Impact Investing is a Win-Win
As broadcasted by an earnest feature in the New York Times and a spate of headlines across the worlds of business and philanthropy, impact investing has officially arrived. In early April, the Ford Foundation announced a commitment to the tune of $1 billion (a twelfth of the foundation’s endowment) to mission-driven, socially responsible investments over the next ten years. For longtime watchers, this marks a key moment in the gradual movement of impact investing into the mainstream.
In many ways, the choice is a no-brainer for the foundation. The reasons why underscore how, for philanthropic organizations or investment firms of any size, choosing impact investing is the right move.
“If philanthropy’s past half century was about optimizing the five percent, its next half century will be about beginning to harness the 95 percent as well, carefully and creatively.”
Like all foundations and charitable organizations, the Ford Foundation is legally bound to use five percent of its endowment for giving, freeing it up to use the other 95 percent for ventures meant to yield profits for the foundation. This ratio of social good to profit-seeking is common among foundations of its kind. As it is worded in the Times article, many foundations see keeping returns up as “a sacred duty.” It also creates a kind of delineation between the two realms, stifling potential in both. Impact investing stands to blow that border wide open.
It’s as Darren Walker himself — the President of the Ford Foundation — explains: “If philanthropy’s past half century was about optimizing the five percent,” Walker writes, “its next half century will be about beginning to harness the 95 percent as well, carefully and creatively.” All signals point to the practice being not only liberating for philanthropic groups but lucrative, if not imperative, in the coming business landscape.
Turning socially responsible endeavors into ones that also yield returns opens that 95 percent of profit-motivated philanthropic money up to the mission-alignment of the other 5 percent. Impact investing, down to its DNA, is a win-win.
As Ben Paynter reports, “so far, everyone seems happy with the returns” on impact investment. Paynter points to a report by the Global Impact Investing Network (GIIN) on the state of impact investments worldwide. Therein, 98 percent of impact investors surveyed responded that their returns had met or exceeded their expectations for social impact. Further, and very crucially, a similar amount at 91 percent responded that the financial performance of their impact investments also met or exceeded expectations.
It could be for the demonstrable returns, or for the appeal those returns carry when paired with positive missions. Whichever it is, what’s notable is that more and more resource holders are becoming attracted to the practice of impact investing, and the trend has implications for the future of business and philanthropy alike. If the numbers are any indication, the future of investing promises exciting new frontiers for socially responsible and mission driven business.
At Wharton, faculty have observed what they term the “mainstreaming” of impact investing. Roughly 85 percent of millennials have at least expressed interest in socially responsible investing, and students are swelling the ranks of Wharton’s impact investing classes, telegraphing a generational commitment to the practice in future business leaders. At the top of the year, we attended a discussion hosted by Nonprofit Finance Fund where their CEO Antony Bugg-Levine shared words of advice for young professionals either considering or already working in the field of mission and impact investing. A majority of those in attendance were students or alumni from NYU and Columbia University.
Beyond rising enthusiasm in business schools, a report by the World Economic Forum on the mainstreaming of impact investing details just how popular the practice is becoming. As a case study, it offers BSW Wealth Partners, an independent wealth advisor. BSW grew its assets under management by $511 million over ten years (a nearly than three-fold increase) after offering an impact investment alternative in all asset classes. Simply put, impact investing is in vogue.
It is into this context that the Ford Foundation, by any stretch a titan in the philanthropy world, has stepped and made a landmark decision. It should be clear from the Ford’s use of their endowment what strong enthusiasm for impact investing the foundation has. This may very well represent a watershed moment for the field, marked by both its ambition and its practicality.
