Mar
29
2017

On the Road Again…

In my last blog post, I talked about my travels to San Diego, where I had the opportunity to learn more about that community’s emergent interest in impact investing. Since then, I traveled to conferences in New Orleans and Denver, to engage with some of the most active foundations (Confluence Philanthropy) and angel investors (Investors Circle) in the impact investment industry. I believe I was the only person to attend both events, so I thought I’d share a few reflections.

By way of background, Confluence included trustees who are deploying endowment dollars across the capital stack (e.g. predominantly grants, but also some PRIs and MRIs) in service to their mission. On the other hand, Investors Circle included individuals who are investing in early-stage companies high on promise, but perhaps short on profits (at least for the time being). Together, these impact investors are tackling predictable issues, such as climate change, affordable housing, and gender inequality. But other interesting similarities braided through many of the discussions I had at both events.

Motivation is rising
This is a polite way of saying that many of the attendees at both conferences were pissed off. Sure, they were angry about President Trump’s divisive campaign rhetoric, questionable cabinet appointees, and early executive actions. But others were every bit as upset about income inequality as the proverbial white, rural Trump voter. That said, the most fervent remarks were around climate change and healthcare, two issues where conference attendees consistently lamented the administration’s approach. In response, several foundation representatives suggested that their grantmaking would increase and/or shift, while individual investors seemed undeterred by the political morass.

Discernment is sharpening
I’ve expressed concerns elsewhere about a forthcoming tide of impact-washing, in which profiteers will increasingly highlight the social and environmental benefits of every investment. If the judgment of Confluence and IC members is any indication of the state of the industry, then my fear may be overblown. Simply put, they won’t stand for that shit. I saw one woman rip the impact bona fides of an opportunity, rightfully criticizing the approach as patronizing while questioning its efficacy. Meanwhile, social justice was an undercurrent at both events, with attendees looking beyond the surface-level story to ask pointed questions about how their capital can catalyze change.

Involvement is deepening
IC members are steadfastly committed to working in close cooperation with one another, partly to relieve due diligence costs, but also to share lessons learned. In fact, there was a half-day session focused on investing in global health, in which investors of diverse experience shared their best practices – and worst mistakes. Confluence was no different and had informative sessions on a range of familiar administrative subjects (e.g. legal strategies, board governance, fiduciary duty) and unfamiliar impact themes (e.g. geoengineering, LGBT corporate engagement, disaster recovery). More impressively, there were field trips into the surrounding community, where attendees witnessed regional approaches to affordable housing, coastal wetland resilience, sustainable food, and the legacy of slavery. My point is that the range of issue areas is widening, and at the same time, stakeholders’ willingness to engage is strengthening.

What this means, at least to me, is that we are finally moving away from the what (is impact?) and why (do we need to do this?), onto the who (wins and loses?) and how (do we do this right?).

And yet, I can’t shake one final thought…

Inertia is stifling
This observation is a little hard to square with the previous three. And while I am a raucous cheerleader for impact investing, I must admit that I find this stubborn sentiment a bit deflating.

At Confluence, the CEO of a pioneering foundation revealed that at least one of her board members still wasn’t sold on the practice – even though they had already committed 10% of fiduciary assets to impact. Another foundation executive confided that his board had approved a small ESG carve out last year. However, they subsequently shut down continued consideration of impact investing after the public equity strategy experienced extremely slight underperformance (and over a very short period no less). Given how few foundations have aligned their endowments with their missions, these stories are representative. Put another way, there are plenty of trustees and board members across the country who don’t attend Confluence, and otherwise maintain a prohibitive perspective toward impact investing.

How can we change this?

To be clear, I don’t expect foundations to “write checks” as quickly as IC members. (That said, kudos to the organization and its members for their heightened emphasis on a streamlined approach, which is clearly translating into increased deal volume.) I also appreciate the fiduciary duty and CYA mentality that necessarily guide most trustees. But if my recent travels to New Orleans and Denver have shown me anything, it is that even those who are merely curious about impact investing can quickly move up the learning curve with committed collaborators.

They may just have to travel a bit.

 

Written by Nick Flores




 

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