1. Introduction: What is impact investing?
Impact investing is an investment strategy that intentionally deploys capital to create transformational social or environmental change while generating financial returns for investors. It combines motivations typically found in philanthropy with the outlook of ethical investing. A good starting point is to recognise that all investments create consequences. The question then becomes whether or not your investments create the intended and desired results? Impact investing provides a set of tools to deliberately create positive impacts in the form of verifiable outcomes and profit.
“Impact investments “focus on real-world changes in terms of solving social challenges and/or mitigating ecological degradation”– Busch, T., Bruce-Clark, P., Derwall, J. et al. Impact investments: a call for (re)orientation. SN Bus Econ 1, 33 (2021), p. 32.
Interest in impact investing is reflected in the assets allocated through this approach and the sector’s organisation. In 2020 the impact investing market reached USD 715 billion according to the most recent survey by the Global Impact Investing Network (GIIN). The remarkable rise and increasing maturity of the sector over roughly the last decade is also indicated by respondents to the GIIN survey. In 2010 twenty-four members responded. In 2020 the number of respondents rose to almost 300.
Impact investing is a recent development within the broader spectrum of investors aligning their ethical standards with their portfolios. Sustainable investing or socially responsible investing (SRI) are common umbrella terms to describe strategies that incorporate non-financial and ethical criteria into investing, practises that have been around for centuries. Early rationales came from reconciling religious perspectives with financial activities. A notable development came in the eighteenth century when Quakers extended their opposition to Atlantic World slavery to their investing. Similar issue-based investment exclusions continue through to this day, led by investors or outside pressure campaigns urging action. The common strand through these efforts, regardless of the topic of concern, is the use of exclusionary criteria to guide investment decision making to avoid harm.
A major development in SRI occurred in the early 2000s led by investors looking beyond issue-focused exclusions to include the proliferation of new environmental, social, and governance (ESG) data into their investment analysis. The ESG investing thesis holds that ESG factors directly impact investment outcomes, so their full implications should be included in the analysis. In this sense, it is an approach to investing that incorporates ethical considerations and widens outlooks beyond purely financial matters. In practice, ESG evaluation and decision making frameworks are often based on large datasets that score defined factors against criteria packaged by rating providers. ESG investing is an effective, verifiable, and customisable technique to align a range of assets with sustainability goals.
The key feature that sets impact investing apart from other techniques within the SRI spectrum is its insistence on accruing both financial and non-financial returns in the form of societal good. Impact investing seeks to move beyond the harm avoidance of other SRI approaches to solve problems while creating benefits for investors. In effect, impact investors create investing scenarios where 2+2=5 when the financial and broader social benefits are calculated.
One of the most important considerations for family offices is that impact investing enables families to align a larger portion of their portfolio with their ethical and philanthropic priorities, generating returns and positive outcomes. Impact investing can also be a way to unite multi-generational family offices around a clear set of forward-looking values that define their legacy. The preservation of wealth for future generations and creating social and environmental good can go hand in hand.
This review surveys the impact investing landscape from the perspective of family offices. Family offices take many different approaches to their impact investments. They also connect to the broader impact ecosystem at different points of engagement depending on their internal expertise and capacity. After a discussion of the major stakeholders and locating family offices among them, this review explores the variety of approaches to impact investing through brief case studies. These examples include direct investments, continued involvement of family offices in innovative projects, and family offices stepping in to act as stewards of a fund’s initial impact investment.
About the Authors
David Struthers
Research LeadDavid Struthers is the research and technical report writer at Simple.
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Francois Botha
Founder & CEOFrancois believes that the next generation of family leaders need new, simple tools and trusted experts with a fresh outlook.
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2. The field of play
The impact investing ecosystem has a number of stakeholders that family offices can collaborate with to maximise their impact and gains to generate the best outcomes. Family offices can potentially align interests within impact investing networks, frameworks, advisors, data and rating agencies, impact funds, institutional investors, banks, foundations, accelerators, and media.
