Evolving Impact Investment:
The Current Negatives and Important Future of Investing in the World We Live in
By Bobby Keough
June 12, 2018
Why does it seem that in life the choices we seem to be left with are make a profit or help the world; why can’t these concepts co-exist? It seems nearly impossible to align one’s investing philosophies with one’s personal values. Typically, being socially responsible and making a profit simply don’t go hand in hand. If government and philanthropy aren’t enough, how can we use capitalism as a force for social change?
The future lies in Impact Investing, a space that is rapidly growing and changing as the world around it is becoming more and more socially minded by the day. Recently at a Family Office Association event, Trevor Neilson, CEO of i(X) Investments recapped and reflected on his time in impact investing, and in doing so he noted a few things in the realm of impact investing we must overcome to help evolve it into the new era.
The first problem he noted was a startling lack of talent. The best investors in the industry aren’t focused on impact investing, which makes sense as in the past it was difficult to make a profit. More talented investors have engulfed themselves in other, more conventional spaces that are safe and simple. In today’s ever evolving landscape however, this is about to shift. As more and more focus is placed on being globally conscious, more and more firms are desperate for those skilled in impact investing.
The second problem is that most of the products in the industry have zero scalability. Being these products are made to help solve a problem, the person who created it is typically a do gooder type, meaning from the start they aren’t focused on building a product that can be sold in a way that can maximize profit. Their goal is to solve their problem in the most efficient way, which means their solution usually is a one and done type of product. We see a shift here as well however, as global and social problems become larger and larger, so do their solutions. Never before have there been more companies attempting to do good, meaning there is finally a lot more opportunity to invest in something beneficial to society that will also provide a return on investment.
The last problem, which in turn may be a large cause of the first two, is an over-all brand problem. Impact investing has a bad image, it’s treated almost as a joke in the investment industry due to it not being a quick and easy way to make lots of money. As most investor types goal is money, not some larger altruistic mission to save the world, it isn’t surprising that Impact Investing is looked down upon. Luckily this too is changing with the times. With each passing day, it is becoming more and more “hip” to be part of the solution. With an up rise in social media and connectivity, the climate of our society’s focus is quickly shifting away from glitz and glamor and getting down to the nitty gritty of what one’s values are. Celebrities and companies focused around social issues are flourishing more than before, redefining what is considered “cool” to the average person.
While this is the current state of impact investment, it doesn’t have to be this way. At the same Family Office Association event, Chris Knapp, CEO of Collaboration Capital, spoke on the concept of environmental, social and governance (ESG), the three central factors in measuring the sustainability and ethical impact of an investment in a company or business. He followed this by providing examples of some of the companies he and his investors have gotten involved with.
The first he spoke on was High Line Network, a company that reimagines underutilized preexisting infrastructure into new urban landscapes that benefit the community. He listed a number of projects the company has worked on, including taking an old airfield and turning it into a community cycling center. This not only helps to clean up the community and provide a safe new space for families to spend time, but it drives a resurgence of local business.
The third and final company that Chris used as an example was NextSeed. NextSeed is a platform that allows for local business to get funding from members within their own community through flexible debt financing. Similar to Kickstarter or GoFundMe, members of the community can choose to invest money into the company through a simple online platform with investments of as low as a $100 minimum. What sets this apart from the other crowdfunding platforms out there however is the fact this is truly an investment, not a fund raising donation, meaning one receives a revenue share in return.
The second company he touched upon was Sixup, a company that provides college loans to high-achieving students who have little to no credit. While colleges do help with financial aid, that aid typically falls short, leaving many students to struggle with a way to make the rest of their payments. Sixup fills that gap and helps to aid deserving students walk across that graduation stage, adding valuable educated members to the community and workforce.
It seems impossible to combine money making with helping the world, but as more and more socially minded companies pop up it is becoming easier and easier for an investor to put their money into a place that will not only give back to the community but will give back a return on investment. Together we can use our money to change both the investment world, breaking stigmas around impact investing, and forging a better world, while still making money ourselves.