to reach scale in working with the government. And we try to cooperate with the government so that the interests are aligned. That’s the only way we can reach scale.”

Katie Meyler, the founder of More Than Me, a social enterprise that partners with the government in Liberia to operate primary schools. “We can only reach the masses of people who live without [education] through a public-private partnership.

Haiti’s Lamothe, sees a different but still complementary role for government. Noting that governments in the developing world are often as resource constrained as their people, the government can be a sort of GPS guide to where the problems and opportunities for social entrepreneurs are.

Laurent S. Lamothe, former Prime Minister of HaitiWorld Initiative

The Examples of Social Entrepreneurship Reducing Poverty

To emphasize the point that the members of the roundtable are not approaching this topic from ivory towers but instead they come from the field, bringing on the ground perspectives, let’s look at some of the projects and enterprises they are running.

Riechert founded her coding school for refugees after 800,000 arrived in Germany in 2015, overwhelming government resources. She noted that even after they arrived, Germany had 51,000 open jobs in the I.T. field. The economy was constrained by a lack of available talent. So, she launched her school training refugees to fill those vacant positions. Her students quickly coded an app called Bureaucrazy to help other refugees navigate the German bureaucracy.

Samen, whose grassroots efforts in Nepal and Tibet have made dramatic improvements in maternal and child health, says her One Heart World-Wide is a beneficiary of a social enterprise in Australia called Thankyou that donates 100 percent of its profits to charities. The company sells water, body care, food and baby care products.

Samen says, “They set it up that, so when you buy the product it has a code bar and you can actually see where your money is going to be invested.” She would like to see this model grow and replicate.

Javits, whose entire business model focuses on funding social enterprises serving people who are at risk of homelessness, offers an example.

“Nonprofits that provide services to people experiencing homelessness have started new businesses in property management that employ their clients, paying them wages, and preparing them for long-term employment. By selling their services like a business, while hiring people who most companies would not give a chance, offering a more supportive work environment, and investing 100% of their ‘profits’ in their employees’ success and well-being, the social entrepreneurs who start these enterprises offer a more sustainable approach that gets to the root of the problem.”

Carla Javits

Rotary’s Hewko points to a microlending program supported by Rotary in the Esmeraldas Province of Ecuador. “Borrowers are organized into credit groups, and cross-guarantee each other’s loans. With credit officers working locally, the people who benefit – primarily poor women and youth – gain more confidence to start businesses, and are more likely to repay the loans. They also receive vocational, business and personal development training from NGOs including Rotary, FUDECE and the Grameen Cooperative, and SECAP, a government training organization.”

Haiti’s Lamothe highlights the work in a small fishing village in Haiti destroyed by Hurricane Matthew in 2016. Working with a group of nonprofits, including the Carlos Slim Foundation, Happy Hearts and Sean Penn’s foundation, have been replacing tools of the trade—fishing lines and boats—lost in the hurricane. They’ve also been helping the villagers get access to buyers, connecting them to restaurants and supermarkets. “Their revenues have gone from about you know $1000 US per month for the whole village to right now it’s ten times more.”

Impact investor Morgan Simon, author of Real Impact, offers up her favorite example. “One of the projects I’m a big fan of is the Working World, which provides finance for worker-owned cooperatives and they do so through a non-extractive model.”

She credits Brendan Martin, the founder of Working World, with coining the term “non-extractive financing.” He defines this concept as being loans that can be serviced entirely by the projects they fund with surplus left over. None of the existing resources of the borrower need be devoted to debt service.

“They’ve funded over a thousand loans with the 99 percent repayment,” Simon concludes.

Expanding Social Enterprise Concepts to the Broader Economy

As the group discussed the challenges of eradicating poverty, another theme developed: the need to get the broader economy to apply more of the guiding principles of social entrepreneurship.

Rotary’s Hewko put it this way, “I think the big question here is: How do we channel the private sector? That’s really where the money is—in the private sector—and the long term sustainable solution is vibrant economic systems and economies that work.”

Not only is it important to put people to work but there needs to be a greater social awareness employed by more companies.

John Hewko

He continues, “How do you inculcate into core business models the idea of social good, so social good becomes part of the core business model of a corporation, for example, as opposed to just for corporate social responsibility which we’re doing today?”

He then goes a step further and suggests that we need a mechanism to reflect positive social impact in share prices in the stock market. “That’s not easy but that’s the holy–that’s the Holy Grail.”

Hewko highlights the leadership of Paul Polman at Unilever and others who are “beginning to think very seriously about how we work to change core business models where social good becomes not just something good we do on the side but part of our everyday business.”

Speaking of poverty and homelessness, Hewko concludes, “These problems all need to be addressed in a cohesive fashion with private sector, civil society and government working hand in glove.”

Walker, of African Clean Energy, agrees. “I do believe that the business models of nonprofits and of for-profits and everything should actually become more similar more like each other.”

Concerns and Opportunities

Still, there are some concerns about the challenges ahead in eradicating poverty and homelessness.

Horvath, the homeless advocate who was himself homeless for a time, worries that nonprofits are often forced to follow money over mission and aptitude. “What I’m seeing in the homeless services sector is and I like to say it like this maybe I’m a farmer and I grow apples. I’m really good at it but all of the money is over in oranges. I’m not so good at oranges but I’m going to start growing oranges even though I can’t do it really well because I’ve got staff to pay and I’ve got an electric bill and everything else. So you have all these people just going after the money instead of really addressing fighting poverty and homelessness.”

The United Nations Resident Coordinator and UNDP Resident Representative in Kenya, Siddharth Chatterjee, explains the challenge and opportunity ahead for Africa.

“Africa, for example, will see its population double from the current 1.1 billion to around 2.3 billion by 2050. Over 70% of its population is less than 30 and its median age is 19. One hundred million new jobs per year need to be created in Africa to cater to this looming ‘youth bulge.’ It could prove to be a demographic dividend or a disaster.”

Chatterjee is an optimist, however. He says, “Africa is going to be the new market of the future and if we invest now, not only will we overcome poverty and homelessness but contribute to reduced fragility and instability, advance peace and economic growth and reduce the burden of economic migrants to the West and the US.”

We’ve Got This

Generally speaking, the group was optimistic about prospects for eliminating poverty and homelessness.

REDF’s Javits says, “ Something we can do in our lifetime is to end homelessness for the vast majority of the hundreds of thousands who have no stable home each night. ”

Arlene Samen

Samen, who has spent her career among the poor in Nepal and Tibet, says simply, “ It can be done. ”

This article, which is published originally for Forbes, will become part of a book with the working title Thirty Years to Peace.

#30YTP

Over 1 million people have read my books; have you? Learn more about my courses on entrepreneurship, crowdfunding and corporate social responsibility here.


Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

It Shouldn’t Be Easier To Find Your Mate Than To Find A Co-Investor Online

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

Last summer, at a meeting of Seattle impact investors, one of the members said she didn’t have need for additional deal flow–investment opportunities–what she needed, she said, according to Nancy Reid, director of the Seattle Impact Investing Group, is a way to build an investor syndicate. “What we need is investor flow.”

Michael ‘Luni’ Libes, 47, and Matt Eldridge, 48, who heard that need and set out to create a nonprofit, online platform called Investorflow.org to address the concern.

Matt Eldridge, co-founder and COO of Investorflow.org

“Impact investors are spread around the world, investing all around the globe. This makes it incredibly difficult for those seeking funding to find these investors. It also means that investors tend not to know each other,” Libes said, framing the discussion.

Watch the full interview with Libes and Eldridge at the top of this article.

He points out the investors typically have specific areas of focus, so even if you have dozens of impact investors in a room, chances are there still isn’t a critical mass of interest for any particular deal.

There is a wide range of possible interests for impact investing, he notes. “The UN has organized 17 distinct sustainability goals, but number 1, No Poverty, includes everything from the poorest billion people to affordable housing in New York City.”

“Meanwhile, in reality, most impact investments come from investors talking to other investors, not from companies pitching investors. The problem isn’t a lack of dealflow, nor a lack of crowd. The problem is efficiently matching the right deal to the right investor, one investor to another. Or more simply… the problem isn’t dealflow but investorflow,” Libes says.

Michael ‘Luni’ Libes, Investorflow.org

The investing community is ready for a new solution, Reid suggests. “Fundraising is still awkward.” That is true even for investors. “It can be an uncomfortable dynamic,” she adds.

