John Goldstein probably doesn’t consider himself an impact investing “guru.” But he pretty much is. The firm he started in 2007 – Imprint Capital – now advises 10 of the 25 largest foundations in the U.S. on impact investing. Not surprisingly, the talk John gave at LNWM in May was all about how to make impact investing happen instead of just talking about it.
Imprint Capital’s clients are mostly high-net-worth families ($5 million or more allocated to impact investing), large foundations and investment companies. Yet what John had to say about impact investing can apply to everyone wanting to put their money to work in line with their values.
There are three major ways you can do impact investing:
(1) Mutual funds and ETFs that invest in publicly traded stocks and bonds, based on Environmental, Social and Governance (ESG) factors;
(2) Private funds that invest in the equity or debt of organizations whose businesses serve unmet social and environmental needs; and
(3) Private direct investment in specific organizations and initiatives.
While most of Imprint Capital’s work is in the private sector, it’s involved across the entire spectrum. Here are the major takeaways from John Goldstein’s talk:
You can fine-tune how to participate in impact investing. Within the three different levels of impact investing, you now have many more options to explore, with way more specialization in terms of asset class (equity, fixed income, alternatives) and sector (environment, health, education, food, low-income, etc.).
As you can see, the amount of money in ESG-related funds has exploded since 2007 — to more than $4 trillion!
In public markets, you don’t gain impact by giving up returns on a risk-adjusted basis. In other words, if you invest in mutual funds with a conscience, go for the ones what are well-managed and have good risk-adjusted returns. The problem is that most funds in the ESG space are pretty mediocre, which is true for public mutual funds in general, said Goldstein. But new SRI funds are coming out all the time – both ETFs and actively managed funds – increasing the chances that more of them will be able to post competitive risk-adjusted total returns.
Think of private market impact investing like an illiquid alternative investment. Your money will be tied up for a considerable time, and you may not get the return you want. However, it’s in the private markets that most innovation in social change is happening, and where foundations and other large investors can effect important change.
Imprint Capital, for example, helped a prominent foundation invest in Revolution Foods, a provider of healthy meals at schools for more than 50,000 kids, 80% of whom qualify for reduced-priced lunches. Arguably, says Goldstein, the bigger impact of that investment was helping to focus the foundation’s policy initiatives, which led to new and better government standards for school food.
Focus on execution and making it real. Wealthy families, especially ones with foundations, are starting to debate how much of an orientation they want to impact investing. A family foundation that Goldstein advised had people who wanted to keep impact investing at just 3% all the way up to 100%. There’s really not much point in debating overall target levels, Goldstein says. What people should really be debating is how good the market is. That is, they should be asking: “Where can we find the deals that will allow us to actually invest for a likely return that meets our expectations?”
John and his team advised this family foundation to go through the same process it does with regular investments. The end result? Nearly three years later, the foundation is 51% in impact investments. And people on both sides of the argument are happy.
In another project, Imprint advised a major foundation as it worked with an investment firm to put $100 million into what is essentially a “clean” version of the Russell 3000 Stock Index. Using data about greenhouse gas emissions, this customized investment strategy overweights carbon-efficient companies and underweights those slower to deal with climate change, while avoiding coal companies altogether.
Anyone can get involved. Impact investing is increasingly becoming “democratized,” possible at all levels of participation. For example, the Calvert Community Investment Note, more than 20 years in existence, now requires just a $20 minimum investment. It works like a Certificate of Deposit, invested in a portfolio of loans to social impact organizations.