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The Future of Impact Investing.

We asked 10 social finance leaders to predict what is coming up in the world of impact investing, how we can prepare for it and what the opportunities are. Themes include mainstreaming, prioritizing outcomes over outputs and the rise of the Millennial investor. All these thought leaders are speaking at the Social Finance Forum in November. 

Impact investing is evolving. It’s a relatively new field that is growing in interest from Millennials and B-Schoolers to old and new school investors. With pressing social and environmental problems, shifts in the global economy and the rise of new technologies, the landscape for investors and people interested in solving these problems is unlike any time before.

The largest generational wealth transfer is in progress – $30 Trillion over the next three decades. Combined with Millennials’ desire for meaningful work and a more equitable world, impact investing is a field that is growing. The total global impact investment assets under management reached $114 billion USD in 2016.

Old school philanthropy is dying. While the principles and ethos behind it are not, the traditional way of doing things are. The exciting part is, there’s more opportunities for young and old to create a career in this new paradigm. It’s an uncertain world, but with uncertainty brings opportunity. Those with the skills, knowledge and the passion will help create the future we want to see.

Technology and events are changing faster than we can wrap our heads around. It’s quite possible that the innovations and situations that will shape our future have not happened yet. Although we can’t foresee everything the future has in store, we can speak to those working on the cutting edge and thinking about these issues every day. We asked each participant “what do you think the future of impact investing looks like: how can we prepare for it and what are the opportunities?”

Social impact will be mainstreamed and prioritized in both government and private sector. 

The future is bright! I reflect back on when we started this forum 10 years ago and we’ve come a long way. The level awareness and supporting ecosystem for impact investing has grown considerably in Canada and globally. I’m specifically acknowledging the demand-side individuals within government and private sector who are pushing the dialogue around social impact internally, dutifully thinking through innovative new financial models to bring this impact to life. As more and more people take up this pursuit, what seemed like a radical idea has become the norm. Now Bankers and Brokers aren’t considered soft because they are thinking about impact, they are considered smart. And that’s where this needs to go if we are truly going to challenge social problems – mainstream and normal.”

– Adam Jagelewski, Director, MaRS Centre for Impact Investing

Impact investing will become more accessible and the need for it will become more apparent. 

The future of impact investing will be about democratization. Already we are seeing the accelerating pace of innovation and product design is lowering the barriers to entry. Incumbent financial firms and pure-play wealth advisors and asset managers are racing to meet rising demand for impact investments fuelled in no small part by the unprecedented transfer of wealth to women and millennials. DAFs, DC Pensions and ultimately the retail market will increasingly  gain access to deep impact products. And at the same time, the imperative to account for a changing world – disrupted by climate, technology, migration and more – will come into sharper and sharper focus for institutional and individual investors alike. We prepare for this shift by acknowledging now the role of impact as a driver of long-term value creation and by embedding social and environment impact in our investment decisions.”

– Fran Seegull, Executive Director, US Impact Investing Alliance

Transformational progress will occur when we recognize the importance of outcomes not just outputs in identifying high potential investments.  

Impact investing is about outcomes—for underserved people, impoverished places and even the planet itself. Despite the exciting and hopeful expansion of the impact market, it remains concentrated in commercially oriented investments. This growth makes it easy to overlook the important fact that some of the most compelling opportunities for progress are also the most difficult to finance. They are not commercial. They are not off-the-shelf. They are complicated, pioneering, and focused on deep and sometimes systemic challenges. Philanthropic investments can help bridge these gaps. But the market, more broadly, needs to recognize that maximum profit and maximum impact are not always aligned perfectly. Real growth should accelerate the flow of catalytic capital to this essential subset of high-impact organizations, even as it drives new investors toward valuable commercial opportunities. Both are essential to the future of impact investing.”

– John Balbach, Associate Director, Impact Investments, MacArthur Foundation

Innovation and leadership will come from those who are actively learning by doing. 

“In a word, the future looks promising. There is significant potential for increasing social financing activities through products like microfinance and community bonds, the pricing of externalities (like carbon) and new technologies such as blockchain. Savvy financial institutions and investors have an opportunity to get ahead of the changes driven by younger generations by learning through experience and establishing themselves as leaders in this rapidly evolving landscape.”

– Chris Caners, General Manger, SolarShare

Growth of the Millennial investor and activist will be accelerated with a greater focus on impact measurement and quantifiable proof. 

The next generation is the beating heart of the social and environmental impact investing movement. Their charitable giving goes beyond just signing a cheque – they are volunteering and advocating for the causes they care about. They are also investing their money into companies and funds with clear social and environmental goals. In fact, a recent Morgan Stanley report found that Millennials are twice as likely as the overall investor pool to make impact investments.

We can keep up with the growing impact investing market by following the younger generation’s lead, rolling up our sleeves, and getting involved directly with social and environmental issues. Our challenge, and opportunity, is to learn how we can measure the social value of these investments. For example, this year Toronto Foundation invested $1.5M in a secured loan with Habitat for Humanity GTA’s Pinery Trail project. Over the next four years, Habitat for Humanity GTA will measure the impact of home ownership on 15 families by tracking key outcomes like financial well-being, educational attainment and physical and mental health. By quantifying social return on investment, we can better understand the impact of our dollars and build a more equitable economy where we can all prosper.”