“Fundraising is also still unbelievably slow and difficult! It’s way easier to find the right babysitter or landscaper or date than it is to find the right co-investors, which is bizarre,” Reid concludes.

Janine Firpo, the impact investor Reid mentioned who coined the phrase investor flow, emphasizes that impact investing is best done in teams. “What I believed we needed was an ‘investor flow’ solution that could put trusted investors together to share deals. Aside from a few very wealthy and committed individuals, this type of investing is not a solo activity. It takes a community. Luni made the idea of an investor flow a reality.”

“The solution is investorflow.org, an online network where impact investors can hear about deals that fit their particular interests, vetted by fellow investors. All the deals are posted by investors seeking co-investors, not by entrepreneurs or fund managers,” Libes explains.

Libes says the site already has 157 investors signed up with 14 deals in the review pipeline. As yet, no deals have closed. Deals are coming in at a rate of about one per week. Still, there aren’t enough investors. “We think at somewhere between here and 1,000 we’ll have a critical mass where when there’s deal posted there will always be someone interested,” Libes says.

This idea represents some fresh thinking in the impact investing world. It will be interesting to see if the site reaches the “critical mass” needed to start funding deals regularly.


Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

 

How To Be Successful With Affordable Housing Without Being Evil

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

“Our nation is in the midst of a true affordability crisis.” Daryl Carter, founder, chairman and CEO of Avanath Capital Management, sees that as both a problem and an opportunity. He’s found a way to deliver returns to investors while serving working families at the same time, that is, without being evil.

Let’s start by looking at the problem. “The median income of a renter in the United States is $36,000. To be considered affordable, renters should be spending no more than a third of their income toward rent. However,” Carter says, “in many coastal markets such as Los Angeles and New York, over half of all renter households are allocating more than 50% of their income toward rent.”

That threshold matters, because if you are paying more than half of your income in rent, it is difficult to also provide food, healthcare and education for the people living under that roof. “Historically, the reason that many neighborhoods have declined, whether it’s Detroit or Oakland, is not because of who lives there, but rather because there is a lack of investment in those areas,” Carter says.

Watch my entire interview with Carter in the video at the top of this article.

Carter points to an estimate from the Joint Center for Housing Studies that indicates that two million rent-controlled units will expire over the next decade. Most of these are supported by Low Income Housing Tax Credits. He says, “These units are at-risk for redevelopment into market-rate apartments.”

The problem gets worse. Every year, about 100,000 rental units are lost to obsolescence or failure to meet building codes. Most of those units are—or were—affordable.

Carter sums up the situation this way: “The bottom line is: people need quality, affordable places to live – now.”

“Targeting this asset pool is an additional source of investment opportunity for Avanath,” Carter says.

Carter says he is a beneficiary of affordable housing. “My journey as a social entrepreneur began on Detroit’s West Side, in a working class, African American neighborhood. My father, an autoworker, and my mother, a nanny, moved to Detroit to pursue the economic dream tied to the auto industry. With a combined income of $10,000 per year, they purchased a small two-bedroom bungalow in the 60s for $15,000. Their monthly mortgage payment was $130 per month or 16% of their monthly income of $833 per month.”

“While not picture perfect, this home provided a stable setting for my family to pursue the American Dream. My home incubated my dreams of the University of Michigan, MIT, and Avanath long before I had any thought about them. Today, this same dream is simply implausible for much of the population, based on a rampant rise in the price of housing in our nation,” he continued.

That foundation helped to motivate and inspire Avanath’s strategy of bringing institutional capital into areas where affordable housing is most needed.

Daryl J. Carter, Avanath Capital Management

One of the lessons Carter has learned is that keeping good residents helps to foster a successful community. This is a stark contrast to other investors, whom he says often seek to create a “new resident profile.”

Avanath, like other developers, will invest in upgrading the projects they buy. “When we renovate, we raise the rents but we raise the rents to a level that is affordable for the residents that are there. And we try to do what I call ‘smart renovations’ where we put in things like washers and dryers that benefit that family.”

He admits that they don’t do everything they might so they can keep rental rates lower. He says that when he shows his investors the projects, they’ll ask why the popcorn ceilings from the 60s or 70s haven’t been replaced. “They’ll say, ‘It would be great if you can get rid of it.’ And we say, ‘Yeah, it would be great but I’d have to charge $40 more rent.’”

The Avanath strategy for getting good investor returns include buying the properties on good terms. “We buy it on a very favorable basis because in many respects it’s been abandoned by the previous owner.”

Once purchased, Avanath works with the residents and the community, including elected officials to take what Carter calls a “holistic approach.” Not only does the company invest in the buildings but also in things like afterschool programs that will add value.

Carter explains the strategy, “Our investment strategy is to preserve the existing supply of affordable housing and add value to our communities by investing in capital improvements that enhance asset quality without sacrificing affordability.”

“Safe, clean, and affordable housing is the foundation for economically viable neighborhoods,” Carter says, speaking from experience.

“By acquiring affordable and workforce housing, making strategic improvements that increase quality of life without sacrificing affordability, and then investing in social programming such as on-site tutoring, sports programs and financial literacy courses, we are giving residents more than just a place to stay – we are giving them lifestyles, aspirations, and a path toward success.”

“Through this work, we have been successful in advancing positive social change, while also generating attractive, risk-adjusted returns to our investors. It is important to our mission to deliver returns that rival other commercial real estate investments.”


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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

Impact Measurement: How Much Is Too Much? How Much Is Not Enough?

This post was originally produced for Forbes.

This is a third and final piece in my series on impact measurement.

First Part Link: How Social Entrepreneurs Begin To Measure Impact

Second Part Link: Impact Measurement: Finding Your Way Through The Maze

One of the great challenges of impact investing is knowing how much impact reporting to require from the ventures you invest in, remembering that startups face plenty of challenges without layering on needless reporting. On the other hand, impact investors want to know about the good that comes from their investments.

To find answers to these questions, I reached out to nearly two dozen impact investing experts to learn how they think about this dilemma.

Bake in the Impact

There were several themes that developed in the answers. One consistent message was voiced by Morgan Simon, Managing Director of Pi Investments, who suggested entrepreneurs and investors should “structure fairness into the business from day one, such that counting specifics become less critical . For instance, Pi investee Uncommon Cacao set a 49% margin cap to ensure cacao farmers always retain the majority of the value in a transaction.”

Morgan Simon

Matthew Davis, CEO of Renew, which makes investments in Africa, made the same point, but added the caveat that it “depends on the type of business and how it and its shareholders define impact.” He adds, that for his portfolio, just seeing an ethical business in Africa prosper is sufficient.

Laurie Lane-Zucker, founder and CEO of Impact Entrepreneur Center for Social and Environmental Innovation, agreed. “Another reason why it is important to bake impact values into a company’s DNA at the earliest stage possible is because impact measurement becomes engrained in daily activities and is less of an ‘add-on’ to what each person already has on his or her plate.”

Right Size the Reporting to the Company

The need to match the reporting obligations to the size and stage of development of the company was another theme that came from the experts.

Daniel Jean-Louis, CEO of Bridge Capital, which invests exclusively in his native Haiti, argues that while avoiding bureaucracy is important, a certain amount of administration is required in all businesses. “So, it’s important not to confuse red tape with administration. “

Uma Sekar, impact and ESG Manager for Capria Ventures, agrees. ” Impact metrics that tie directly with business operations are most useful. Right-sizing the framework with a lean and adaptive set of metrics that take the stage of the company into consideration, reduces the burden of measurement. Early stage companies do not create deeper levels of impact as yet, therefore shouldn’t build a system requiring such data collection.”

Daniel Jean-Louis, courtesy of Bridge Capital

Nell Derick-Debevoise, founder and CEO of Inspiring Capital, encourages investors to “Be realistic.” She notes, “I’ve never heard from a fellow B Corp (from Susty Party to Ben & Jerry’s) that they gained a customer because of B Corp status.” She notes that institutional investment could be years in the future for startups. She concludes, “Be smart about getting prepared for GIIRS or IRIS, but don’t worry about getting it exactly right in the first three years.”

