Impact Investing is a cool topic at the moment, but one that’s been widely misunderstood. Most people haven’t heard of it, and those who have are split between philosophically opposing it, pretending to do it, and a rare few who have actually done something.
This is frustrating, but we can get through it. The best way to fix the situation is to get everyone on the same page, then share good examples of what a successful Impact Investment looks like in the real world.
Impact Investing is the idea that you can make money and solve social problems at the same time.
This is the opposite of what has traditionally happened, where people get wealthy by any means possible, then once they are financially set up, they turn to philanthropy to “Give Back”.
A good example of this approach was John D Rockefeller Snr, who founded Standard Oil and used his monopoly to become the world’s richest man. Anyone who’s read about Rockefeller knows that he was an unethical and calculating scumbag; we now have laws in place specifically to stop people doing what he did because of how bad it was for society.
You may also know that Rockefeller then turned around to become an incredible philanthropist, funding a remarkable number of good causes that addressed vital issues.
Impact Investing is the polar opposite. The concept is that we can solve problems through running a business, not just with the profits we make when we sell the business.
Are you an investor?
You probably are.
Do you have superannuation?
Then you’re an investor.
You probably have a small yet respectable amount in there, each year earning more and more dividends from the businesses you’ve invested in.
What do those businesses do? Do you believe in how they operate? Are they perpetuating problems that you’re personally trying to solve?
That’s why this is so relevant for Millenials. The whole point of superannuation is that together we can all make money that will support us in the future, so why not use that huge pool of investments (in the trillions) to do something good for the world?
So what does an Impact Investment look like?
It might be in renewable energy, or environmentally friendly property. It might be in businesses that give jobs to asylum seekers or people with disabilities. It might be used to help a socially driven organisation scale up 10x, allowing for more social impact and generating a good financial return.
An example of this last one is STREAT, the Melbourne-based social enterprise. STREAT run a series of cafes, a catering company and a coffee roaster. They give hospitality training to homeless teenagers, giving them a skillset, a job and some stability in their lives. They also make great coffee, which is what has helped fuel their success. In 2012 they took on investment, which you can read about here.
STREAT are thriving, and want to expand. As such, they’re taking on Impact Investment to build a huge facility that will revolutionize their business. They will make more money, become more efficient, serve more customers, tell more stories, employ and train more young people. If an investor is willing to take on risk, and STREAT are successful, everyone wins. The investor gets a good financial return and has contributed in a positive social way, and STREAT get closer to fulfilling their aim of working with 1,065 kids per annum (one for each meal of the year).
One good description I’ve heard is that Impact Investing is a lens, not an asset class.
That is, you don’t choose between bonds, shares, property or impact; the idea is that you look for properties with positive impact, shares that make a contribution to society, or bonds that fuel important projects.
Annoyingly, there aren’t many of these deals going around, especially not in Australia. Therefore, my advice is to simply start thinking about where you keep your money. What are you funding, even unintentionally?
Soon there will be choices, a whole range of options that suit different types of investor. Get yourself ready; know what you need from an investment (how much risk you can handle, how long you’ll hold on to it etc.). That way, when the opportunity arises, you’ll be all set to jump onboard.
I’d suggest reading the intro guide written by Case Foundation, which you can find here.
You can also see TDi’s video series with co-founders Bessi Graham and Paul Steele, such as this one here.