This month, our Philanthropist Around Town series features Georgette Wong, CEO, Correlation Consulting, and the Creator of Take Action! The Impact Investing Summit. She shares her experiences with the field of impact investing and offers advise for those interested in exploring more in this two part post.
1. Impact Investing continues to be a growing area of interest for philanthropists. What do you tell individuals new to the concept?
People new to impact investing often find comfort in three ways:
- Knowing that their friends or people they look up to have put money to work;
- Seeing that reputable financial institutions such as The California Endowment, Ford Foundation, WK Kellogg, BlackRock, and TPG have put significant resources behind this; and
- Learning about the risk-adjusted returns, which often times meet or exceed traditional investments.
2. What is the easiest entry point for a cautious philanthropist to try their hand at impact investing?
Cash is an easy entry point. Philanthropists can move their cash to a bank that supports their values. These banks offer services similar to traditional big banks. To give a few examples, New Resource Bank focuses on lending to create renewable energy, OneUnited Bank, is the nation’s largest black-owned bank, and Beneficial State Bank is focused on low-income communities and sustainable businesses. Beneficial State Bank was co-founded by Kat Taylor and her husband Tom Steyer, formerly of Farallon. Local credit unions are also good ideas.
3. What about for the everyday philanthropist?
The first thing for philanthropists to understand is how their mission does or does not translate to impact investing. Then, given that, their goals can be expressed through their investments. Climate change, for example, has many options for public and private investments. The options for gender-lens investing, where investments work towards the equity of women and girls, have grown substantially. Human rights, however, is not as easy. Not impossible, as there are funds that do look for this, but there are fewer options.
I also recommend that people examine their portfolios and see what aligns or goes against their current mission. Sometimes people find out that their portfolios already support their mission and sometimes people are shocked that they own something they did not know that went so against their values.
If people have accounts with major financial institutions, I’d urge having a conversation with their financial advisor, as all the large banks do have impact investing options across all asset classes. These investments may go by other names, such as socially responsible investments (SRI) or environmental, social and governance (ESG), however. If there isn’t a satisfactory answer, Cambridge Associates, Federal Street Advisors and many other groups do provide these services.
4. What are the key elements that you look for when trying to find socially minded investments that will yield market or above market rate returns?
The key elements to a good impact investment with market-rate or premium financial returns are very similar to how I look at a “traditional investment”:
- Who is the investment team?
- What are the risk-adjusted returns?
- Does the investment thesis make sense?
- Who are the other investors?
One big difference is that impact investments are also being evaluated for their social or environmental impact. Does the investment team have a social or environmental expert? Has the team created a way of measuring the impacts, or at the very least, have they been thoughtful about measuring the impact? The best investment teams will research these impacts ahead of time and build them into the investment thesis.
Check back next week for the second part of our interview with Philanthropist Around Town, Georgette Wong.
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