Beyond the Big Players


Impact investing is bigger in scope and yet, more personal than you think.

By:  Nancy Y. Lin, Program Director of Impact Capital

On Jun 1-3, 2015, the Impact Capital team of the Miller Center for Social Entrepreneurship delivered a pilot course, The Essential Impact Investor Practicum, in cooperation with the KL Felicitas Foundation and Planet Ventures. The course was eagerly and diversely attended, with participants including private equity impact investors, high net worth individuals, foundation directors, and mentors of the Global Social Benefit Institute (GSBI®), all looking to learn more about impact investing and its ecosystem.

As the course unfolded from the ‘why’ to the ‘how’ of impact investing, many of the participants, in particular those who are in close touch with social enterprises, were taken by a pleasant surprise: Impact investing is much bigger in scope yet more personal than they had originally thought. Many came to the class looking for ways to better serve the social enterprises. Many walked away with the knowledge that they too can participate in impact investments, regardless of the size of their portfolio.

Early Players Were Big And Mainly Used Direct Private Equity

 PARTICIPANTS OF THE ESSENTIAL IMPACT INVESTOR PRACTICUM The impression that impact investing is mostly about direct private equity investments can be traced to the early history of the field. Since Rockefeller Foundation coined the term impact investing in 2007, early impact investments were mostly in the form of private equity, debt investments, or guarantees (1), and very often involved direct investments in social enterprises.

The early investors were mostly large players – ranging from development finance institutions (DFIs), private foundations (such as Omidyar Network in the U.S.), large-scale financial institutes, and private investment funds (2). At the time J.P. Morgan released its report, Impact Investments, an Emerging Asset Class in November 2010, accredited investors could not easily get into the impact investing space as in-country asset managers were still not readily available or searchable. As one can see, not a lot of opportunity existed then for retail investors.

Impact investing in public securities was also not so prevalent. Prior to 2009, financial analysis had not really taken environmental, social, and governance (ESG) factors into investment decisions. It was at most considered as supplemental data – a check against negative press should a company have, for instance, human-rights violations that could negatively influence its stock price, increase its chance of lawsuits, increase its exposure to higher warranty costs, and perhaps ultimately cause its profits to decline in the long run.

A Sprouting Impact Ecosystem Strengthens Investment Opportunity In Other Asset Class

In early 2011, ImpactBase, a credible, searchable online database of private impact investment funds, began opening to subscribers (3). From a humble beginning of 50 private funds that had created profiles on the platform, ImpactBase now connects 300+ private fund managers with subscribers (3). Accredited investors – and retail investors to the extent that the funds are open to them – can now participate in impact investing through third-party fund managers without having to make direct investments themselves. In a 2015 survey on large impact investors, J.P. Morgan-GIIN reported that fund managers now managed 63% of the respondents’ total asset under management (AUM), up from 34% in 2014. At the same time, DFIs’ share of AUM declined from 42% in 2014 to 18% in 2015. These results correspond with the fact that intermediaries play an increasingly important role in impact investing (4).

Since the launch of ESG terminals by Bloomberg in July 2009, investment banks and research firms such as Goldman Sachs, Deutsche Bank, Merrill Lynch, UBS, and Credit Suisse have begun to incorporate and fully integrate ESG into their fundamental research and analysis (5). Asset managers soon followed and evolved from a mere negative screen of harmful industries and companies (socially responsible investing) to a positive screen of the best triple bottom line players (sustainable investing) (6). For instance, Parnassus Investments has launched mutual funds that avoid environmentally harmful industries, and invested in companies that treat workers well. Calvert Investments offers actively managed strategies in both fixed income and equities that invest in socially and environmentally sustainable businesses (7). As presented in the pilot course, socially responsible investing, due to its negative screen, is not as impactful as sustainable investing, though it is often the starting point. Today, both accredited and retail investors can access US SIF’s online database (8) for a screen on sustainable and socially responsible public equity and debt funds, as well as for a financial directory on the practitioners of sustainable and responsible investments.

