Foundation staff and trustees across the country are discussing whether or not to integrate an impact investing strategy into their investment portfolio. In our experience, the hesitance many stakeholders feel in incorporating impact investing into their investment or giving practices can arise from a basic misconception: that impact investing is a recent strategy that doesn’t have a track record or buy-in from established players in philanthropy. In fact, though “impact investing” has only recently become the established term to define the practice of making return-seeking investments to accomplish social and environmental goals, major players have been making such investments for decades. As foundations make their investment decisions, we encourage them to keep the following in mind.
The practice is not new
While the concept of impact investing is new to many foundation staff and board, in practice it has been around for almost half a century. Benjamin Franklin is often cited as the godfather of impact investing: he bequeathed 2,000 in sterling to be designated as a revolving loan fund for young married tradesmen to start their own businesses. This fund was active for almost 100 years until it was converted (as stipulated in his will) to the Benjamin Franklin Institute for Technology in Boston.
Over the years investors and philanthropist have practiced various forms of impact investing, and in 1968 a law passed that allowed private foundations to legally invest their endowments in social causes. Since then, foundations like Ford, MacArthur, Rockefeller, and others have been making investments across a spectrum of issues and asset classes, and have developed robust impact investing portfolios that have invested hundreds of millions of dollars in housing, healthcare, education, international development, and more.
Mainstream investors are getting on board
Big financial players like Morgan Stanley, UBS, JP Morgan, and others have joined the movement. As consumer appetite for making sure that investment decisions align with personal values has grown, these institutions and others are taking note and developing platforms, partnering on major initiatives, and actively contributing to the growing ecosystem.
Even major universities are taking note
Major university business schools are beginning to develop programs that explore, promote, and support impact investing practices. The University of Utah recently launched an impact investing center to advance investment to organizations that demonstrate a benefit to society. Oxford University, in partnership with the W.K. Kellogg Foundation, has established a program that will help participants refine their impact investing strategy and equip them with the practical skills to design innovative transactions to maximize social change. Additionally, universities such as Michigan, Duke, and New York University, among others, have centers that focus on social entrepreneurship.
Foundations of all stripes are taking the next steps to integrate impact investing into their activities. (See our recent blog post, “4 Ways to Position Your Foundation for an Impact Investing Strategy,” for some tips on how to get started.) Learning about the many opportunities that exist in a range of geographies and issue areas, and thinking through how they align with your capacity and goals, will help you develop an impact investing strategy that can broaden your portfolio and deepen your impact on the issues you care about.
Cynthia Muller leads the firm’s impact investing practice. She helps individual and institutional clients understand the field of impact investing, develop strategies, and structure investments to accomplish their social and environmental goals. She tweets from @cynmull.