In today’s market, there are numerous opportunities for investing capital and resources in the hopes of turning a profit. However, what often slips under the radar are opportunities in a socially progressive manner. Impact investing is as defined as “any investment activity which has an expectation of both a social outcome and a financial return, which may be below market rate.” Recently, this idea has been gaining significant traction as means of combatting poverty, homelessness, crime, and unemployment. By providing the means to gain a return while simultaneously contributing to the greater good, this area is becoming increasingly visible.
In New Orleans, impact investing has contributed 300 million dollars to the city, resulting in more than 1450 units of critically needed housing, over 1300 new jobs, and education and capital for over 400 small businesses. After studying 125 hedge fund managers, foundations and financial establishments, J.P. Morgan and the Global Impact Investing Network discovered an immense sum of 46 billion dollars in “sustainable investments under management.”
Clearly, this trend is on the rise, and certain corporations, in particular, are blazing the way. Goldman Sachs is an example of a mainstream company that has made a conscious effort to develop its presence in the space. According to their website, they have invested five billion dollars to “underserved American communities” since 2001. By contributing to the social infrastructure of low-income communities, Goldman Sachs has been able to create jobs, provide educational opportunities, and even build healthcare and community facilities. The fact that they are able to support philanthropy and strengthen the community in addition to earning a sound return on their investment is astounding, to say the least.
The investment philosophy has become so popular that the concept of the ‘benefit’ corporation was created in 2010 in Maryland. This is a category of corporation just as a founder could elect to be as a ‘C’ corporation or an ‘limited liability’ corporation. Entrepreneurs may now however also elect to be a benefit corporation to establish a legal basis for creating a solid foundation for long term mission alignment and value creation. Thirty-one states have legally adopted the idea of benefit corporations and another seven are in talks of ratifying the appropriate legislature. The designation gives investors a certain assurance that they will be able to hold a company accountable to its mission in the future.
This growing interest in the impact investing space has led some, namely JP Morgan and Rockefeller Foundation to claim that the market could reach $3 trillion by 2020. My firm is happy to see this movement towards what we have called in the past a self-correcting measure in the capitalist system. We work with many clients who aim to provide services in this space and should anyone wish to invest in this space please feel free to contact us.