Investing for Impact

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November 11, 2015

When investors want to make a social or environmental impact, they traditionally focus on charity — giving money to nonprofits and foundations to support their cause of choice rather than investing that money with the goal of a later return. We believe that these two financial strategies don’t have to be mutually exclusive.


Many conscientious investors today are considering funneling more of their resources into impact investing, which refers to investments made in companies, organizations and funds that may generate social or environmental impact as well as a financial return.


Impact investing is a popular way to merge financial goals with personal interests, allowing investors to potentially generate a triple bottom-line impact (social, environmental, financial) from their investments.


For many investors, the pursuit of impact is fundamental to their efforts to define a family legacy that ties their good work to future generations. “Impact investing serves the dual purpose of doing good and making money,” says Jonathan Firestein, Managing Director of Private Capital and Impact Investing at Ascent

Private Capital Management of U.S. Bank.


However, choosing the funds, companies or projects in which to invest isn’t as simple as looking at a list of options and picking the ones with the best social and financial projections. There is no definitive list of investments that is officially targeted for this investment category. It requires a more qualitative approach, Firestein says.


While there are certainly obvious choices, like funds that support renewable energy projects or microloans for small businesses in emerging markets, it really is a matter of preference and research. “Impact can be broadly defined as anything that is doing good for people, society or the planet,” he says.

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November 11, 2015

Start With a Strategy


To begin the process of impact investing, you and your financial advisor should decide how much of your portfolio you want to designate for impact investing and how that will affect your broader portfolio planning. Some investors create a stand-alone portfolio for impact investments, while others designate a percentage of their existing portfolio.


Then you need to make the same choices you would make for any investment: define the investment objective, determine an acceptable level of risk and identify a target return on investment and time horizon. “You want to use the same due diligence process for impact investments as you would for traditional and alternative investments,” Firestein says.


Find Your Focus


You then need to decide what kind of impact youwant to have. This step can feel a little overwhelming as you try to figure out how you can use your resources to achieve the most meaningfulimpact. Common impact investment areas include(but are not limited to) health and wellness, education, micro-finance, energy,  agriculture and clean water. They can also take the form of stocks, bonds, private equity, private debt, real estate and real assets. And these are just broad categories. Under each there are hundreds of potential options to choose from, limited only by personal interests and goals.

To narrow the search, Firestein encourages investors to think about what social or environmental issues are most important to them. “Impact investments can be most rewarding when they reflect an investor’s passions,” he says.


Many impact investors align these choices with their charitable giving. For example, UNICEF, the nonprofit United Nations global program to help children, also has a bridge fund that provides flexible capital in the form of bridge loans to accelerate procurement of health, education and other supplies to critical support programs. In turn, investors receive an estimated 0.5 to 2.0 percent annual return, according to UNICEF.


Other choices might be at the grassroots level, such as acting as an angel investor for startup businesses or supporting a local clean energy project. “It’s all based on personal interest,” Firestein says.

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November 11, 2015

Measure Impact


Before making a final choice, you should think about what kind of societal or environmental impact you hope to achieve and how that impact will be measured.


With impact investment bonds, for example, traditional credit underwriting is complemented by impact ratings based on defined benchmarks, with impact data used to steer the portfolio toward companies that directly align with the goals.


With other investments, you can look for measures defined by the organization itself, such as the number of children helped, amount of land protected or carbon emissions avoided. In these cases, you and your wealth manager may need to do your own research to decide whether the anticipated impact is achievable and whether it aligns with your impact investment goals.


Balancing Profit and Impact


You also have to make more traditional decisions with impact investments, including whether you want to prioritize financial returns or societal returns, or seek a balance of both. “Personal decisions have to be made for the optimal mix between expected risk, return and impact,” Firestein says.




Because impact investments offer both the potential for social and financial gain, some may provide below-market rates, while others don’t necessarily forego financial gains for social gains. There are stocks and bonds that have actually outperformed their peers, he says. You need to weigh all of the ROI factors to decide what best meets your goals.


Firestein encourages interested investors to speak with their wealth advisors to help craft the right plan for impact investing that seeks to bolster their financial and societal legacies.


“Impact investing provides opportunities to invest in your passions regarding people, problems, places, pathways and philosophies,” he says. “It complements philanthropy and, if positive investment returns are generated, it may produce a sustainable pool of capital that can impact generations.”


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