6 Tips for Family Offices Who Want To Start Impact Investing
Families, family offices and private investors alike have become increasingly interested in impact investing in recent years. The notion that investments can be better aligned to a family’s values while still generating market-related returns is undeniably appealing. At the same time, however, many investors remain concerned about the uncertainty in exactly how to get started. It’s essential to be aware of the fact that each investor’s journey will look different depending on their objectives and approach to investment. So, if you’re considering venturing into the world of impact investments but are still a little unsure of how to go about it, here are a few points to consider.
1. Defining what impact investing means to you
There confusion surrounding stems from the fact that impact investing often means very different things to different people, based on personal experience in this field. Today, everything from investments with no monetary return and high social return to investments offering market-related financial returns and measurable social impact get grouped under the impact investment umbrella. By articulating what impact investment means to you as an investor, you’re able to better define your investable universe and tailor your portfolio accordingly.
2. Adding value beyond money – “Additionality”
With the number of direct investments increasing, and impact investments meaning so many different things to different investors, one way to try and select a good investment is to define where you can be the best investor. Which investments are the ones where you, as an investor, can help to add or unlock value that is key to success and that the investment/company/startup would not have been able to do without your involvement? Asking and answering this question can not only help you to identify possible opportunities but also help you nail down a shortlist of potential investment candidates. From here, you can identify the one with the best possible fit.
3. Matching impact investments with purpose
The better the match between the investor and the investment, the higher the likelihood of success. To ensure a good fit, however, self-assessment is, once again, the key. Having a clear idea of your purpose and objectives is vital as this may change your risk appetite. It also ultimately determines what you eventually invest in and helps to ensure that your investments align with your, your family or company’s values. Sapna Shah from the Global Impact Investing Network (GIIN) advises, “Be honest with yourself about your impact objectives and the risks, as well as your financial requirements and constraints. That’s what will start to define your investable universe and help you narrow the conferences, resources, and tools you should be tapping in to. The impact investing market is a big tent – the best way to narrow it for yourself is to walk in with a viewpoint of what you want and be willing to update that as you learn from others.”
4. Defining your timeline
Good impact investments could, in theory, offer investors different levels of return in the short-, medium- and long-term. Even though financial returns may only realize in the longer term, investments could see social returns in the short- and medium-term. Still, it’s important to have realistic expectations for returns and to communicate the projected timelines for these to all parties involved. In doing so, it’s also worth considering the value of short-term impact versus building a long-term legacy and to determine whether this fits into the scope of your objectives.
5. Defining measurability
Once you have identified your investment opportunity and determined your timeline, it’s necessary to define how the success measurements. This should be defined upfront and communicated as such. It is often helpful to enlist an impact management tool to help with this. There are numerous options to choose from, but it’s vital to select one that makes sense to your organization’s objectives, and that can accurately measure what you want to. Have a look at the Impact Management Project for some easy-to-use resources.
6. Engaging the next generation
The millennial generation, due to unprecedented technological and social media connectivity, is acutely aware of the impact that their decisions make. They regard investments as extensions of themselves and want to know what their money is doing in the world. As such, impact investments are an effective way to further engage the next generation in the affairs and decision making of an organization or family office, ensuring that its current values extend far into the future. From the above, it is evident that when it comes to impact investing, there’s no single formula that works for everyone. Instead, most of what you do, how you do it, and even how you measure the outcomes come down to your company’s values and objectives. Being mindful of these at all times will not only help you to align your investments but will also keep them on track. This post originally appeared on Forbes.