Advancing Impact Investing Platforms… Promise and Peril!!
October 24, 2012
Impact Investing is often thought of as investing directly in mission driven for-profits or structuring new capital infusions for social enterprises that are nonprofit yet have a viable revenue model…
…or we think of Impact Investing as investing through funds such as those listed on the IA-50 or ImpactBase—
…yet for the field of impact investing to attain its true potential, its critical we explore how best to develop platforms that allow investors to both attain greater diversity of investment opportunities and “democratize” impact investing beyond the relatively high minimums many impact funds have to maintain.
There are a number of issues to consider in our process of creating platforms that promise to scale impact investing. The first thing is to understand the relative appropriateness of “scaling” impact instruments for various opportunities—namely, as Tim Freundlich of ImpactAssets points out, some strategies simply do not lend themselves to scaling. We need to be both honest about that reality and clear on assessing those strategies that do lend themselves to scale. Impact Investing is not a single hammer looking for all the nails in the world—it is a diverse and dynamic approach to creating innovative applications of capital in appropriate ways to maximize potential impact. While the promise of investment platforms is, uh, promising, it is important we not start our discussion with the assumption that all investment strategies must scale!
Hilary Irby, of Morgan Stanley, built upon this idea when she made the great point that platforms actually offer the opportunity to blend various strategies in order to create impact across a portfolio. Furthermore, we need to understand how various impact opportunities need to be positioned effectively with the right market opportunities and that together this creates “an alignment of interests” between the investor and the investment opportunity.
Michelle Giddens of Bridges explored the question of whether in the process of scaling and moving “up” to a platform level one runs the risk of decreasing impact or, stated differently, do you by definition lose impact as you move toward Wall Street? Michelle stressed the need to identify meaningful opportunities first that have real impact and may only then be packaged for the right investor. She also addressed the question of how to frame the impact agenda without “scaring off” investors who may think that by definition such an agenda runs the risk of sacrificing financial performance.
Each of these perspectives offered a different angle on the challenge of creating impact investment platforms and helped all of us in attendance understand more about the appropriate role of platforms in the future of impact investing—as discussed in our paper, A Market Emerges: The Six Dynamics of Impact Investing.