– Sharon Avery, CEO, Toronto Foundation

The most successful companies will be customer centric and data driven. 

The future of impact investing will be about customer data. We have built a sector whose primary purpose is to materially improve the lives of the customers we serve. Without getting data directly from those customers – whether people or planet – we will never know if we are succeeding.

The good news is that the cost of collecting data has dropped significantly, and that opening a channel of communication to end customers is the best way to build a successful business that meets their needs. Our opportunity is to recognize that hearing from our customers, responding to their needs, and understanding social impact can all be accomplished together.

We’ve seen this with Acumen’s Lean DataTM work that allows us to hear the voice of customers at scale. In 2017 alone, we have conducted 87 Lean Data projects for Acumen’s portfolio companies and for companies in the portfolios of Omidyar, Injaro, CDC Impact Programme, the Gates Foundation and others. In the process, we’ve heard from more than 19,000 customers, allowing us to glean insights on everything from the poverty profile of end customers, customer satisfaction and Net Promoter scores, changes to spending due to energy access, and much much more. We see this as a competitive advantage for our companies and a bright light for the future of the impact investing sector.”

– Sasha Dichter, Chief Innovation Officer, Acumen

Citizens and consumers will drive the change to a society where business is a force for good and impact investing is commonplace.

“Over the next generation, you will be able to invest and manage your investments online, with regular updates on the total performance of your portfolio, including its return alongside its social, environmental and economic impact. Leading investment firms and stock exchanges will incorporate climate risk, a gender lens, and total impact performance into their decision-making processes. From start-ups to the world’s biggest and fastest growing companies, businesses will be expected to do good and make money at the same time. Citizens, customers, investors, and the planet will all demand it.

We cannot prepare for this future. We cannot wait for it.  We need to work for it.  This provides an opportunity for current and future leaders in financial institutions, foundations, and governments, as well as crazy entrepreneurs from recent graduates to recently retired Canadians.  Collectively, we can create good public policy, create and change institutions, experiment with new products and strategies, and lay the groundwork for a resilient, impact economy.

And in a generation, all investing will be impact investing.”

Adam Spence, Director, SVX

The investing ecosystem will be more robust and complex, requiring greater vision, leadership, commitment and collaboration.

We see the opportunities of the future revolving around (i) a broader portfolio of innovative investment vehicles for a more diverse and active set of investors, (ii) increased collaboration between public and private markets regarding how to design, measure, and achieve impact outcomes (versus outputs), and (iii) more socially-minded leaders and entrepreneurs who are committed to scale social impact within their organizations and throughout their geographic footprint.

Capturing the value of these opportunities requires more resources than any single entity can provide. Entrepreneurs and executives need to be intentional about and committed to improving outcomes, regardless of how small or large their organizations are. Gatekeepers of private and public capital need to demand accountability so that funding is allocated to solutions that yield the intended results. Wealth advisors need to expand their knowledge of social capital — methods of deployment, expected returns, impact measurement, etc. — to increase the availability of mission-driven funds. And lastly, intermediaries need to allow market demands to guide product/service development in order to create an efficient social impact marketplace.”

Jeremy Keele, President and CEO, Sorenson Impact Centre, University of Utah’s David Eccles School of Business

The future of investing is impact investing, bringing with it the opportunity for a new economic paradigm.

The future of impact investing will lead to modest tweaks around the edges of our economic system or, if we choose to be ambitious, it could jumpstart transformational change by financing for-purpose businesses that are committed to re-shaping the economy for the 1% into a fair and equitable human economy. With 9 out of 10 of the largest US asset managers now active in impact investing, we need to choose how the future of the field will look now. In light of this trend toward the mainstream, it is possible that financial advisories will route clients to the lowest-hanging fruit – towards investments in sectors that are broadly positive for society, such as healthcare, education, and infrastructure in developing countries, but that are executed with no regard for social inclusion or social justice. However, if clients push for more transformative solutions, and accept financing terms that are fit for purpose, impact investing could help to design a new economic paradigm.”

– Mara Bolis, Senior Advisor, Market Systems, Oxfam America

Opportunities emerge when designing for human challenges. By answering “how” we can plan backwards. 

Success in impact investing requires us to reach beyond the social impact we wish to make, and ask ourselves, how do we do it?  How do we align people’s full resources – their voices, votes, donations, and investments – with their values and the social and environmental good they seek to bring into the world? How do we invest in individuals, businesses, and natural resources in financially sustainable ways that help people and nature thrive?  How do we build and use financial knowledge alongside policy to deliver social and environmental benefits across the globe? By considering these questions, we can uncover new opportunities for the impact investing market and for our own careers. We can protect and transform our world and build a life and approach to work that will nourish us and inspire others to confront the challenges of scarcity, need, and renewal.”

Marc Diaz, Managing Director, NatureVest, The Nature Conservancy

Intersted to know more? Hear these thought leaders at the Social Finance Forum in November.

 

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