FLiP interviewed Antony Bugg-Levine, the new CEO of Nonprofit Finance Fund, to learn more about Impact Investing on the heels of his and Jed Emerson’s new book release. Bugg-Levine and Jed Emerson, Executive Vice President of Impact Assets and creator of the term “blended value”, recently released Impact Investing: Transforming How We Make Money While We Make a Difference.
Impact Investing is…..
The goal of Impact Investing is to break down the bifurcated world we currently exist in, a world that separates business from philanthropy and the socially conscious world. In addition, Impact Investing wants to change the preconceived notion that socially impactful investments constitutes below market returns. As described in the book, “the heart of the movement is the reorientation around blended value as the organizing principle…: using capital to maximize total, combined value with multiple aspects of performance.” Impact Investments, considered an asset class, is different than regular investments because from the beginning, the organization or product must consciously set out to alleviate a social issue. In addition, the impact on the issue must be measured in conjunction with the financials to create a blended value return.
Impact Investment’s ROI (return on investment) is a blended value of both financial gain and social improvement. All entities with a mission create blended value which includes economic, social and environmental value. Current logic dictates that economic value is derived from for-profit organizations, while nonprofit organizations or governments produce social value. Impact Investing is causing a “disruption” to this logic. Bugg-Levine claims, “This is a disruption in a really positive way. The old way of doing business is going to break down in light of new aspirations.”
When Bugg-Levine initially began at the Rockefeller Foundation, he thought he was in the product development business, but realized soon after he was in the movement development business. Impact Investing is the philosophy of a movement. Bugg-Levine explained that his role is not to invest in funds, but to create systems to foster the growth of the Impact Investing movement.
While the term may be four years old, Impact Investing has been around for centuries. Historical manifestations of the practice, as described in the book, include the Quakers in late seventeenth-century England, who aligned their business investments with their values. “If you look at history, it’s a relatively recent phenomenon that there has been such an ideological insistence on the separation of business and social purpose,” stated Bugg- Levine. The concept was used in green investing and low-income housing.
The Power of a Name
Bugg-Levine explained the invention of the term, Impact Investing, has created an umbrella for those already engaged in Impact Investing. “The language of Impact Investing has really allowed this group of investors, fund managers and entrepreneurs to see themselves as a unified movement for the first time and that is what is really exciting about how we can go from what has been ….to systems changing.” The umbrella is all encompassing and includes investment bankers leveraging capital to quicken the vaccination of children in Africa, a graduate student using their business skills to address social challenges, or a social entrepreneur creating economic development opportunities for an isolated farmer by giving him a micro-loan.
Every Movement Needs its Leaders
Leaders from both the philanthropic and investor world have emerged. On the philanthropic side, younger philanthropists who have been successful in business believe “business can be a powerful force.” Pierre Omidyar, the co-founder of e-Bay, is a leader in this movement. He created a business that has done social good and wants to apply this to his philanthropy. Investors, on the other side, are demanding more from their advisors. It’s a challenge because the majority of the institutional world does not have the investment vehicles the investors are looking for and investors don’t necessarily know how or where to find Impact Investments. Hence, private banks and family offices are in the position to lead the movement. Bugg-Levine continued to explain that although the movement is small, the leaders of the movement are dynamic, energetic and passionate individuals.
Impact Investing is unique and can be constituted as a frontier market. It is archetypical of innovation such as in the case of venture capital. In the 70’s and the 80’s, Ronald Cohen, known as “the father of venture capital in England” was instrumental in creating a structure for people already investing in early stage companies to come together. He helped make Venture Capital and Private Equity the industries we know them as today. CGAP created a movement for Microfinance in the 90’s. CGAP steered Microfinance from individual experiments into a global force that has now mobilized close to $50 billion.
Bugg-Levine said it is hard to give a prescribed timeline because of the plethora of variables it will take to grow the sector. Measurement tools are needed at this time to prove the opportunity and the blended value that Impact Investing presents. Impact Investing is in a transitional stage. Only when the idea is proven by the early adapters, will the mainstream accept the innovation. The early adopters include parties such as corporations and students. JPMorgan Chase has an Impact Investing group. In partnership with the Rockefeller Foundation, JPMorgan created a research report that “estimates that Impact Investing presents an investment opportunity of between $400 billion and $1 trillion and profit opportunity of between $183 billion and $667 billion over the next decade in five sectors — housing, water, health, education, and financial services.” In graduate schools, students are leading the movement. Policy students are asking their administration how to solve social issues from a business perspective and business students are asking how to leverage their skills for the social sector. Social Entrepreneurship is the fastest growing track in the top business and policy schools. Schools such as NYU have a joint MBA/MPA program. NYU Stern and SIPA, Columbia’s policy school, now offer an Impact Investing course. The individual Impact Investing projects are slowly merging into one movement.
Get engaged in the movement
As the sector evolves, there is opportunity for many disciplines and individuals with areas of expertise to get involved. Investors can begin to question their bankers for Impact Investment opportunities. Private Bankers can begin to create the products or look for investments that have blended value. Policy makers have the opportunity to create the space for social entrepreneurs. Students can look to careers beyond traditional tracks. Bugg-Levine thinks at this point the question is not “Will my involvement have an effect on impact Investing?” but rather, “How will my involvement have an effect?”