The Next 20 Years of Impact Investing: Investing for a financial and social return while delivering well-being for 100% of the economy

The Next 20 Years of Impact Investing: Investing for a financial and social return while delivering well-being for 100% of the economy

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By Lisa Hall, President and CEO of Calvert Foundation

Throughout the course of this year, I have found myself attending numerous conferences and participating in panel discussions where attention has been focused on impact investing. I believe that in 20 years we will look back and consider these past few years as the turning point in an economic movement. Looking forward to the next 20 years, there are many, myself included, who are convinced that we are experiencing a paradigm shift. A change in cultural norms and expectations that will result in all investors — individual and institutional — committing at least some portion of their investable assets to social impact and making investments that are in harmony with their values.

A True Investment

When I joined Calvert Foundation in 2005, impact investing – investing for a financial and social return – was still a very new concept but was steadily gaining popularity. Back then we called it “community investing.” Call it what you will, this type of investing remains a core part of socially responsible or sustainable investing. What makes impact investing different is that we are not investing in publicly traded companies, but instead in organizations which help people to improve their lives through affordable housing, jobs, community services such as daycare and healthcare, and more.

When I say investment, I mean it in the truest sense. Calvert Foundation makes it possible for everyone – from individual investors in increments of $20 to large corporations in amounts as high as $20 million – to invest in low-income communities and provide capital where there is none. We enable Impact Investing through our Community Investment Note, which then directs capital to help finance affordable housing, charter schools, health centers, Fair Trade coffee co-ops, and job creation. These investments in the future of our country and our world are helping to transform the lives of individuals and families. At the same time, investors receive a return on their investment of up to 2 percent. This blended value investment generates both a social and financial return.

Thankfully, we are not alone in our efforts today. The idea that you can invest in socially responsible endeavors and get a return on that investment was radical when we initially conceived of it. Now it is a concept at the very forefront, influencing how investors think about risk, return and rewards. Calvert Foundation recently commissioned a study involving 1,065 financial advisors; 72 percent said they had interest in offering products that provide sustainable investment to their clients, while 38 percent expressed strong interest in being able to offer those products now. The advisers surveyed indicated that they were willing to recommend impact investments to one-third of their clients, dedicating 10 to 20 percent of their portfolios to this type of investing. Based on these numbers, the study estimates a sustainable investment market of about 2.5 percent of advisers’ assets under management, or $650 billion. The change that these dollars can make is both monumental and within the scope of our imagination, our expectations and our ability.

A Role for Everyone

Those of us working for this change are inspired and encouraged by the growing interest in sustainable investing within the business community. Large corporations are beginning to understand the power of uniting investment and social conscience. A great example is Starbucks. Earlier this year, Starbucks teamed up with the Opportunity Finance Network (OFN) to help create and sustain jobs. The Create Jobs for USA program provides capital grants to select Community Development Financial Institutions (CDFIs). These CDFIs, which include Calvert Foundation, provide loans to underserved community businesses. The goal of Create Jobs for USA is to bring people and communities together to create and sustain jobs throughout America. Not only did they initially seed the program with a $5 million contribution by Starbucks Foundation, they also made an important public statement about the potential of corporations – and each of us – to make a difference and be part of the solution to our current social and economic challenges.

Real-Life Examples

What does impact investing look like? For an investor, it looks much like the rest of his or her portfolio – until that investor understands the social impact they are making. “Calvert Foundation offered me a great opportunity to give food to my soul when it came to switching from Wall Street to an organization that is entirely devoted to helping the community, especially the needy, in a varied, fruitful, and meaningful manner,” said Marta Santiago, a New Mexico resident and Community Investment Note holder since 2005.

Over the years we have enjoyed great success in bringing new investors to the table by making multiple channels available to them. By working with financial advisors and transacting through multiple brokerage firms, we have enabled investors to hold the Community Investment Note in their investment portfolios. Through our partnership with Microplace, an eBay company started in 2007, we have made it possible for investors to purchase Notes online, starting as low as $20. Investors can also come to us directly, opening a Note through an application and simply writing a check. We know that we have to do more to engage and educate investors in order to grow our investor base beyond 10,000 people. In the years to come, we will continue to increase the distribution of our Note – and additional investment products as we develop them – through more and more mainstream brokerage firms. We are also developing strategies to bring new investors into the fold. For example, we want to engage the millennial generation through partnerships with colleges and universities, social media outlets and networking events. We are also embarking on efforts to connect diaspora communities and enable individuals to invest in their countries of origin. Other special initiatives that we envision for the future include regional initiatives. Imagine a program that allows anyone to invest in community projects that help to rebuild America, create jobs and improve critical services in distressed areas like Detroit.

For people in need of help and opportunity, it looks like hope and a way to serve needs across all different types of communities. Take, for example, children in Minnesota. When the state experienced the longest state government shutdown in our nation’s history last year, the hardest hit were non-profit organizations that depend on funding from state grants. Where did Minnesota-based non-profits turn when they could no longer count on their primary source of funding to continue providing critical services? The Nonprofits Assistance Fund (NAF), a Calvert Foundation borrower, stepped in to offer emergency bridge loans, providing credit to cover cash flow delays for groups like Northern Lights Community School of Warba, MN. A well-managed and incredibly successful school catering to students who have faced difficulties in traditional public school settings, Northern Lights got a loan from NAF to fill the school’s financing gap. Since 1980, Nonprofits Assistance Fund has provided over $75 million in loans to more than 1,700 non-profits. Impact investors working through products like Calvert Foundation’s Community Investment Note are a key part of this process. “Years ago, we came across an opportunity to fund a project and were unable to get the financing we needed from anyone but Calvert Foundation,” said Kate Barr, NAF’s Executive Director. “NAF is now serving this role for the communities of Minnesota when it’s needed most.”

