6 Tips to get family offices started with impact investing
Impact investing has caught the attention of families, family offices, and private investors alike in recent years. In spite of this impact-led zeitgeist, there exists uncertainty on how to approach this field. How do you begin? Here are a few points to consider.

By Rachel Browning & Francois Botha
Published on Simple October 10, 2020

Impact investing has caught the attention of families, family offices, and private investors alike in recent years. In the latest report by the Global Impact Investing Network (GIIN), the global impact investment market is worth more than half a trillion dollars qualifying it as one of the fastest-growing areas of asset management. Every action we take has an impact. The notion that your investments can be better aligned to your family and values whilst still generating market-related returns, is certainly an appealing one.

Yet in spite of this impact-led zeitgeist, some investors have voiced concerns on whether impact investment can truly attract market-rate returns. The idea that profit and purpose cannot go hand-in-hand prevails amongst some groups. For other investors who hold a more hopeful view, there exists uncertainty on how exactly to approach this new field. How do you begin?

If you’re considering venturing into the world of impact investments but are a little unsure whether to start, here are a few points to consider…

1. Define what impact investing means to you

Important work is being done on creating a collective understanding of impact and impact investing by the likes of GIIN and the Impact Management Project. Nonetheless, it is fundamental to define what impact means to you as an investor, using the above mentioned as a guide. Each investor’s journey will look different depending on their objectives and approach to investment. Impact investment means very different things to different people based on their personal experiences within the field. Today, many types are grouped under the same umbrella, from investments with no monetary return and major social returns to investments with a market-rate financial return and minor social returns. In reality, there is no single definition of ‘impact’.

Whilst there is a need for a broad consensus and collateral behind the impact movement, there is freedom for self-definition. Concerns over ‘green washing’, ‘impact washing’ and ‘SDG washing’ are valid. However, if the field is to further develop it is up to investors to add colour to the discussion and articulate what impact investment means to them, and ultimately better define an investible universe.

Impact investing has caught the attention of families, family offices, and private investors alike in recent years. In the latest report by the Global Impact Investing Network (GIIN), the global impact investment market is worth more than half a trillion dollars qualifying it as one of the fastest-growing areas of asset management. Every action we take has an impact. The notion that your investments can be better aligned to your family and values whilst still generating market-related returns, is certainly an appealing one.

Yet in spite of this impact-led zeitgeist, some investors have voiced concerns on whether impact investment can truly attract market-rate returns. The idea that profit and purpose cannot go hand-in-hand prevails amongst some groups. For other investors who hold a more hopeful view, there exists uncertainty on how exactly to approach this new field. How do you begin?

If you’re considering venturing into the world of impact investments but are a little unsure whether to start, here are a few points to consider…

1. Define what impact investing means to you

Important work is being done on creating a collective understanding of impact and impact investing by the likes of GIIN and the Impact Management Project. Nonetheless, it is fundamental to define what impact means to you as an investor, using the above mentioned as a guide. Each investor’s journey will look different depending on their objectives and approach to investment. Impact investment means very different things to different people based on their personal experiences within the field. Today, many types are grouped under the same umbrella, from investments with no monetary return and major social returns to investments with a market-rate financial return and minor social returns. In reality, there is no single definition of ‘impact’.

Whilst there is a need for a broad consensus and collateral behind the impact movement, there is freedom for self-definition. Concerns over ‘green washing’, ‘impact washing’ and ‘SDG washing’ are valid. However, if the field is to further develop it is up to investors to add colour to the discussion and articulate what impact investment means to them, and ultimately better define an investible universe.

“Impact investing has become a broad umbrella that includes all investing with a focus on both financial return and social impact. In its best form, impact investing prioritises impact over returns and achieves outcomes that traditional investing cannot”
Jacqueline Novogratz, Founder and CEO of Acumen

2. “Additionality” – Adding value beyond money

With direct investments on the rise, and impact investments being defined in a multitude of ways, one way to try and select a good investment is to define where you can be the best investor. Where can you as an investor add and unlock value on a level where the investment / company / startup would not have been able to without your help?

Many of those seeking impact investments are indeed looking for more than capital. For example, many startups seeking impact investment today are looking for specific expertise and investors which are aligned with their overarching vision. Asking and answering this question can not only help you to identify potential opportunities but also help you nail down a shortlist of investment candidates. From here you can identify those which are the best possible fit and establish a mutually beneficial partnership.

3. Find a match that aligns with your purpose

The better the match between the investor and the investment, the higher the likelihood of success. Self-assessment is once again key to ensure this perfect match. Having a clear understanding of your purpose and objectives is fundamental, as this is likely to change your risk appetite. Whilst the risk/return mantra is king amongst regular investments, impact investments include a fairly obvious third element: impact. In the same way that traditional investors cannot consider risk in the absence of return, impact investors must assess a trifecta of risk, return and impact. This assessment ultimately determines what you eventually invest in and helps to ensure that your investments are aligned with your, your family, or company’s values.

“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 into.”
Sapna Shah, the Global Impact Investing Network (GIIN)

4. Define your time horizon

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 be realised in the longer term, investments could see social returns in the short- and medium-term.

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. By nature, impact investment is more ambitious with a focus on changing the status quo. Be open to projections of long term change and see what impact investments could do for your portfolio in the long run.

5. Define measurement

Once you have your investment opportunity lined up and have defined your timeline, it’s necessary to determine how the success of a particular investment will be measured. This should be defined upfront and communicated as such.

Impact measurement and management is still an emerging field, so look to the thought leaders and best practice frameworks early on. The Impact Management Project (IMP) provides a forum for organisations to build consensus on how to measure, assess, and report impacts on environmental and social issues. The Global Impact Investing Network (GIIN) offers a wealth of information, resources, and even IRIS+, a free tool to help you better define, measure, and manage your impact investments. Choose the measurement framework which makes the most sense for your investment. Integrate this framework into your existing use of performance indicators. See impact investments as the ultimate use case for balancing hard and soft assets. Track that measurement across your portfolio and communicate the impact alongside your P&L results.

6. Engage the next generation

Unprecedented technological connectivity means that millennials and Gen Z’ers are acutely aware of the impact that their decisions make. They are more conscious and more connected than any generation before them. Investments for the next generation are regarded as extensions of themselves. They want to know what impact their capital is making on the world – positive and negative. Impact investments are an effective way to further engage the next in the affairs and decision making of an organisation or family office, ensuring that its current values extend far into the future.

From the above, it’s 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 really comes down to your company’s values and objectives. Today you’re measured by the delta of what you say and what you do. Defining these values and objectives therefore is the single most important edit point of an organisation. Being mindful of these at all times will not only help you to align your investments but will also keep them on track. Allow the discussion to inform conversations around the identity of your family office, diversification of the portfolio, and legacy. Impact investment has the potential to transform your relationship with your organisation and family members. Impact is really just the start.

About the Authors

Rachel Browning

Impact Investment Advisor

Rachel has dedicated her career to looking at how we can make investing more directed and meaningful through ESG and Impact investing.

Connect with Rachel Browning View Rachel Browning Profile

Francois Botha

Simple Founder. Strategy Advisor

Francois believes that the next generation of family leaders need new, simple tools and trusted experts with a fresh outlook.

Connect with Francois Botha View Francois Botha Profile

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