The entry of community development financial institutions (CDFIs) into the impact investing space has also made available shorter duration assets such as cash, money market funds, certificate of deposits (CDs), bonds, and notes. Rather than parking cash at a traditional bank, one can now consider investing in a CD issued by, for example, Self Help Federal Credit Union to provide banking to undeserved and low-income families. National Community Investment Fund (NCIF) (9) is a great resource to find mission-oriented CDFIs in the US. Social banks such as RSF Social Finance and the Triodos Bank in the Netherlands also provide cash and fixed income products in impact investments.

The Movement Of The 100% IMPACT Network (10): Not An Asset Class But A Strategy Across All Asset Class

Because of these burgeoning developments, the concept of total portfolio activation (11) is no longer a dream. Pioneered by Tides and Trillium Asset Management, total portfolio activation suggests that every investing dollar can create environmental or social impact, good or bad. Today, positive impact opportunity can be pursued across every asset class in a mission-driven investor’s portfolio.

The pilot course attendees benefitted from the story of one guest speaker, an executive director of a family foundation, who shared her journey in becoming a 100% impact investor – that is, pursuing an impact strategy across all of her foundation’s asset classes. Her pioneering story was inspirational and speaks to the transformative aggregate potential as other family offices join in and commit 100% of their foundational wealth to investing for social and environmental impact!

Questions, Doubts, And Challenges In The Field

Is there a financial trade-off to investing in impact?

However, questions remain in the impact investing field, and throughout the three-day course participants continuously engaged in lively discourse about whether or not impact investments can in fact generate competitive financial returns vis-à-vis the appropriate benchmarks in each asset category. Consider the following definition of impact investing from the Global Impact Investing Network (GIIN):

Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances (12).

At this, some participants raised the question: If an impact investment is able to generate market rate of return, why is it still considered an impact investment?

One may recall the related term, venture philanthropy  – coined by John D. Rockefeller III in the 1960s and which became popular in the 1990s (13). It is true that private equity or venture capital investing in emerging economies – as impact deals often are located – may not generate financial returns that are often commensurate with an investor’s additional risk-taking. As the term also implies, the philanthropists are probably more concerned about achieving social impacts first than they are about financial returns.

Consider also a donor-advised fund (DAF), which is a tax-preferred philanthropic vehicle administered by a public charity. Organizations and individuals may establish a DAF through, for instance, ImpactAssets (14) with an initial tax-deductible contribution. Donors may direct their contribution to impact investments and grant opportunities that satisfy their philanthropic goals. Why then, do impact investors talk about achieving reasonable or competitive financial returns?

In the pilot course, participants were asked to consider the “trade-off” question: Is there a financial trade-off to achieve higher social and environmental impact? Conversely, is there a social or environmental cost associated with achieving more financial return? One participant – a private equity impact investor – said he has seen impact investments that generate competitive returns and also sub-par returns. He sees truths in both sides of the argument.

Introducing The Impact Investing Spectrum: Know One’s Investment Risk & Return Appetite

Rather than focusing on the “trade-off” debate, the course encouraged attendees to consider the asset class, industry, time and place of the investments being made within the concept of a spectrum of investments in varying degree of impact, as shown here by Sonen Capital’s chart (15):

Investors who care about generating high impact and less about financial returns may engage in impact first investing opportunities. In fact, many direct investments in seed-stage companies as undertaken by foundations are in this category.

Similarly, depending on one’s return expectation and requirement, one may select opportunities in the sustainable or thematic categories. For instance, an investor seeking impact investments in public mutual funds, especially in the domestic US market, is more likely to find financial returns that may be competitive, even outperform, the benchmarks. In fact, a Harvard study contends that sustainable and socially responsible businesses are likely to achieve better profits in the long-run (16). An investor seeking private investment funds, such as debts or structured notes funds with innovative financial instruments such as demand dividend (17) in an emerging market, has the potential to find opportunities that may outperform a comparable, non-impact investment in the emerging market (18).

