What to Read This Week: Insights From- and Advice To- Impact Investing Advisors
This week we dive into the latest insights from impact investing intermediaries in Toniic’s T100 Project, and the ‘Road Map’ for further growth.
As the interest in impact investing expands, so too does the market of “intermediaries” (consultants, advisors, broker-dealers, etc.) who seek to meet the needs of institutional and individual investors wanting financial and social or environmental returns.
This growing impact intermediary market is likewise accelerating the growth of impact investing. Toniic’s T100 Launch Report — Insights from the Frontier of Impact Investing found that investors who work with advisors or consultants move faster into impact than investors without advisors.
Given their importance to the impact investment ecosystem, Toniic focused its second T100 Project report on intermediaries. The T100: Insights from Impact Advisors & Consultants 2017, released this week, includes insights from 37 impact intermediaries who are currently helping investors move towards achieving 100% impact in their portfolios.
Interview participants are a who’s-who of impact investing and include Jed Emerson of Blended Value Group, Jessica Matthews of Cambridge Associates, R. Paul Herman or HIP (Human Impact + Profit) Investor Inc, and Raúl Pomares of Sonen Capital — to name a few. Toniic also gleaned insights from traditional financial institutions with impact investing arms, such as Merrill Lynch, Morgan Stanley and UBS.
Clients of most of the respondents are individuals, foundations and family offices. Retail clients, institutional clients, multinational corporations, 401K providers, pension funds, and government were less represented.
Key Findings from the report
1. There has been a significant increase in the depth and diversity of impact intermediary offerings
With new entrants to the marketplace comes products and services that suit a wider variety of impact investors’ needs — irrespective of their geographic location, portfolio size, asset class or impact focus.
“Talking with a family office about their impact strategy is very different than talking with senior people at DFID (UK Department for International Development). What is interesting is that in the end you get to the same place: organizational values and priorities.”
Clara Barby, Bridges Fund Management
2. Sector growth is led by client demand
100% of respondents expect to see their business grow because clients — especially 2nd generations, millennials, and women — are demanding more impact investing options.
“I have had over time a couple of clients that are ‘all in’ and that pushed me, in a positive way. I think it influenced my work to see what others are doing and being inspired to not sit back.”
Kathy Leonard, UBS Financial Services
3. There are challenges to overcome, but none are deemed insurmountable
Impact measurement, trust building and access to appropriate investment opportunities could hinder impact investing growth if not addressed appropriately.
“It is ‘easier’ to identify fossil-fuel neutral, but as clients become hyper-aware to the full spectrum of on-goings in the world — water, food, and energy to name a quick few — they all mix together as issues that impact how we invest diligently.”
Laura Isanuk, First Affirmative Financial Network
4. Intermediaries shared accomplishments and optimism gained as milestones are achieved
All survey respondents shared one or more success stories.
“We created the first impact investing benchmarks to analyze the performance of private equity, venture capital, and real assets investment funds pursuing social and/or environmental impact.”
Jessica Matthews, Cambridge Associates
5. Financial returns are on target, while impact measurement remains a work in progress
Intermediaries target mostly market rate returns — 83% of survey respondents expect market-rate returns on their investments. But intermediaries also provide services for capital preservation and sub-market returns. Clients expect their impact to be managed, measured and reported, and the sector is striving to achieve a robust methodology for doing so within the next three years.
“Recently we were comparing two managers. One had top quality impact metrics. The other had just as good a product, but had not yet formalized its impact management process. So, we got permission from the one fund manager to share its process with the other.”
Raúl Pomares, Sonen Capital.
6. Outlook = Growth
Growth is seen as the trend for the next five years with:
- More participants — rising interest from younger generations and women
- More products and services
- Increased capacity in the impact ecosystem
HIP Investor will “continue to focus on pioneering 1st-of-its-kind initiatives so others can join in, with the need to partner with large fund managers to commercialize our separately managed accounts to more investors/audiences.”
Paul Herman, HIP Investor
Interesting in learning how to choose the intermediary that’s right for you? Check out the Appendix of the report (p. 43) for a checklist of questions to ask before hiring an Impact Advisor from Amit Bouri, CEO of the Global Impact Investing Network (GIIN).
Road Map for Intermediaries moving forward
Fran Seegull writes about the findings and potential solutions explored during this candid discussion in ImpactAlpha’s June 1st Medium post. In it, she and co-author Christina Leijonhufvud of Tideline compare the impact intermediary landscape to a “Highway” in danger of getting jammed.
Intermediaries are vehicles for hire that carry passengers — the asset owners — along some part of their journey to deploy capital to impact investment opportunities that fit their values and preferences.
In an ideal world, each lane on the highway would be clearly marked for use by a particular vehicle type. Explicit rules of the road would make it safe to switch lanes and overtake other vehicles, for example. Certain vehicle types might only transport passengers for a certain leg of their trip, with passengers transferring to another vehicle for the next leg.
The article highlights the following “Road Hazards” or key challenges and risks that impact intermediaries face:
- Intermediaries are not always playing to their core strengths as they compete to acquire clients — often resulting in the duplication of functions, market confusion, and substandard services for asset owners.
- When asset owners are not clear about their objectives and requirements at the outset of an impact investment journey, intermediary “drivers” can receive inconsistent directions resulting in frequent and unexpected investment changes.
- Intermediaries find it difficult to price their services to match the resources required to fulfill them.
Round-table participants called for greater transparency, clearer segmentation and coordination, and increased collaboration among a diverse group of intermediaries. They recommended a regular forum for sharing insights and testing new ideas and a more unified language and taxonomy for articulating asset owner preferences and requirements. They also urged intermediaries not to provide services outside their core strengths to help clients better understand and navigate this often confusing, crowded, uncoordinated, formative and developing intermediary landscape.
Find the link below to read the article in its entirety. We are encouraged that Fran Seegull and The U.S. Impact Investing Alliance are committed to supporting all impact investing players in developing the necessary “Rules of the Road” to help the ecosystem grow.