Networks
Networks and ecosystem facilitators have greatly contributed to the growth and organisation of the impact investing space. Currently, there are a rich array of investor networks with distinct foci. Some target specific topics of impact, while others have regional ambitions. They also vary in composition, variously including institutional investors, foundations, families, individuals, or a combination of investor categories.
One of the largest and most respected is the Global Impact Investing Network (GIIN), a nonprofit membership organisation of impact investors. Hosting events such as the GIIN Investor Forum, gatherings of its Investors’ Council, and conducting the largest global survey of impact investing, the GIIN is both an invaluable information resource and ecosystem facilitator. Its website hosts material for specific needs including a research centre, training programs, a catalogue of impact investing performance metrics, and a hub for faith-based investors. The GIIN also maintains strategic alliances with other network organisations.
Toniic is a network of particular interest to family offices. It currently has around 500 members of HNWIs, family offices, and foundations. Its global reach is clear with members in more than twenty-five countries in North America, Europe, Asia, and a small representation in East Africa. Membership in Toniic provides access to its global community, investment opportunities, education, and support in measuring impact.
Impact Frontiers started as a project led by Root Capital and expanded to become an initiative associated with the Impact Management Project. Now, Impact Frontiers will host the resources developed during IMP’s five years of existence. Impact Frontiers’ mission is to “catalyze and accelerate investors’ integration of impact alongside financial risk and return into their investment practices.” With a global set of partners, including a separate website and resources focusing upon Asia, it offers extensive online resources in addition to its core activity of hosting workshops and creating investing cohorts.
The Asian Venture Philanthropy Network (AVPN) is another leading impact investing network, in a strategic alliance with the GIIN, gathering global partners to create impact in Asia. Its membership rolls currently stand at over 600. A complementary network is the China Alliance of Social Value Investment (CASVI) which consists of sixty institutional members focused on carbon neutrality, health and elderly care, accessibility and inclusion, fair education, inclusive finance, and intelligent manufacturing.
The ImPact is an impact investing network of family offices. Since its inception in 2016, it has grown to over seventy families from around the world that share the goal of aligning their assets with their values. The ImPact focuses on social and environmental investments. It works by facilitating relationships, providing educational opportunities for member families, hosting events, and sharing investments.
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Frameworks
The last decade gave rise to a number of efforts to reach a consensus on standards for measuring and reporting impact investments. Fortunately, the space has matured over the last several years and investors can now benefit from new standards. There are now several complementary frameworks, though their adoption is far from universal.
IRIS+ is the field leading impact investing framework created by the GIIN. IRIS+ currently provides impact data for nearly ten thousand organisations and over twenty thousand users worldwide. It uses an extensive catalogue of metrics including impact categories such as climate, education, and infrastructure. It also includes fifteen of the UN’s Sustainable Development Goals (SDGs) and independent investment lenses like gender as indicators of investment performance. Standards go through an ongoing development process and are updated through an open public comment period to increase transparency and effectiveness.
The Impact Management Project ran between 2016 and 2021 as an ecosystem facilitating organisation with the aim of shaping global consensus on impact investment measuring and reporting standards. After an initial two years of meetings and discussions, the group launched the IMP Structured Network to function as a standard-setting organisation as the next stage of their project. Now that the project has reached its conclusion, its website continues as a valuable resource for understanding impact investing. It also led other efforts to continue pushing standards in the impact investing community. The Impact Management Platform is a direct outgrowth of the Impact Management Project. Their website currently has a searchable database of resources on impact standards. It also has a guide to actions in impact investing from an institutional perspective. A guide to impact management at the level of investment is scheduled to go live in 2022.
The European Commission is currently creating a framework, the Sustainable Finance Disclosure Regulation (SFDR), in response to the 2015 Paris Agreement. As part of this effort, they released the EU Taxonomy and the EU Taxonomy Compass. When completed and adopted the new framework will create reporting standards across the range of economic stakeholders from companies to financial advisors. They might also help standardise reporting provided by EU based data and rating agencies.
