Investing with Purpose

Lots of high school students are considering what matters to them these days, especially those who are moving on to college or directly into the workforce. School counselors, parents, teachers are asking, “What is your mission statement? What do you value? What are your interests?” It’s a time of reflection.

In a recent rundown of suburban Chicago, Ill., high school scholars, the Daily Herald featured a personal statement from senior Kshitij Vashi, of Schaumburg High School in Schaumburg, Ill. Vashi wrote, “The ideal of the impact investor is something I wish to live up to, utilizing what I learn to assist rather than exploit marginalized communities globally.”

While not every 18-year-old aspires to be a savvy impact investor like Vashi, it is definitely a topic that more people are talking about these days. In the past two years alone – from 2014 to 2016 – sustainable, responsible and impact investing (SRI) assets have grown 33% to nearly $9 trillion in the United States, according to the U.S. Forum for Sustainable and Responsible Investment (USSIF) data.

‘A Tipping Point’

A simple way to think of impact investing is “doing good and doing well.” More and more people are looking for ways to put their money into investments that help the world and also give them a positive return on the money they invest. Impact investing is the practice of taking environmental, social and governance factors into consideration in making investment decisions, and refers to the full range of approaches within the category, including socially responsible investing. Back to Vashi for a moment – he wants to study economics through a lens of “learning to make wise investments guided by my…ethical beliefs.” So, doing good and doing well.

During a panel discussion titled “Mainstreaming Impact Investing” at this year’s recent Social Impact Conference, sponsored by Wharton’s Social Impact Initiative, Christopher Geczy, an adjunct professor of finance at Wharton, noted that more students are enrolled in his impact investing class than in his traditional investment management class, which he called “a tipping point” for this brand of investing. What’s more, according to a recent Bank of America survey, 85% of millennials are interested in, or are actively doing, impact investing.

To better understand what it means to put your money to work for social purpose, consider d.light, a solar technology company that Judith Rodin, president of the Rockefeller Foundation and past president of the University of Pennsylvania, cites in her book The Power of Impact Investing (see Related Links to listen to an interview with Rodin). D.light is an enterprise in which impact investors put their money. In a Knowledge@Wharton interview, Rodin said, “Electricity poverty is one of the root causes of poverty globally. People who have no source of lighting that is reliable tend to use kerosene … or they burn wood, and that is environmentally unsustainable. How do we get either solar or battery light [that allows] people, often in very remote areas of the world, to have access to lighting? D.light started as a very small, almost flashlight model or idea… That’s one example where there is direct investment into a social enterprise, and that’s wonderful for some impact investors. [Direct investors are] people who … really want to engage with the enterprise, and they want to see and feel the outcome of the work.

“But not every impact investor is like that,” continued Rodin. “Some impact investors really have very strong views about social purpose, but feel that they don’t have the time or the experience or the energy, frankly, to engage that deeply with the enterprise itself. Just as in the financial-only industry, there are funds for investing in the social enterprises that do the social and financial due diligence. The investors then invest in the funds. Sonen Capital is a very well-known one now, but there are many other great funds.”

Another important point is that a wide gap exists between people who are interested in impact investing and those who actually do it. As a result, the industry is trying to improve the quantitative, data-driven aspects of impact investing so investors can better understand how their money is working for them. In other words, they want more numbers to understand the trends and measure the effectiveness of impact investing.

Suzanne Biegel, founder of Women Effect, which provides information about gender-lens investing, urges anyone involved with impact investing to also focus on the qualitative aspect of potential investments. Tell the stories of these companies – as well as listen closely to the stories to understand how they might match up with your own values. “People change their investment behavior when something moves them,” said Biegel during the Social Impact Conference. “Storytelling is absolutely critical.” She added that she could get people’s attention far more easily by noting that the necklace she was wearing was made by survivors of human trafficking than by citing the multi-billion-dollar size of the trafficking industry.

Conversation Starters

Are you an impact investor or have you considered it? Why is this important to you? Tell us your story in the comments section of this article.

What is d.light? Using the Related Links, research this company and what it does. Share your findings. What other companies might inspire your impact investing? Think beyond environmental impact.

Suzanne Biegel refers to both quantitative and qualitative measures when considering impact investing. What does she mean by this? How does this apply in general to evaluating good investments?

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