NB Financial Health
Impact Investing at a Crossroads: Sustainatopia Impact Conference highlights excitement and concerns about the future of the sector
Last month, a group of 100 young billionaires went to the White House – mainly heirs to family fortunes, sporting names like Rockefeller and Marriott. If you’re like me, you probably read that sentence and assumed they were there either to press for lower tax rates, or to get shaken down for campaign contributions. But in fact, the group was attending an invitation-only summit hosted by the Obama administration, aimed at finding common ground between the public sector and the next generation of philanthropists.
The group represents a high-profile example of the unprecedented wealth transfer that’s currently underway between the baby boomers and younger generations – one that Accenture estimates will amount to over $30 trillion by around 2050.
That statistic was on the lips (and minds) of many at last week’s Impact Conference at Sustainatopia, which organizers describe as “one of the largest events in the world for financial, social and environmental sustainability.” (Note: NextBillion Financial Innovation was a media partner at the event.) Many seemed to feel that the arrival of the Millennial Generation will herald a new approach to business, investing and capitalism itself. As the event’s founder, John Rosser, put it in his opening address, “We’re in the midst of the Great Recalibration. We’re dealing with systems, like capitalism and industrialism, that need to be designed differently. We need to align our values with our dollars, and the problem is, the world’s not doing that. But the next generation is totally on fire about social impact – I can’t wait for them to take over, because my generation and those before us haven’t done a good enough job.”
And yet… as an objective observer, it was hard not to notice that there were more gray hairs than hipster beards among the attendees.
Not Enough Impact
A number of the panelists seemed very cognizant of the fact that the “impact” in impact investing is still nowhere near big enough to make a dent in the problems the world is facing. Madeira Global CEO Christina Alfonso put it this way: “The Sochi Olympics cost $50 billion – and that’s as much as all the money that goes into impact investing. So we’re in the early stages.”
Calvert Foundation CEO Jenn Pryce touched upon one of the sector’s most frequently mentioned impediments in her keynote address. Though impact investing has the potential to grow to about $1 trillion by 2020, according to a J.P. Morgan and Rockefeller Foundation report in 2010, she said, “The majority of investors are high net worth individuals, governments, etc. – the regular investor isn’t a big part of this yet. There’s a lot of talk and hype, but the industry is stretching to get to the next level.”
Calvert has developed products, like its Community Investment Notes, that allow retail investors to not only make impact investments, but to focus them on specific regions or themes, like women’s empowerment and microfinance. But many panelists and attendees expressed frustration with the lack of products available to non-accredited (read: non-wealthy) investors. As Helen Rake, president of Synergy Asset Strategies, put it, “The really big market is in retail investors and 401Ks. I realize that the big institutions want to get to the 1 percent, but when you look at how much money is in 401Ks, it’s bigger than everything except the big pension funds. We put too much focus on the large investor – until we get the regular Joe on board, we aren’t going to make a lot of progress.”
But since U.S. securities law places limits on venture capital investments by non-accredited individuals, reaching everyday investors has been a challenge. And though these regulations are intended to reduce the risk for people who may not be able to bounce back easily from a bad investment, Cutting Edge Capital CEO Jenny Kassan summed up many investors’ frustration: “Regular people are allowed to take risks with their own money at casinos, so is it necessary to prohibit them from certain types of investments?”
Even if impact investing were taken up by the masses, some wondered if the dual focus on social good and financial returns might cause tension. Saundra Gibson, director of private banking at Credit Suisse North America, asked a pointed question: “Should impact investments make market returns? People got angry that Accion made a 15 percent return for investors on a microfinance investment. If they wanted to do good, critics said, that money should’ve gone back to those they were helping. But if they’re making a 2 percent return, would the typical investor still want to get into this space?”
Causes for Concern – and Optimism
At the end of the first day, it was hard to avoid the impression that the sector has an acute case of growing pains – along with a fundamental insecurity about when, if ever, its lofty ambitions will be within reach. Conversation at the event circled around how impact investing could go mainstream, tapping the amounts of capital it will need to truly change the world for the better. But when it comes down to pocketbook issues like retirement savings, many panelists and attendees expressed doubt over retail investors’ willingness to accept potentially lower financial returns (and greater risk) in exchange for more social impact.
Yet there was a strong note of hope among the complaints and concern, best articulated by Erika Karp, founder and CEO of Cornerstone Capital, in a spirited panel discussion (see the video below). “If you worry, which I do, the good thing is that we are at a moment in time when the capital market structures are changing. There is a confluence of things going on. There is extraordinary regulatory scrutiny like the world has never known. There is the most massive concentration of economic power in the private sector that anyone has ever seen. You have social media making everything transparent. You have big data allowing us to turn massive amounts of numbers into insight. You have the most massive intergenerational transfer of wealth going to more conscious hands. And all at the same time, you have the asset owners, the asset managers, the investment banks, the consultants, the accountants, the exchanges, the NGOs, the academics – everybody is starting to think about corporate social responsibility and transparency. And on top of that, we are on the cusp of having some standards … for corporate disclosure on environmental, social and governance issues. So all these things are happening now, at this moment in time. And that confluence of events makes me feel a little more optimistic.”