“All investing is impact investing.” So goes the favorite saying of Clara Miller, a noted global nonprofit executive and president of the F.B. Heron Foundation, which promotes investing for social and environmental reasons as well as generating traditional financial returns.
Impact investing appears to be moving into the mainstream: Last week, the National Venture Capital Association held an event to discuss the topic and raise the question of whether more financial investors should be practicing some form of impact investing—and if they can do so without compromising returns. The NVCA event was held in parallel with the SOCAP (or Social Capital) conference that drew top impact investors from around the world to San Francisco.
Impact investing, while traditionally viewed through a philanthropic lens, has steadily gained credibility among more conventional investing outfits, according to the NVCA’s panelists. Speakers, including Arjuna Costa of the Omidyar Network, Ira Ehrenpreis of DBL Partners and Brittany Hargest of Greenspring Associates, all exhorted the investing world to move from an “or” mentality—return OR impact—to targeting both.
Deploying capital with an eye towards positive social impact no longer means sacrificing returns, argued the speakers. Citing a recent PwC study, Ehrenpreis asserted that 70% of millennials believe it is the job of companies to help solve societal problems, and that 91% of millennials would opt to patronize a more socially responsible store if given the choice. With both young entrepreneurs and millennial consumers now openly prioritizing social good in their beliefs and lifestyle choices, the business world needs to take notice, the panelists said.
Moderator Christy Chin of DRK, alongside panelists Arjuna Costa of Omidyar Network, Ira Ehrenpreis of DBL Partners and Brittany Hargest of Greenspring Associates.
What form can impact take? It’s a slightly nebulous term, but “impact” can look different across a variety of sectors and markets. It could include education technology that reaches underserved populations; sustainable technology in agriculture; or financial technology that targets people without traditional bank account access. And of course, investments in these technologies could also make money for their backers.
Hargest noted that there is a benefit of inculcating the “impact” mindset at the venture stage of a business, since the idea of promoting social good can be baked into the company’s culture from the outset, if that’s a goal. Cultivating this ethos early in a company’s growth can lead to even greater social impact as it scales.
One challenge with the current impact investing model is that defining ROI in financial terms is straightforward, while doing so in impact terms is not. As the landscape continues evolving, frameworks of impact measurement and reporting will need to address this gap, particularly as such efforts are embraced by more mainstream investors and audiences.
Interestingly, the push towards building a socially-responsible business ecosystem is occurring at different speeds among various market players. The panelists noted that interest in impact investing from the limited-partner side is much greater than among VC firms. Perhaps as movement continues in this direction, more VC firms will develop, and further emphasize, their impact credentials.
As Ehrenpreis forcefully put it, “impact investing used to be an albatross; now it’s a differentiator.”