Four Ways to Be a Better Impact Investor

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Four Ways to be a Better Impact Investor Giving Compass

Giving Compass’ Take:

•  Jenna Liang, writing for avpn, discusses four ways to be better impact investor by using a collective impact framework and applying critical systems change thinking toward investments. 

• Why is it important for investors to understand environmental and social returns through a systems change lens? 

• Read the Impact Investing Giving Compass Magazine.

An increasing number of philanthropists and socially-minded investors around the world are making investments in order to generate financial returns in conjunction with social and environmental returns.

Unfortunately, many investors fail to fully address the negative effects to the environment or society we might create.

In response to criticisms and in an effort to do better, foundations have evolved and introduced new rigor to their work. This includes using a collective impact framework, increasing transparency and trust between donors and grantees, introducing monitoring and evaluation for feedback and applying systems thinking.

Four Ways to be a Better Impact Investor

  • Be open to understanding the system and your role in it- Traditionally, impact investment has focused on a small number of indicators which translate into or link to financial return.
  • Design for impact and the unexpected- Mapping out the system shows all the effects of an investment.  Intervene preemptively to avoid unintended negative consequences or monitor a sensitive situation.
  • Identify leverage points and lean into the challenge of change- Using systems thinking helps us on where to intervene most effectively for better performance by spotting bottlenecks, potential problems and opportunities.
  • Listen- In philanthropy we speak often of the power imbalance between a funder and charity. A similar dynamic can exist in impact investing. It is thus vital to solicit feedback from those whose lives you are changing.

If time or cultural differences are factors, consider working with on-the-ground investment teams instead of making international ‘airplane investments’, or collaborate and co-invest with other social investors.

Read the full article about impact investing by Jenna Liang at avpn.

Interested in learning more about Impact Investing? Other readers at Giving Compass found the following articles helpful for impact giving related to Impact Investing.

  • This article is deemed a must-read by one or more of our expert collaborators.
    Click here for more.
    The Role of Family Offices in Building the Impact Investing Ecosystem

    Giving Compass' Take: • Liesel Pritzker Simmons shares how family offices can take advantage of their flexibility to deploy different types of capital to build the impact investing ecosystem through support and experimentation.  • Is your family office in a position to begin impact investing ecosystem building? What initial research do you need to conduct before you dive in? • Learn how to build an impact investing team.  Back in 2012 my husband, Ian Simmons, and I created Blue Haven Initiative (BHI) as a single-family office with market-rate impact investing as its focus. We set out to build a portfolio that incorporated social and environmental factors into every investment decision we made. We wanted to do this not just because we thought it was the right thing to do, but also because we thought it was the smart thing to do. To us, impact investing is more informed investing. This meant acknowledging a simple, but powerful axiom: All investments have an impact—social, environmental and financial. Using this as a guiding principle, we systematically rebuilt our investment portfolio to try to maximize our positive impact across all asset classes. Although the vast majority of our investments did seek and are seeking market-rate financial returns, we quickly realized that how we used our philanthropic assets (both grants and concessionary investments) would be crucial to our overall impact. Over the past several years, we have experimented with and refined our rationale for when it makes sense to deploy what type of capital. While still a work in progress, we believe that playing across the returns continuum expands our opportunities to have scalable impact. Family offices like ours have a unique role to play in building the impact investing ecosystem. With an estimated $1.7 trillion of assets under management in the U.S. alone1, family offices are well positioned to help scale the impact sector and promote a sense of accountability across generations. Mobilizing that additional investment capital into impact investing is an exciting prospect, but family offices can also bring an even more important dimension to the table: flexibility. Read the full article about building the impact investing ecosystem by Liesel Pritzker Simmons at The Economist.

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