“Impact measures should be carefully considered upfront, fundamental to founding the business, and bite-size as well as dream goals should be established,” says Carrie Endries, senior portfolio manager for Reynders, McVeigh Capital Management, LLC. “In this way, collecting impact data can be as natural as collecting financial data metrics. They can be expanded and broadened along the way as a company grows, but just as you don’t have extensive financial reporting as a very small company, neither should you expect expansive impact reporting.”

Stephanie Gripne, founder and director of the Impact Finance Center and CO Impact Days and Initiative, cautions against trying to do too much. “The entrepreneur needs to be strategic in measuring the few key indicators that will demonstrate success and capture that information, not gathering every piece of info imaginable and then seeing what shows results.”

Stephanie Gripne, courtesy of the Impact Finance Center

“I think it’s important to tell your investors when it simply isn’t possible to get a firm number,” says entrepreneur Lisa Curtis, founder and CEO of Kuli Kuli. “At the beginning, we had quite a few impact investors asking us for more quantitative data about how many people in the communities where we source were eating moringa as a result of our work. We got a lot of qualitative data from our suppliers but found that without the resources to do a full-fledged survey in far-away countries it was impossible to collect hard data.”

She adds, “We’re now at a point where we have the resources to embark on those types of surveys.”

Find Alignment Between Investors and Entrepreneurs

When investors and entrepreneurs are well aligned in goals and objectives, it is easier to settle on appropriate measurement metrics, the experts say.

Matthew Weatherley-White, co-founder and managing director of the Caprock Group, cautions, “Too often, grantors and investors want to see metrics that reflect their values rather than the operations of the entity.”

“Social entrepreneurs, particularly in those critical start-up years, should foreswear the kind of broad, catch-all ‘values based’ expectations that our community tends to place on an enterprise,” Weatherley-White continues. “An example might be a retail-focused franchise-model water purification business in highly urbanized areas of Africa. Their metrics could be simple: liters of water purified, liters sold, number of unique customers, perhaps something about gender diversification in their franchisee base, etc.”

Matthew Weatherley-White

This alignment should be an ongoing process, says Lisa Hagerman, director of programs at DBL Partners. “The fund manager and the social entrepreneur’s interests must continually be aligned. As such, the metrics should be applicable to the entrepreneur’s business, with the option of omitting information requested if not applicable. Metrics and social impact efforts should have a positive, and strategic, impact potential for the company as a way of keeping all interests aligned and metrics valuable, and relevant, to all stakeholders.”

Lauryn Agnew, president, Seal Cove Financial and founder, Bay Area Impact Investing Initiative, says entrepreneurs should seek that alignment when finding investors by “communicating appropriate and reasonable expectations for impact, outputs and long-term outcomes over the life of the investment” and then matching those to an investor with consistent risk, return and impact targets.

Lauryn Agnew

Topher Wilkins, CEO of Opportunity Collaboration, says the responsibility for preventing burdensome reporting rests with the investors. He suggests the entrepreneurs build trust with the investors or funders so “everyone involved knows impact is being achieved.”

“The social entrepreneur is running a business first and foremost,” says Laura Callanan, founding partner of Upstart Co-Lab. “All measurement — customer feedback, employee turnover, net revenue, social impact — needs to be useful for running the business. Investors who care about impact need to back entrepreneurs who care about impact and then let those entrepreneurs do their job. “

Remember Impact Reporting Is a Cost of Doing Business

The experts also noted that impact reporting is a reality that entrepreneurs need to keep in mind; this may require them to strike a balance between reporting too much and too little.

“It’s a cost of doing business in modern times like getting organic certification if you are a food product,” says Joel Solomon, chair of Renewal Funds. “The substitute is having a clear mission and purpose articulation, with products or services that take sustainability and fair, safe work conditions, as well as environmental and community practices into account.”

Gary White, CEO of Water.org, says, “This is always a balance that social entrepreneurs must strike. I think it is helpful to look at existing frameworks like IRIS. We have been very rigorous in our process to adopt what we feel are important impact parameters to measure. We engaged a firm, IOD Parc, to advise us on this process. While this has required some upfront investment of time, it is paying off in terms of only measuring what is most important.”

Gary White, courtesy of Water.org

Tune Your Reporting According to Your Theory of Change

The experts also agreed that reporting requirements are, at least in part, a function of the theory of change driving the investment.

“Measuring impact should be the result of an impact plan,” says Cecile Blilious, founder and managing partner at Impact First Investments. “This frames the impact that the company is trying to achieve, and can then be measured. It should not be regarded as a burden, but rather as a working tool very similar to a business plan.”

Cecile Blilious

Gripne, from Colorado, explains, “A social entrepreneur needs to first be clear about his or her own hypothesis for impact, the research and reasoning behind it and the methods for continually testing and re-adjusting the hypothesis and measures. Those basics go a long way in gaining and maintaining investors’ trust, and in buying time (and their patience) for developing and refining more sophisticated measures.”

Cathy Clark, director at CASE i3 at Duke University, says, “If your theory has to do with employees, you can survey them at almost no cost. If it has to do with customer incomes after they’ve used your product, again, you can survey them but it will cost you something. Services like Acumen’s Lean Data program can help entrepreneurs learn a great deal about their customers in a very short time for very little money.”

“We think of data as a conversation, not an endpoint,” she adds. “What can you ask that you or others can act on? What choices do you face that information from a stakeholder can help you answer? How do you start to find data to compare yourself to that is relevant? These are where impact makes progress.”

Reporting is Important to the Movement

Bobby Turner, the CEO of Turner Impact Capital, noted that reporting is important for the impact investing movement. “Measuring impact will not always have the effect of improving impact as many impact models are untested and therefore there is no guarantee that the measurements will be positive. Notwithstanding, measuring impact (social or environmental) is critical to the social impact movement as without a proven correlation between profits and purpose, the movement will not be able to raise meaningful amounts of market rate capital.”

In contrast, Peter Fusaro, Chairman of Global Change Associates, cautions, “If they go deep in the weeds, they will be buried with reporting and not focusing on impact. I feel the most important measurement is actually being successful in an ethical way.”

#impmeas


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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

Report Asks Investors To Respect Human Rights On Clean Energy Projects

This post was originally produced for Forbes

You can download an audio podcast here or subscribe via iTunes.

Renewable energy projects are the primary weapon in the war on climate change, but that shouldn’t exempt these projects in the developing world from United Nations’ standards on human rights, argues a new briefing report.

As I explored the briefing, “Renewable Energy: Managing Investors’ Risks and Responsibilities,” with two of the co-authors, Andrea Armeni of Transform Finance and Meredith Benton (see my interview with them at the top of this article), I began to see clean energy projects through a new lens.

Armeni points out that when a wind or solar project is built to provide power to an aluminum smelter there is no question that powering the smelter with clean energy is better than powering it with fossil fuels, but there may still be a negative impact on a local community–which may or may not benefit much from the project.

He says that to ensure that the local community benefits from its participation in the project, the investors need to insist that the community be represented at the table from start to finish.

Andrea Armeni, Executive Director of Transform Finance

Benton adds that oftentimes communities being engaged in clean energy projects today, have been isolated in the past, perhaps because of what makes their land appealing today–lots of sun or wind. Without a history of making deals in the past, the community may not have the capacity to negotiate a fair and equitable arrangement. Investors should help ensure that this capacity is developed for the sake of the renewable energy project.

Mary Robinson, President, Mary Robinson Foundation, is quoted in the executive summary of the briefing saying, “It is not acceptable for any business to ignore their impacts on peoples’ land rights, security or livelihoods – the renewable energy sector is no different.”

Benton notes, however, that it is a wise strategy to engage with the community to create a fair transaction. Disenfranchised communities who may come to feel that a project in the community is a bad deal, could create a volatile situation that could be expensive to resolve. That is a risk that can be managed by engaging constructively with the affected community.

Meredith Benton

The briefing notes that the extractives industry has had to write off $379 million in assets due to “company-community conflicts.”

With global renewable energy projects totaling $$287 billion in 2016, there are a lot of projects happening. Falling prices for renewable energy technology and increasing demand for energy are likely to continue the trend of increasing investments in clean energy in the coming years.

