Impact ‘management’ – the key to growing responsible investing
By Brian Trelstad, Bridges Fund Management
The field of sustainable and impact investing has shown tremendous growth over the past few years. But there are still too many asset owners sitting on the sidelines; interested in impact, but not yet investing. To quote Bono – a recent high-profile convert to the cause – it seems that many “still haven’t found what they’re looking for”.
So why does interest continue to outstrip activity? One reason is a dearth of scaled investment products. But there’s another significant problem: we still lack a common convention for understanding the impact in impact investing.
While much of the work in the field over the last decade on impact has focused on the question of impact measurement, we believe the bigger challenge is one of impact management.
In standard financial management, an investor’s financial goals are derived in part from their return expectations, their risk appetite, their time horizon and their liquidity needs.
Similarly, impact management is the process by which asset owners understand and articulate their impact goals – where they want to invest, who they want to reach, what problems they want to solve, what risks they want to take – and then translate these into specific investment decisions.
An example from Bridges’ US portfolio helps to illustrate. Our first investment in the United States, Springboard Education, offers high-quality after-school enrichment programs in more than 88 schools across 13 states, serving nearly 5,000 children and their families.
After-school activities are a real challenge for school administrators: they see good kids do bad things when left to their own devices, and they see a widening education achievement gap when higher-income kids have more access to educational enrichment programs after school and during the summer.
For working families, a program like Springboard can be a godsend. One of our parents is a single mother, recently arrived from the Dominican Republic, who works long hours at a local restaurant. She can relax knowing that her son is in good hands after school with the Springboard program at DC Bilingual, instead of worrying about where he is and who he’s hanging out with.
So when we think about Springboard’s impact, we ask questions like: how many students does it serve? What is their socio-economic background? Do they perform better in school as a result? And are we closing the achievement gap?
The answers to these questions travel from the student and his family, to the superintendent and her school, through the team at Springboard, to our own team at Bridges, to the investors in our fund. Our investors will then evaluate this impact data against their original expectations of an investment in Bridges, and in the context of every other impact investment in their portfolio.
Different investors think about impact in different ways. In this case, some like that we are working in education. Some like that we are serving the needs of low-income students. And some care about the jobs we create.
As a result, finding a standard way to talk about impact investments – even those as high-impact and well-measured as Springboard – is an ongoing challenge. And this lack of clarity acts as a barrier to entry, making it harder for new investors to come into the field.
The capital markets work, in part, because investment decisions are guided by a shared understanding of risk and return. If an investor meets with a financial advisor and asks how to invest $10,000, whether it is at NAB or Australian Ethical, the advisor will ask the same kind of questions about the investor’s risk tolerance, time horizon, liquidity needs, and existing portfolio.
However, if that same investor asks their adviser how to invest for impact, they’re more likely to get a blank stare, or an admonition that it’s not possible to invest for impact. At best, they might get a broad range of suggested alternatives, from screened equity funds to microfinance to wind farms.
Within the impact investing field, there’s a growing consensus that there must be a better way. That’s why more than 700 asset managers, foundations, policy-makers and entrepreneurs – including BlackRock, USB, PGGM, Ford Foundation and Omidyar Network – have come together to launch the Impact Management Project. Facilitated by Bridges Impact+ (our advisory service), we are helping to develop a common convention for impact management that will enable investors to clearly articulate and share their expectations around the outcomes they can expect from all of their investments, not just their impact investments.
If we get this right, it will help to standardise impact reporting. It should allow us to better understand the relationship between impact performance and financial returns. And ultimately, it can help us convert all those asset owners currently on the sidelines from interested spectators to active players.
Brian Trelstad is a global pioneer in impact investing. He is a Partner at Bridges Fund Management, a specialist impact investment fun with US$1 billion under management dedicated to impact and sustainable investing. Bridges Impact+ is the facilitator of the Impact Management Project, a global conversation, coalescing over 700 practitioners across geographies and disciplines – from asset owners to fund managers, enterprises to standards agencies - to develop a convention about how to communicate, analyse and assess impact.
Brian is visiting Australia as a guest of the Responsible Investment Association Australasia’s RI Australia 2017 conference and the Impact Investment Summit Asia Pacific.