Driving Social Change Through Impact Investing and Impact Assessment | Sustainable Finance
“Individuals…are becoming increasingly aware of how they can connect their ‘passions with their portfolios.’” — Ron Cordes, co-chairman, Genworth Financial Wealth Management
The International Association for Impact Assessment (IAIA), an international network of 1,600 researchers, policy analysts, government administrators and corporate planners from more than 120 countries, announced it is now accepting nominations for its 2012 awards honoring achievements in the area of impact assessment (IA), the winners to be recognized at IAIA’s 32nd annual conference.
IAIA defines impact assessment as, simply, “the process of identifying the future consequences of a current or proposed action.” IAIA looks to “advance the state of the art and science of impact assessment in applications ranging from local to global to develop international and local capability to anticipate, plan and manage the consequences of development to enhance the quality of life for all.”
IMPACT ASSESSMENTS FOR IMPACT INVESTING
Done properly, IA is a rigorous, fact- and science-based, non-partisan research process that evaluates an action’s potential effects, both desired and unintended, and thus provides a good analysis tool for impact investing, what New York Times columnist Paul Sullivan calls an “emerging hybrid of philanthropy and private equity.”
Impact investing is more proactive than socially responsible investing (SRI). While an SRI-motivated investor may simply avoid supporting industries and companies that are deemed anathema to their core philosophies — animal welfare advocates may avoid investing in the meat industry, for example — an impact investor actively seeks out financial returns for investments that are involved with solutions to many of the world’s most pressing problems. Thus, impact investment funds are found supporting such ventures as microfinance programs to help poor people become independent business owners or technologies that help provide vaccinations in poverty-stricken regions.
An impact investor is much more engaged in topical issues and how sustainable finance can be a fundamental part of the solution. And this engagement requires more time researching the issues, the challenges and the various companies that are driving the projects, industries and technologies that are currently making or have the potential to make a positive difference.
GROWING PAINS NOW, BUT A BIG FUTURE
In an interview last month on Forbes.com with World Affairs Commentary founder Rahim Kanani, Ron. D. Cordes, the co-chairman of Genworth Financial Wealth Management, which lists $22 billion assets under management (AUM), acknowledged the shortcomings of the nascent sector of impact investing, admitting that “it’s been a difficult process to locate investment managers and funds focused on impact and evaluate them with respect to their ability to actually deliver that impact.”
In 2006, after selling AssetMark Investment Services, a company he co-founded, to Genworth Financial, he and his wife Marty started the Cordes Foundation, which provides grants to promote international impact investment and social entrepreneurship. He said that his approach to impact investing in his family foundation led to the creation of ImpactAssets Giving Fund, a Donor Advised Fund (DAF) incubated by the Calvert Foundation that administers USD 60 million AUM with a USD 1 billion goal, and is the only DAF that is, as Cordes said, “specifically designed to embrace impact investing.” The fund invests in fair trade, sustainable timber, microfinance and renewable energy in the developing world.
IMPACT INVESTING: WHERE PASSIONS MEET PORTFOLIOS
“Like any new investment category, it will take time for investors and the advisors who serve them to embrace this new opportunity,” Cordes said. “But I’m quite confident that a strong groundswell of interests exists from individuals and family foundations who are becoming increasingly aware of how they can connect their ‘passions with their portfolios.’”
According to several forecasts, his confidence is well-founded. While the current impact investment market stands at around USD 50 billion today, a 2009 report by the Monitor Institute said the market could expand to USD 500 billion over the next decade, which would amount to 1 percent of global AUM. “A market that size would create an important supplement to philanthropy, nearly doubling the amount given away in the US alone today,” the report states.
CREATING THE TOOLS OF THE IMPACT TRADE
“If we’re really going to catalyze meaningful capital,” said Cordes, “we have to create tools, vehicles and products to better connect investors with impact investment opportunities.” Impact investors should look for companies and investment vehicles that have intergrated IA into their planning. “Funding an impact assessment system should be considered the R&D cost-equivalent of building a smart, effective investment product and organization,” writes Irene Kao on What’s Possible, the blog of The Tides, an online social change platform.
The IAIA awards provide an excellent research tool into IA best practices, as they honor individual, corporate and institutional leaders in the realm of IA and how its approach and principles help support sustainable development, social justice and human and environmental health.
The awards include the Global Environment Award, given to a leading individual or institution for making a significant global IA contribution; the Corporate Initiative Award, given to a private or public sector company for a specific project that has made a notable contribution to responsible development practice through the application of IA; the Institutional Award, given to a national or international organization for outstanding IA contribution; the Individual Award, a mid-career honor that recognizes personal contributions to IA on an international level; and the Regional Award, given to a person or organization for making a substantial IA contribution in the region of the annual conference.
So many eyes will be on what’s happening in the IA sector in the region of Porto, Portugal, which is the location of IAIA’s 32nd annual conference, taking place from May 27 through June 1. Non-members are welcome to make nominations, which are due on October 15.
Reporting on the New York stock market’s massive losses this week, the New York Times cited “persistent uncertainty.” That is one thing that impact investment — thanks to the responsible use of impact assessment — tries hard to avoid.