Eventually, the report notes, the world will need to shift entirely to clean, renewable energy. To avoid having adverse impacts on the communities where the projects are built, the report recommends three specific steps for investors:

  1. Prior to investment, ensure human rights due diligence is undertaken according to the UN Guiding Principles on Business and Human Rights.
  2. During the investment, monitor human rights performance and engage with companies to encourage them to comply with the UN standards. If companies fail to comply, the briefing suggests the investors divest.
  3. Both prior to and during investment, engage not only with the companies but also with community representatives such as local governments, trade unions, nonprofits and others in the community to ensure that human rights are respected.

While there is little argument that renewable energy projects provide a meaningful social benefit that accrues disproportionately to low-wealth communities being adversely impacted by climate change, the briefing makes a compelling argument that the communities impacted directly by them should be considered and consulted actively throughout their development and operation.

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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

How Impact Investors Are ‘Starting In The Wrong Place’

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

“We’re starting in the wrong place,” Mara Bolis, 45, senior advisor for market systems at Oxfam America, says of the approach most impact investors are using today.

The problem she highlights is that investors are starting with an analysis of their own requirements, which are primarily financial rather than with a deep understanding of a problem they wish to solve.

“Impact is a pretty diluted term at this point,” she adds. “We’re not doing the important upfront work to diagnose the problem.”

Watch my interview with Bolis at the top of this article.

Bolis says that Oxfam has used a different approach, beginning with a clear diagnosis leading to a specific prescription for a particular financial treatment.

Oxfam, a 70-year-old NGO that works internationally to alleviate poverty, diagnosed a problem for female entrepreneurs in Guatemala. They were being asked to put up almost twice as much collateral as men, she says. So, Oxfam and its partners developed a financial product to provide capital to female small business owners in Guatemala on appropriate terms. The loans average $17,000 and have maturities up to four years. The investment was designed for the diagnosis.

Mara Bolis, Oxfam America

Bolis authored a discussion paper for Oxfam and Sumerian Partners on impact investing. In a blog post summarizing the findings of the paper, she wrote, ” We have no problem with financial returns, but let’s not pretend that investors seeking a pure market return can tackle the most complex global challenges in high-risk markets. They cannot. Not in education. Not in health. Not in reducing child labor and forced marriage. Not in water and sanitation. “

Andrea Armeni, executive director of Transform Finance, agrees with the sentiment. “It’s fundamental in the impact space to put the primacy on the needs of whoever will be affected by the investments. If that’s not the case – if we are focusing primarily on the needs of the investors – it’s a bit disingenuous to say that we are investing in order to achieve a certain social impact.”

Bolis, who has worked in international development for 20 years, says, “Poverty alleviation should be a guiding principle” for impact investors.

It wasn’t long ago, she points out, that the only sort of philanthropic capital was a grant. As the market has evolved in recent years, a variety of forms of impact capital have been developed along with a diverse range of approaches to solving social problems, including for-profit social entrepreneurship.

Bolis worries that as impact investing goes mainstream investors who have traditionally accepted lower returns on their investments in order to achieve desired social outcomes will follow the herd toward investments with market returns offering weak social benefits. The irony of seeing the field of impact investing grow while the impact actually shrinks concerns her.

Armeni agrees that a focus on return on investment or ROI can allow for problems to flourish that impact investors seek to eliminate. “If we want a teachers’ pension fund to invest for impact, we must be mindful of its return requirements so that the pension liabilities are met. But if in order to achieve a certain ROI, other stakeholders suffer–especially those who have historically not benefited from finance–then we are not moving toward real impact, and may, in fact, be contributing to the growing wealth and opportunity gap.”

Armeni sees three “transformative finance principles” that investors should observe:

  1. deep engagement with the communities, an idea that parallels Bolis’s suggestion for a real diagnosis,
  2. “non-extractiveness,” that is, being thoughtful about “for whom value is being created”, and
  3. fair allocation of risks and returns.

Bolis has made six recommendations to correct what worries her about impact investing:

  1. Shift from focusing on the needs of investors to the needs of those combatting poverty
  2. Increase transparency of reporting both for impact and financial returns
  3. Philanthropists should continue to deploy patient capital that seeks only to achieve a return of capital rather than a return on it
  4. The industry needs more independent research to identify the investment structures that best maintain impact intentions
  5. Investors should adopt a “voluntary code of practice that enshrines” intentionality
  6. “Impact investors should adopt incentives for optimizing, measure and reporting impact”

Bolis sees these ideas critical to focusing the impact investing sector on what she sees as its core mission of helping people lift themselves out of poverty. In other words, this is how you start in the right place.

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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

The Model for Place-Based Impact Investing: What, Who, Why, How and Where

By Lauryn Agnew, CEO of Seal Cove Financial

Place-based impact investing adds another dimension to the exciting and growing field of impact investing: the investment strategy designed to combine financial returns with positive economic and/or environmental impacts. In its early phase, impact investing was predominantly associated with private equity investments into social enterprises to improve the lives of those at the global ‘bottom of the pyramid’ – the poorest of the poor. Broadening the concept of impact investing to include place can open opportunities for place-based mission-oriented organizations to participate in investing in as well as giving to one’s mission and place.

For those fiduciaries whose mission is to serve their beneficiaries in a particular geographic region, limited place-based investment strategies exist. The financial services industry is based on global geographic diversification strategies and regional/local markets haven’t justified the development of very many local investable opportunities.

We believe that the San Francisco /Silicon Valley Bay Area has the right combination of institutional wealth pools, talent, innovative spirit, and generous philanthropists to demonstrate that Place-Based Impact Investing can bring private capital, public resources, and philanthropic assets together to build a better and stronger, more sustainable economic region. With the right model, the wealth pools that have grown so large in our Bay Area could prudently and intentionally invest a small portion of their assets in our own region, enhancing our economic resilience, prosperity and sustainability.

Collaboration and centralization, combined with transparency and stringent due diligence, can provide the tools to invest – just a small portion of – our asset pools (retirement plans, community and family foundations, corporate and private charitable assets, and endowments) – into our local economy. By offering a family of funds, that is well due-diligenced by an expert team, we can manage the collective asset base in specialized multi-manager funds based on broad asset classes: public equity, fixed income (bonds), real estate, infrastructure, private equity and a community investing/savings fund. Using these funds as building blocks for a relatively small portfolio allocation to place-based impact investing (for example, 1-5%), investors can target their unique risk/return/impact goals and have an intentional impact on the Bay Area. Risk and return are set to achieve the asset class’s individual benchmark risk and return profile (for example, the public equities portfolio’s benchmark is the Russell 3000). Additionally, these funds will have a goal to seek, invest, report, and disclose their local or regional/ Bay Area impact. Each asset class has a specific targeted impact potential.

A well diversified portfolio can therefore offer a variety of potential impact opportunities. Using our public equity holdings, we can engage corporate managements, particularly those companies headquartered in the Bay Area, on a variety of topics like Board of Directors diversity, for example, and encouraging more diversity in the Board and senior management. We can encourage stronger environmental protections around the Bay and the world. We can encourage fair and non-discriminatory policies for the employees of these companies, many of who will be living in the Bay Area. We can encourage and invest in sustainable, long term local and regional real estate projects and programs that will provide strong returns to investors while helping to meet our pressing real estate and housing needs and goals. Infrastructure is a long term investment across many fields, like energy, information, health and education, housing and transit, jobs and community development. Private capital, invested in non-public social and job-creating companies, in start-ups and incubators, can flow more abundantly into disruptive and cutting edge technologies. By using one or more of our portfolios for intentional local impact, we can invest for a long term sustainable, prosperous and resilient community.

Who is a place-based impact investor?

There’s an easy way to know if you are a place-based impact investor: check your mission statement – or even your organization/foundation’s name. If a certain geographic area is mentioned there, it means that you have an opportunity for geographic alignment of investments with your mission, using assets to augment or enhance your gifting (or benefit) dollars in support of your mission.

Some examples of place-based investors include the following:

The large endowment funds at the academic institutions in the Bay Area (Stanford, Cal, USF, Santa Clara, etc.) can invest in the Bay Area to help serve the students who live all around the Bay Area – by investing in our local economy: diversity and jobs, company formation and engagement, housing and transit, etc. We can invest locally to keep our region welcoming, healthy and safe for students.