Calvert Foundation’s work and Impact Investing as a sector has a global reach. Consider Lucy, who lives in a small village in Northern Kenya. Lucy wakes up bright and early, nudges her kids out of bed, and prepares a meal to start their school day. While it sounds like a scene played out in homes across America, it bears no resemblance at all. Lucy’s day begins at 4:30 am. That’s when women in the drought-ravaged region of Meru begin an hour-long trek to collect water from a stream. On this day Lucy feels lucky since back at home she finds enough wood to start a fire. It also means a five-kilometer walk to collect wood can be put off until tomorrow. Thanks to our partner The Paradigm Project, which we provide an opportunity for investors to invest in through our Community Investment Note, Lucy and others like her are receiving relief through clean-burning stoves that reduce wood consumption and toxic smoke, saving women long and often treacherous journeys to collect wood. Although the stove is a solution to just one problem, Lucy views it as a way to restore dignity to women for whom mercy has been in short supply.

Aligning Our Money with Our Values

Taking part in this movement is not simply our individual and collective responsibility; it also creates mutual benefit for investors and the recipients of these investments. It’s time to align our money with our values – to have our money working in harmony with what we believe and not against what we believe.

Anyone can do so by investing as little as $20 in women’s economic empowerment on Microplace. You can serve as a mentor to an entrepreneur just starting out. You can give to a community organization providing job training. At Calvert Foundation we believe that Impact Investing represents the best of what we can be as a society — not for the 99 percent or for the 1 percent, but for the 100 percent. Economic recovery rests on ensuring sustainable access to capital, both to grow existing businesses and to finance new ventures and innovation. Through groundbreaking mechanisms, promising models are actively supplying much-needed capital to small businesses and economic development projects. In some cases, these models are also demonstrating new and sustainable ways to grow wealth and to help communities adapt to a changing economy.

At Calvert Foundation we spend a lot of time explaining what we do – I hope in this article we have been clear about what we believe. We believe in economic justice. Impact Investing in economic justice means that families in Cambodia and other emerging economies can send their children to school – providing an education that prior generations didn’t receive. It means being able to stay in your home after being a victim of predatory lending. The numbers of people left behind by traditional financial systems is growing – but over the next 20 years we can reverse this trend. Our current financial systems are just not enough to meet the challenges and needs of these turbulent times. Calvert Foundation offers a solution through our Community Investment Note. We encourage everyone to take part and participate in this simple solution that creates economic opportunity for all.

Article by Lisa Hall, President and CEO of Calvert Foundation ( www.calvertfoundation.org), a nonprofit that has pioneered impact investing, a type of investing that delivers social and financial returns. When Lisa joined Calvert Foundation in 2005, she took on management of a $76 million loan portfolio as Chief Lending Officer. Over the years, Lisa more than doubled that portfolio to nearly $190 million, while keeping losses under 1.2 percent during one of the most economically challenging periods in recent history. Follow Lisa on Twitter @LisaGreenHall

Photo courtesy of Rodney Rascona for Paradigm Project

 

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One thought on “The Next 20 Years of Impact Investing: Investing for a financial and social return while delivering well-being for 100% of the economy

  1. This post is worryingly accurate. The question is whether we can trust the intermediaries to manage this flow of “social investing”. Calvert Foundation managed to invest in one of the worst microfinance institutions in recent history – LAPO, in Nigeria. The bank was described as “illegal” in a number of rating reports by two seperate rating agencies. According to these same reports it was guilty of nepotism, savings fraud, chronic client desertion, sloppy governance and charged interest rates up to 144%. By MicroPlace’s own stated standards, interest rates ought not exceed 60%. Calvert managed to invest in such an institution thanks to sub-contracting the entire due diligence process to a third party based in Holland. I warned Calvert about this shortly after I discovered the magnitude of the fraud, as I was working at the Dutch third party, but they chose to ignore it. I confronted Calvert about this in a conversation which Calvert and I recorded in full. I reproduce it entirely on my website. Lisa Hall, the author of this post, leads the call on Calvert’s behalf. Calvert initially denied all charges, on the call, but when the New York Times exposed the fraud and specifically named Calvert Foundation, they withdrew their investment a few days later. They continue working with the Dutch partner that advised the transaction.

    I applaud the principles behind this article, but would urge any investor investing via an intermediary investment fund to carry out extensive due diligence on the fund in question. The details behind Calvert’s doomed transaction are described in full in my book, Confessions of a Microfinance Heretic, published by Berrett-Koehler, San Francisco 2012. The entire recording can be found on my website with a Word transcript below:

    http://www.microfinancetransparency.com/index.php/chapter-10-blowing-the-whistle-from-mongolia

    The original NYT article exposing Calvert’s investment in LAPO may be found here:

    http://www.nytimes.com/2010/04/14/world/14microfinance.html?pagewanted=1&_r=0

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