Must There Be A Change In Asset Allocation Strategy To Engage In Impact Investments?

Another challenge that the participants raised is the ability to engage 100% of their assets in impact. Also, must there be a change in asset allocation strategy to engage in impact investments? Ultra wealthy investors who possess the financial strength, resources, and connection to apply impact investing across all of their wealth, might, in some cases, shift their asset allocation strategy to achieve more impact (KL Felicitas Foundation, for instance, had to invest less in hedge and alternative strategies, because of a lack of impact opportunities.) A professional who is saving towards his or her 401(k) retirement, or cares about aggressive financial return, on the other hand, may not be interested in changing his or her asset allocation policy or undertaking impact first investments.

Investors Should Choose Impact Strategies That Are Commensurate With Their Time Engagement

As with traditional investing, impact investors should choose impact strategies that are commensurate with their time engagement. Light touch investment – investing with cash and equivalents and public equities and debts – is a great way for investors to begin participating, and involving an impact-savvy financial advisor may be all that it takes to get started. Medium touch investment – investing via third party private funds, may be the next level up for investors who would like to have more control in directing their resources towards a particular theme or mission. High touch investment – investing directly via private equity, debt, or hybrid structure, may be suitable for “Do-It-Yourself” investors who would like to achieve the highest impact with their investing dollar. For high-touch impact investments, the need to screen deals and conduct due diligence may necessitate co-investing with other partners. Networks such as Toniic and Gust (19) are great places for deal sourcing.

Taking Action:  What Type Of Investor Are You? 

Participants in the course, and readers of this article, are encouraged to consider these five essential questions that an investor might find helpful before beginning to invest for impact:

1.     What are your missions and values? Why do you want to engage in impact investing?

2.     Referring to the spectrum of impact investors, what type of investor are you?

3.     How important is financial return to you? How much assets can you allocate to investing for impact?

4.     How personally engaged do you plan to be with your impact investments?

5.     Which resources or parties will you engage to help you implement your impact investing strategy?

Impact investing is increasingly expansive. Investors can now choose among a spectrum of impact opportunities across asset class to match their risk-return profile. It is also personal, and investors’ values and missions will drive and determine investment themes. Though the field is still taking shape, one thing is for sure: The binary system – the belief that for-profit investment could only maximize financial return while social purpose could only be pursued through charity – is fading (20).


(1), (2), (13), (18) J.P. Morgan-Rockefeller Foundation, 2010:  Impact Investments An Emerging Asset Class.

(3) ImpactBase, 2015:  ImpactBase Snapshot An Analysis of 300+ Impact Investing Funds.

(4) J.P. Morgan-GIIN, 2014:  Spotlight on the Market.

J.P. Morgan-GIIN, 2015:  Eyes on the Horizon: The Impact Investor Survey.

(5) Fast Company magazine, 2011:  Bloomberg’s Push for Corporate Sustainability.

(6) Harvard Business Review, 2009:  See Is ESG Data Going Mainstream?

(7) Morningstar, 2015: Find the Right Socially Responsible Fund.,;frmtId=12,%20brf295

(8) US SIF’s web site:

(9) NCIF’s web site:

(10) Toniic-100% IMPACT network’s web site:

(11) Tides-Trillium, 2012:  Total Portfolio Activation

(12) GIIN’s web site:

(14) ImpactAssets’ web site:

(15) Sonen Capital’s web site:

(16) Harvard Business Review, 2009:

(17) Demand dividend is a debt vehicle designed to improve the repayment cycle for impact investors and ease capital access for social enterprises. Its main features include payments that are tied to cash flow, variable loan tenure, and a fixed payoff amount as a multiple of initial investment. See the Miller Center for Social Entrepreneurship website for more details:

(19) Toniic’s web site:

Gust’s web site:

(20) Parthenon Group-Bridges Ventures, 2010:  Investing for Impact Case Studies Across Asset Classes