Public retirement funds, like the City and County of San Francisco Employees Retirement System, (59,000 active and retired employees and $20 billion in assets, https://mysfers.org/resources/publications/sfers-actuarial-valuations ) and whose employees quite likely travel from other counties where they live to work in San Francisco, have an opportunity allocate a small portion of their global portfolios to local economic development. They and the several other public retirement funds in the Bay Area invest billions of dollars of assets globally. Within these portfolios, they could intentionally support local investments, earn market rates of return through institutionally recognized investment managers, and participate in the funding for infrastructure, housing, transit, etc. for their employees and retirees and the overall benefit of the regional community.

Large corporate and personal wealth pools, whose owners are the beneficiaries of the innovation and economic strength of the Bay Area and whose employees live and work all over the Bay Area, can make local and regional investments to help build a more prosperous, resilient and sustainable future for their current and future employees and their families. Our generous philanthropists (Hewlett, Packard, Benioff, and Zuckerberg, to name a few) have an opportunity to use part of the 95% of their assets that is not given away as grants for local investing, without sacrificing return or increasing risk. Investments like these can add to the power of mission oriented grants, using more parts of the portfolio’s capital stack for local impact.

We can make it easier for place-based fiduciaries, wealth managers and asset owners to invest locally for impact by offering a centralized place for investments to be researched, managed by proven outside managers, and monitored for risks, returns and local impact.

Why we want to make place-based impact investments:

Our research indicates that we can overcome the various beliefs that investors have held that keep them unable or unwilling to consider place-based impact investing:

  1. Can’t make market returns if you focus on or align with place or mission
  2. Not enough deal flow or proven strategies to diversify or meet size requirements
  3. Not enough resources/staff time to spend on due diligence for this small portion of portfolio
  4. Not enough evidence that impact will happen and returns will be made
  5. Can’t risk taking it to the Board for approval – for the above reasons

For the San Francisco/Silicon Valley Bay Area Impact Investing Initiative, place-based impact investing is about building a platform through which fiduciaries can collaborate on investments all around the San Francisco/Silicon Valley economic region that can provide a combination of market/benchmark returns in each asset class AND a positive local impact on our community. That broad goal opens the door to our robust economic economy that ranks in the top 20 in the world, is headquarters to the second largest concentration of S&P 500 companies, and is home to a uniquely innovative and diverse urban/rural community and world class destination. The Bay Area however still has its challenges, struggles and failings. Intentionally directing a small portion of our large global portfolios (maybe 1%) to the long term solutions for our own backyard can have a significant influence on the speed at which we find those solutions. Private capital can guide resources to the gaps in our economy and build a more prosperous, sustainable and resilient region.

Like all investment strategies, impact investing, for our purposes, provides a return and can be recycled over and over, unlike a grant which is a one-time impact gift. Place-based impact investing can tap into more of the capital resources of an organization to complement and enhance the grant-making activities of its regional mission.

Small allocations from large portfolios, when placed in commonly used financial instruments managed by professional investment firms, and even with a mission alignment in geographic terms, would not add to the overall riskiness of a global portfolio. Nor would that portion put the global rate of return expectations of the portfolio in jeopardy if it were constructed under the same strict fiduciary standards for all institutional funds under UPMIFA and ERISA. A large pool of assets dedicated to local investing would draw capital seekers and investment strategies for consideration as potential investments through the investment managers, growing the opportunity set and deal flow. Tracking the local impact would be concurrent with regular monitoring of the portfolios. A team of dedicated financial professionals, employing the best practices and resources of our field, can give investors the building blocks to make prudent portfolios with market returns and a local impact, customized to each investor’s own unique risk, return and impact goals.

The impact generated by these investment portfolios will depend on how that asset class provides impact, and how much we can focus that impact on the Bay Area. Having appropriate expectations about the sort of impact that each asset class offers is key to understanding how an overall portfolio can combine impact with returns. In the early days of these funds, the impact from these Bay Area portfolios would be small. With the potential for growing the assets base over time, more impact can be focused on the Bay Area’s unique needs and challenges.

Public Equity

In the public equity sector, the impact an investor has comes from the right of shareholders to engage with the management of companies to build long-term value. Shareholders can vote proxies as well as work with other groups of investors, sometimes in direct communication with management, for setting and reaching certain environmental, social or governance goals. As shareholders of Bay Area – headquartered companies, we can monitor and engage with corporate management for our commonly held goals of environmental safety of the San Francisco Bay and watershed, diversity in senior management and at the Board level, and for policies that include employees and community as stakeholders. The model portfolio developed in 2011 shows that a portfolio like this would have provided higher returns with no increase in risk (since inception through 2016). Tools like corporate engagement, ESG monitoring, a focus on companies headquartered in the Bay Area with a positive social, environmental and governance profile, build a portfolio that is better than average and could have a long term positive local impact. Indeed, some of these Bay Area companies could partner with us and put some investable assets to work in our own backyard. Publicly traded equities (stocks) are a part of everyone’s portfolio, and are a worthy tool for the impact they offer to shareholders.

Fixed Income

Fixed income portfolios can track the impact they have through the bonds they own. Providing liquidity to investable projects is a proven strategy for impact and there are many ways to participate: small business loans, corporate bonds, municipal and government bonds, green bonds, infrastructure bonds, etc. These categories are then sliced and diced by industry, nationality, currency, etc. Building a fixed income portfolio that focuses on the financing opportunities in the Bay Area, like direct lending, deposits/investments at community banks and loan funds, local bond issuances, middle market corporate loans, through vetted investment professional firms, can provide both an overall market rate of return (Barclays Aggregate) and evidence of the impact, output and outcomes from that financing.

Real Estate

Likewise, Real Estate as an asset class has its own footprint for risk, return and impact. A diversified fund would include some liquid options, like sustainable REITS, and property investments across the spectrum, including residential and homeownership, multi-family and rentals, commercial, industrial, retail, and affordable categories. While the real estate portfolio will not be 100% Bay Area focused in the early days, we could expect to see more concentration in the Bay Area as the funds mature. The Bay Area has unique challenges to developing our limited and scenic real estate while balancing it with the enormous growth our region has seen. Longer term investors in the Bay Area Impact Investing real estate portfolio would invest in sustainable, regional solutions to some of the problems we face in housing disparity, affordability and shortage across the region. The portfolio would also include local and regional properties like medical, industrial, commercial, educational, etc.

Infrastructure

Infrastructure opportunities would include broad categories of sustainable, prosperous and resilient community/regional investments, like cleaner energy for our homes, businesses, and cars, better transit options, affordable housing near transit, education and job training tied to job creation and job development in the region. Adjusting to the risks of climate change and sea level rise will take a regional effort to mitigate the risk that our San Francisco Bay can flood billions in real estate assets along its shores. In some cases, investments in infrastructure may have extended positive impact beyond the Bay Area. For example, water infrastructure investments may include the entire San Francisco Bay watershed north to Oregon and west to Nevada.

Private Equity/Venture Capital

Private equity was virtually born and raised in Silicon Valley. Experts at innovation and finding the next disruptor, private equity/venture capitalists have created millions of jobs around the world, as well as here in the Bay Area. To continue the Bay Area’s leadership, we can build that impact investing eco-system of innovation and support to solve not only the world’s problems but some of our own here at home. The investment spectrum in the private equity space in the Bay Area can also include the innovative Hubs, Incubators, crowd-funding and other alliances for investors. More funding opportunities for social entrepreneurs, building a social stock exchange, networking for more angel funding and more access to each other will help build the bridge between capital providers and capital seekers, through centralized virtual and physical resources.

Community Investment/Savings accounts

A diversified pool of notes with Bay Area based Community Development Financial Institutions (CDFIs) will have a risk and return profile like that of a “really good savings account” while providing an asset base for these community banks and loan funds to grow their impact. They create a lot of community impact through lending to small businesses and non-profit organizations in our community and they have been doing this work successfully for decades. This can now be an accessible investment/savings choice for place-based impact investors. Under development is the first ever “Bay Area Super CD-Note” where we tie together transparency, liquidity, impact and strong returns through highly rated CDFIs in the San Francisco/Silicon Valley Bay Area.

It seems that intentionally focusing a small portion of our investment portfolios on investing in the Bay Area would be a good thing, especially if we can expect to get market returns and a positive local impact, but without all the time and effort of doing it alone.

How to use the Bay Area Impact portfolios as building blocks for aligning your investment strategy with your mission and impact goals in your own backyard.

The six Bay Area Impact Investing portfolios (public equity, fixed income, real estate, infrastructure, private equity, and community investing/savings) are like building blocks to mix and match to meet your own personal, family or institutional target investment goals and mission. Each portfolio is asset class specific, and is designed to deliver the market/benchmark return for that asset class as well as a positive impact on the San Francisco Bay Area’s long term sustainability, prosperity and resilience.

Let’s describe the characteristics of each of the portfolios:

Public Equities: This model stock portfolio is over-weighted in Bay Area headquartered companies which gives its investors an oversized voice for indirect impact through corporate engagement and proxy voting. It encourages strong attention to ESG criteria, long term wealth creation for shareholders, and a positive impact on the Bay Area through shareholder activism.

  • Very liquid, can be very volatile but over the long term is an important part of an overall portfolio.
  • Should be investable for retirement accounts in a mutual fund format.
  • Would include active, passive and ‘enhanced index’ strategies to achieve market levels of risk and return

Publicly Traded Fixed Income: This Bay Area bond fund will hold a broad selection of investable bonds generally offered by Bay Area issuers: municipalities, local governments and agencies, regional corporate bonds as well as strategies for direct lending to small and medium sized businesses and non-profits, and project bonds for the area.

  • Very liquid, can be a solid foundation to a portfolio with current income to the investor, tied with professional strategies for seeking strong total returns like its benchmark, the Barclays Aggregate.
  • Should be investable for retirement accounts in a mutual fund format.
  • Would include a mix of active, passive, community, government and corporate securities

The Real Estate portfolio will include both liquid REITs and investable projects across the spectrum of residential (homeownership and rentals, affordable and planned spaces, rental and multi-family), industrial and commercial broadly across the Bay Area. It will include sustainability, resilience and prosperity goals and will adopt fiduciary standards to invest in the complex environment that is the San Francisco Bay Area real estate market. Impact here can be counted in terms of properties built/bought, families housed, jobs created, GHG reduced, etc.

  • Less liquid than stocks and bonds, offers long term protection against inflation and a good diversifier in portfolios that can afford less liquidity or have a longer holding period
  • Would include REITS, portfolios with active specialty real estate managers in various sectors of the market, with some level of impact in the Bay Area

Infrastructure investments may be in the form of infrastructure bonds tied to specific projects, or public private partnerships for longer term regional transit, housing, and community development solutions. Clean and green energy efficiency, internet access, congestion on the highways, carbon footprints are some of the infrastructure investment needs we see in the Bay Area. With our approach to pooling long term assets, we can find the right partners and shovel-ready opportunities, through networking and centralized collaboration.

  • Highly illiquid, can result in high local impact in job creation, funding community and economic development plans for the long term
  • Brings the discipline of private markets to the public resources for more efficient project management.
  • Can provide cash flow and inflation hedge to investors and portfolios and move the regional economy forward in big ways.

Private equity portfolios, with exposure to the newest entrepreneurial talent found in hubs, incubators and our leading business schools, can be fueled with local talent and resources so the Bay Area can continue to lead the world in creative solutions through innovation and technology. This is a long term portfolio, usually inaccessible to many investors, that can provide early funding for new disruptive ideas, mentorship, and building job-creating machines that focus on the resources and needs of the Bay Area. Success stories already abound about start-ups in the Bay Area’s Low-Moderate Income neighborhoods that have realized significant local impact and provided strong returns to private equity investors, like Pandora, Tesla, Revolution Foods, to name a few.

  • This fund is a long term investment with the potential for high returns over 10-15 years.
  • Takes patience but can offer direct impact by funding unique solutions visible right here.

Combining asset classes in our portfolios is smart diversification. We can apply this concept to our local investment portfolio allocations as well. For example, the old investing rule of thumb was to have a 60% stocks/40% bonds portfolio. Today a well diversified portfolio might look like this below:

Asset ClassAllocationExpected annual returns
Stocks30-40%7-9%
Bonds20-30%3-5%
Real Estate10%8-15%
Infrastructure10%`8-15%
Private Equity10%`15-25%
Community Investment/Savings1-5%1-2%

Typical portfolios will mix these asset classes for an overall average rate of return, relying on the ups and downs of each asset class in its market cycle to moderate the overall risk (volatility) in the portfolio, resulting in a long term average expectation for the portfolio to return about 6.5-7.5% annually over time.

If you are a moderate-risk/moderate-return investor, as are many long term asset pools that expect to survive many generations, then this diversified allocation approach could be a guideline for your place-based impact investing allocation. Split your 1% place-based impact investing allocation into its component asset classes and look forward to it earning it’s assigned market benchmark returns and providing a positive impact on the Bay Area overall.

If you are a more aggressive investor you can shift your percentage allocation in favor of the higher earning asset classes like public and private equities, targeting more there and less to the other asset class portfolios.

If you are a more conservative investor and want more comfort in a less volatile portfolio, you can choose to invest more in the Community Investment/Savings, Bond and Infrastructure funds.

Likewise, because these are already geographically aligned, local mission oriented investors can tilt their place-based impact investments to focus more on a particular alignment with mission than on the risk and return metrics. For example a fund that seeks to impact jobs and job creation can use the public equity, private equity, and real estate portfolios to impact the job goals for job creation and job development. Housing advocates can align their investments to the Real Estate, Bond and Infrastructure portfolios.

Tracking the Impact in the Bay Area

Building sustainability will be a long term investment goal for the BAIII portfolios. In the beginning, we want at least some portion of our private capital portfolios to be participating on an intentional basis in the investable opportunities in the Bay Area. In the long term, we want to create more impactful opportunities and an investment platform for channeling local resources and capital to local investments and community resilience for our region. We can grow into a clearinghouse for other parts of the impact investing capital stack as well.

From the model portfolios designed in 2013-14, we can extract the sorts of investments that provide examples of the kinds of impact we seek in the various asset classes.

  • Fixed Income/Community Investment/Savings: Community Capital Management Inc.
    • CRA Qualified Investment Fund Institutional fund
    • Symbol: CRANX: $2.0 billion fixed income mutual fund
    • Intermediate term, investment grade fixed income
    • Benchmark: Barclays Aggregate
    • Earmarked bonds for CRA credit and local impact
      • Geographically focused on SF Bay Area
      • Taxable Municipal Bonds, Redevelopment Agency
      • Bay Area Small Business Administration bonds
      • Bay Area GNMA and FNMA Affordable Housing bonds
      • Salvation Army (corporate)
      • CDFI deposits in Bay Area (Community Development Financial Institutions)
        • CRA = Community Reinvestment Act
  • Affordable Housing and Job Creation: AFL-CIO Housing Income Trust

HIT Invests $16.8 Million in Gabilan Plaza Apartments in Salinas, CA Rehab of Affordable Housing Development Will Generate Over 110 Union Construction Jobs

5/29/2014

The AFL-CIO Housing Investment Trust (HIT) provided $16.8 million in financing for the $43.3 million rehabilitation of Gabilan Plaza Apartments, a multifamily development that has provided affordable housing to residents of Salinas, CA, for over 40 years. The all-union rehabilitation work is expected to generate more than 110 union jobs.

The HIT investment of union and public employee pension funds will help finance exterior and interior rehabilitation at the aging housing complex, which consists of 26 garden-style apartment buildings offering 200 rental units. All of the units are income restricted, with 10% designated for households earning up to 50% of the area median income and the rest reserved for families earning up to 60% of the area median income.

  • Community Investing/Savings: Northern California Community Loan Fund
    • Since 1987, NCCLF has invested $150,904,816 in Northern California, financing over 300 projects that have created or preserved 14,459 jobs, 5,742 low-income housing units, and served over 700,000 clients.
    • Recent project examples:
      • Provided a $216,000 loan to a Contra Costa homeless services provider to build a catering kitchen that now distributes 60 tons of groceries annually from eight locations
      • Provided $2.8 million in loans and collaborated with other public and private partners to build and maintain a transit-oriented multi-tenant center in Berkeley.
  • Institutional Real Estate – Sustainable Industrial, Commercial, Job Creation: American Realty Advisors
    • Construction of Cherry Logistics Center, a 574,000 square foot warehouse distribution facility in the San Francisco Bay Area is proceeding with a 2Q14 delivery date. The property is the first of its kind and size to be built in the Bay Area in 20 years, employed 250 people in construction and is expected to serve as a logistics and distribution center.
      • A 29 acre LEED distribution facility developed with 100% union labor, built at the crossroads of the Silicon Valley and the Port of Oakland
  • Sustainable Real Estate: Gerding Edlen is an SEC-registered investment advisor that manages separate accounts and funds that are focused on the redevelopment and development of mixed-use, multi-family and office properties in high growth urban markets in the US.
    • Property in San Francisco, CA: “ Etta”, Van Ness & Sutter
    • 13 story, 107-unit LEED (Gold) Mixed Use apartment, 9,750 square feet of ground floor retail
    • Located adjacent to Pacific Heights/ Nob Hill, energy savings, one-, two-, three bedroom units
  • Private Equity: Bay Area Council’s Real Estate and Growth Funds (approximately 2002-2012)
    • The Bay Area Family of Funds is considered a national model for regional Double Bottom Line investment initiatives, highlighted by the Office of the Comptroller of the Currency (the OCC)
    • Over 230 new jobs have been generated, 1,096 jobs have been retained, and over 2,300 new jobs are projected from investments by the Family of Funds
    • 870 for-sale homes being built or renovated, with at least 230 units affordable to purchasers at 80% of area median income or lower
    • Nearly 700 acres of land have been remediated for brownfield development
  • Community Investing: Bay Area Transit Oriented Affordable Housing Fund: www.bayareatod.org

Eddy & Taylor Family Housing
Location: San Francisco, CA
TOAH Fund Financing: $7.2 million
Housing Units: 153
Retail Space: 12,000 square feet

The Tenderloin Neighborhood Development Corp. is developing an old parking lot into a 14-story building with affordable housing and retail space planned to attract a grocery store to this underserved community. The site is located just two blocks from the Powell Street BART station, a major transit hub in San Francisco.

  • Green Infrastructure Bonds

Municipal Industrial Revenue Bonds:

San Francisco PUC – Wastewater infrastructure bonds

• $240 million Wastewater Revenue Bond will fund eligible projects in sustainable storm water management and wastewater projects

Green infrastructure is a stormwater management tool that takes advantage of the natural processes of soils and plants in order to slow down and clean stormwater and keep it from overwhelming the City's sewer system
• The first certified green water bond to finance sustainable water infrastructure

• Working to maintain the 100+ year old, 900 mile long combined sewer system and 17 pump stations that collect sewage and storm water
Long term municipal revenue bond for water infrastructure

http://www.ceres.org/press/press-releases/san-francisco-public-utilities-commission-issues-world2019s-first-certified-green-bond-for-water-infrastructure

Proposal to open The Bay Area Center for Place-based Impact Investing: Let’s make it easier to invest locally

The Center becomes the PLACE where collaboration and collective impact begin. By centralizing the core activities like due diligence, resource management, and monitoring of the portfolios, a collaborative team and their investor/partners would have a virtual and physical place to work and network. Members/investors will get to align their mission and financial goals and capital seekers will have a platform for networking and mentoring. Acting as a clearinghouse, the Center can be the home to all sorts of impact investing opportunities, across the capital markets continuum, including:

  • Community -based investment funds: institutional quality asset class specific, multi-manager funds for local impact
  • Social Impact Bonds, Pay for Success contracts, Development Impact Bonds, Environmental Impact Bonds, Health Impact Bonds
  • Mission Related Investing and Program Related Investing by Foundations (MRIs and PRIs)
  • Investment in human capital/development, corporate engagement, bootcamps, and Co-ops
  • Private Equity Funds with Social Impact
  • Social Stock Exchange for B-Corps, etc.
  • Green and Sustainable Infrastructure Bonds
  • Community Development Financial Institutions – local investing, savings, and lending
  • Investment in Cleantech, BioTech, Education, Healthcare, and Fintech
  • Crowdfunding, DPOs, Incubators/Hubs for very early stage investing
  • Long term public private partnerships in education and job training, infrastructure, transit, housing, water, etc.

Next Steps: How do we open the Bay Area Center for Place-based Impact Investing?

  • Get the right people in the room to pledge assets, staff time and funding
  • Develop partners/investors/members
  • Create the professional team and business model for asset management
  • Build real portfolios so the track records can develop to grow assets and scale
  • Develop the virtual clearinghouse platform with database technology
  • Encourage Deal Flow and Gatherings

The Bay Area Center for Impact Investing

The Bay Area is the natural place to build a model for a more efficient channeling of private capital into the regional economy. Let’s do it.

References:

[1] The research paper describing the BAIII was published in the Routledge Handbook of Sustainable and Social Finance with Oxford University: “Regional Impact Investing for Institutional Investors: The Bay Area Impact Investing Initiative,” July 2016

[2] The Federal Reserve Bank of San Francisco encouraged and published the research working paper: “Impact Investing for Small Place-Based Fiduciaries: The Case Study of the United Way of the Bay Area”. http://www.frbsf.org/community-development/files/wp2012-05.pdf

[3] Financing Sustainable Cities Scan and Toolkit, October 2016, in partnership with HIP Investor: to download the paper: http://usdn.org/public/page/32/Government-Operations

[4] Cornerstone Journal of Sustainable Finance and Banking, “Proximity” (full edition) December 2016 issue: http://cornerstonecapinc.com/2016/11/place-based-impact-investing-how-to-invest-in-your-own-backyard

Impact Measurement: Finding Your Way Through The Maze

This post was originally produced for Forbes.

This is the second in a series of articles about impact measurement for social entrepreneurs.

Social entrepreneurs who are serious about having impact or about attracting capital from sophisticated impact investors face an intimidating array of measurement tools, standards and abbreviations. To help social entrepreneurs find their way through this maze I connected with practitioners and experts.

Laura Callanan, founding partner at Upstart Co-Lab, makes the case for using existing standards rather than inventing your own. “I am a fan of building off what already existing in the field — especially B Lab, GIIRS and IRIS. In the work we are doing at Upstart Co-Lab — connecting impact investors to the creative economy — these existing tools work really well. And using familiar tools makes it easier for us to launch a creativity lens for impact investing.”

Laura Callanan

B Lab is the non-profit that certifies Benefit Corporations. GIIRS is the “Global Impact Investing Rating System” and the acronym is pronounced “gears.” GIIRS ratings are used by impact investors to evaluate social impact; the measurements can be applied at both the company and the fund level. B Analytics, the B Lab entity that does measurement and certifies Benefit Corporations, uses GIIRS standards.

Note that I and others often use the terms Benefit Corporation and B Corp interchangeably, B Corp refers most properly to the certification by B Lab where a Benefit Corporation is a legal entity formed under the rules of a state that allows that form of incorporation.

IRIS is a free product of the Global Impact Investor Network, the GIIN (pronounced like the spirit). IRIS provides standards for measurement that are broadly used within the impact investing community.

Laurie Lane-Zucker

Laurie Lane-Zucker, the CEO and founder of the Impact Entrepreneur Center for Social and Environmental Innovation, adds that using the SDGs, the UN’s Sustainable Development Goals also makes sense. He adds, “I am a big fan of the new taxonomy framework that Fourth Sector Networks is in the process of developing for the “for-benefit” or “Fourth” sector.”

Impact investment fund manager, Joel Solomon is Chair of the Renewal Funds; he encourages portfolio companies to seek B Corp certification.

Matthew Weatherley-White

Matthew Weatherley-White, a recognizes expert on impact measurement and co-founder and managing director for the Caprock Group, which manages money for impact investors, agrees. He encourages social entrepreneurs not only to measure their impact with B Lab standards but also to become a certified B Corp (or Benefit Corporation), for three reasons:

  • as a statement of commitment
  • as a stamp of transparency and credibility
  • as a way of supporting the emerging community of social enterprises

“They should then establish a tight group of IRIS-compliant metrics that are quantifiable and material, that will be gathered during the day-to-day operations of the business, and that will provide evidence around the mission of the enterprise,” he continues. He also encourages entrepreneurs to report using the taxonomy provided by his firm’s “iPAR” system.

Lisa Curtis

Social entrepreneurs Lisa Curtis, founder and CEO of Kuli Kuli, says, “One of the first things Kuli Kuli did as a company was to get our B Corp certification. It was tremendously helpful in pushing us to further define how we wanted to operate as a business. We’re now a full-fledged Benefit Corporation and we regularly report on those metrics.”

Daniel Jean-Louis, CEO of Bridge Capital, an impact investing firm focused on investments in his native Haiti, notes that while the GIIRS standards are “pretty good,” entrepreneurs “should establish some of their own standards in addition to those rules.” He points out that sometimes it is hard to fit your impact into an existing model.

Nell Derick Debevoise, founder and CEO of Inspiring Capital, says that which standard you use may depend on your stage of development or your industry. “B Lab is good for very early stage companies because it’s focused on setting up the operations of your company and is relatively simple and user friendly. It’s also more of a consumer-facing certification. GIIRS and IRIS are more investor-facing, so startups looking to raise institutional capital should think about mapping their impact to those standards sooner than later.”

Cecile Blilious

Cecile Blilious, an impact investor based in Tel Aviv, is the founder and managing director for Impact First Investments. She also encourages people to use the B Lab standards. She also notes that using a Social Return on Investment or SROI method is important. She uses Sinzer to help her firm with that. The SROI is a means of measuring value created that doesn’t have an easy financial metric, such as environmental and social benefits.

Matthew Davis, an impact investor focused on Ethiopia, is the CEO of Renew. He says his firm uses the IRIS standards.

Similarly, Gary White, the CEO and co-founder—with Matt Damon—of the non-profit Water.org uses the “IRIS framework to ensure that we are delivering social returns as well as financial returns to investors” for its WaterEquity program that allows investors to fund water projects with an economic return.

Lisa Hagerman, director of programs at impact investment fund DBL Partners, says the firm also uses IRIS metrics, but notes that what is appropriate for each social enterprise will vary depending on the asset class and sector.

Amit Bouri

Amit Bouri, CEO of the Global Impact Investing Network, says more entrepreneurs are using the IRIS standards. “While IRIS was developed to be used by investors for the purpose of measuring the social and environmental performance of their investees, we are increasingly seeing enterprises adopting IRIS for their own impact measurement and management practice.”

He notes that using IRIS measures could make social ventures more attractive to impact investors because it could accelerate the impact due diligence phase of an investment.

More importantly, perhaps, Bouri says that impact measurement can actually improve business performance. “Impact measurement is a defining characteristic of impact investing and has been shown to have significant benefits to organizations that utilize it to inform business decisions.”

Cathy Clark, author and professor, is the director of CASE i3 at Duke. She cautions, “Not every social entrepreneur needs to use a standard or produce an impact report. It’s a choice, dictated by the stakeholders of your enterprise and what level of evidence they are demanding.”

She explains, “We define 5 levels of evidence and 3 paths for impact reporting in our CASE Smart Impact Capital online tools. Using standards is just one of the paths.”

Cathy Clark

She sees a range of demands from investors; using standards helps with comparisons. “The advantage of using standards is giving people some level of comparability at the organizational level, and there are stakeholders who care a great deal about this, including some private investors and some federal and state agencies. All of the other paths allow you to customize more, but you lose some comparability with other ventures. Some stakeholders, like some agencies in the US government, have often decided that they will only invest significantly where higher levels of impact evidence can be shared.

Bobby Turner, CEO of Turner Impact Capital, which invests primarily in affordable housing and charter schools, is also cautious about using standards. “We focus less on impact standards and more on actual impact and the correlation between positive (and possibly negative) [social impact] and financial returns. Similar to LEED certification, while the intent of the standards is well meaning, they are often irrelevant to a particular investment.”

It isn’t necessarily which standards you choose but how you use them, says Stephanie Gripne, founder and director of Impact Finance Center & CO Impact Days and Initiative. “Probably any of [the standards work for now for the larger part of the market. There are many out there. Once these standards are selected by a social entrepreneur, I would ask why these indicators and how exactly they will capture and use the data.”

Breaking from the pack, Topher Wilkins, CEO of Opportunity Collaboration and founder of Conveners.org, says Poverty Spotlight is worth considering as a standard because of its focus on feedback from beneficiaries and on their economic well-being.

Morgan Simon

Some worry that impact standards themselves may not go deep enough. Morgan Simon, managing director at Pi Investments, says, “Impact standards are great for addressing short-term outcomes. It’s important to also keep track of what the long-term, systemic impact of an intervention can be–this may require a greater attention to the structural elements of a business. Who owns it? Does it add more value than it extracts from communities?

She adds, “Impact measurement is absolutely useful—what gets measured, gets managed. Impact measurement is often used to count the occurrence of something, e.g., 1,000 jobs created or 200 homes built. Measuring structural change may require a different set of questions.”

Peter Fusaro, Chairman of Global Change Associates, adds the Sustainability Accounting Standards Board or SASB to the list of standards. The SASB is primarily used for socially responsible investing metrics and is working to become to public companies what the FASB accounting rules are for financial metrics. He adds, “I don’t see one as the dominant standard as of yet.”

Lauryn Agnew

Lauryn Agnew, president, Seal Cove Financial and founder, Bay Area Impact Investing Initiative, shares the view that the standard you should use depends on your situation—and on what you are measuring.

“ESG factors can measure the outcomes of CSR. B-labs often are about balancing corporate behavior and shareholder expectations and governance. Measuring GHG reduction from an investment in solar is an example of measurement but the value of that impact in not fully understood. Certain standards like SASB are helping to define what is the ‘material’ impact so that we do not have to track ‘every’ impact, which can be diluting or detracting to the big picture goals.”

This primer on impact measurement should help you understand the key issues in measurement so you can find your way out of the impact measurement maze.

#impmeas

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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

CEA Targets $800M of Solar Investment With New Partners

Clean Energy Advisors is a sponsor of the Your Mark on the World Center.


Clean Energy Advisors announced a major new financing that will take the firm from having invested about $140 million in solar energy projects to about $800 million. CEA President Scott Hill also notes that building on this success, the firm will establish a foundation to fund more charitable initiatives. (Watch or listen to my discussion with Scott using the players above.)Scott explains that the unnamed financing partners, two “multinational families,” have committed about $350 million. Combined with additional debt financing, the firm anticipates reaching $800 million in financed projects, “completing the pipeline of projects in North Carolina.” He anticipates that deploying the capital will take 18 to 24 months.

Scott explains that the unnamed financing partners, two “multinational families,” have committed about $350 million. Combined with additional debt financing, the firm anticipates reaching $800 million in financed projects, “completing the pipeline of projects in North Carolina.” He anticipates that deploying the capital will take 18 to 24 months.

He notes that the cost of installation for small utility scale projects is about $1.50 or $1.60 per watt, yielding a cost of about $1.5 million per megawatt. The new financing should allow CEA to install another 400 MW in North Carolina. He also notes that the scale they are achieving should allow the firm to look beyond their traditional structure where Duke Energy is the primary “off-taker” or buyer of the energy from the projects financed.

The new scale also creates an opportunity for CEO to increase its philanthropic efforts. Scott says the firm has started the process of creating a foundation that will fund charitable work. Last year, the firm backed nonprofits Reverb and Headcount to build support for environmental causes at 25 concerts across the country. Scott says they’ll be doing that again. “People who attend concerts have a natural affinity for nonprofits.”

Scott also hopes that the firm can use the foundation to fund solar projects in the developing world like putting solar panels on schools that don’t have access to the grid. He says the firm will donate its time to manage projects that the foundation funds and hopes donors will help them make a big impact.

The acceleration of the solar industry is creating a bright future for the world, both in the developing world and here in the developed world.

Scott Hill, courtesy of Clean Energy Advisors

Scott Hill, courtesy of Clean Energy Advisors

More about Clean Energy Advisors:

Twitter: @cleanenergyadv

Clean Energy Advisors (CEA) creates ownership opportunities for investors in utility scale solar energy projects that generate tax-advantaged predictable income, preserve capital, and have positive social and environmental impact.

Scott’s bio:

Twitter: @williamandhill

Scott Hill has over twenty years of entrepreneurial experience including a significant perspective on business start-ups and building successful small businesses. Mr. Hill has been with CEA since April 2014.

His duties include overseeing the firms family office, endowment, foundation, and UHNW client strategies. He has served as a panelist at US based family office conferences and enjoys speaking on impact investing, renewable energy opportunities, and the future of Solar PV worldwide.

Scott is a 1991 graduate of Columbia University and four year member of the football program. He lives near Nashville, TN with his wife and children. He’s also actively involved in his community and church.

Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

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