The International Sustainability Standards Board (ISSB), established in 2021 by the International Financial Reporting Standards Foundation (IFRS), to meet the demand of global investors for “high quality, transparent, reliable and comparable reporting by companies on climate and other environmental, social and governance (ESG) matters.” Although currently at the working group stage, this organisation promises to bring much clarity to the ESG and impact investing space as its activities progress.
Advisors
Another valuable resource that family offices have to draw upon are advisors with expertise in ESG and impact investing. Advisors often focus on specific forms of impact (e.g. environment) or geographical location, while others maintain global practises across an expansive range of targeted issues. They can also be company or investor facing, making them attractive resources to impact-focused startups, existing firms looking to transition their business practices, and investors seeking to expand their reach into impact investing. Advisors are available to lead workshops, embed in your team, and provide tools to aid ESG and impact decision making.
“Real impact can only be realized when enterprises become empowered and data-driven.”– Unmesh Sheth, founder and CEO of SoPact
Data & Rating Agencies
Data and rating agencies provide technological solutions to track investment impact. These tools are useful for ESG and impact investors. Providers base their assessments on impact investing frameworks, ESG frameworks, or other international sustainability goals such as the European Union’s Sustainable Finance Disclosure Regulation (SFDR) or the UN’s Sustainable Development Goals (SDGs). Currently, national climate reporting regulations in Europe create the fullest dataset of corporate sustainability practises, while the Securities and Exchange Commission in the United States is expected to release the US Climate Reporting Framework in 2022. This is a segment of the impact and ESG investing ecosystem with providers competing to offer the most value to their customers.
OWL Analytics is a data and index provider entirely focused on sustainability. Their approach to ESG deploys big data techniques to increase the data across a broader range of ESG parameters through a consensus model that optimises the objective. These solutions provide the insight for asset managers to deploy custom investment strategies that harness ESG for performance and stability.
Ethic. provides comprehensive ESG tools that empower asset managers and owners to align investments with ethical priorities. Through preeminent partnerships, including with Prince Harry and Meghan, the Duchess of Sussex, and an innovative graphics-based user interface, Ethic. is leading the next generation of sustainability-focused financial technology companies with the capability to customise and scale their services to match their users in a changing world.
The Upright Project is an innovative fintech that has distinct offerings for investors, companies, the public sector, employees, and consumers that quantify impact to enable better decision making. They have partnered with NASDAQ to make their net impact data available to all asset owners and asset managers globally. Upright also offers SFDR and EU Taxonomy solutions through a flexible toolkit.
SoPact is a SaaS-based platform designed for corporations, social enterprises, and impact investors to measure and manage the evidence of their positive or negative impact on people and the planet. SoPact enables impact managers to build step-by-step impact maturity of their investments or programs. They work collaboratively to improve the outcome of each investment or program and enable impact investors to more accurately assess which investment or program will have the best social return. Their SAAS platform Impact Cloud allows both investors and enterprises to report impact data, track stakeholder progress and benchmark results.
impak is an impact assessment, and rating and tracking tool for investors aligned with the solutions standards created by the Impact Management Project and the UN’s Sustainable Development Goals. They seek to move beyond ESG data to quantifying impact solutions through their intelligent tools including impak SDG Alignment and impak Investment Scoring Solution. Their SaaS platform is user-friendly and scalable and compiles the information investors need to manage the impact of their assets.
Matter provides ethical investing services for large asset holders across a spectrum of requirements. Starting at exclusionary categories such as fossil fuels, weapons, or tobacco and extending to tools to analyse investments in green energy, health care, and direct investments in green infrastructure, sustainable forestry, and energy-efficient buildings.
Clarity AI provides a set of tools to meet ESG compliance and reporting requirements in addition to portfolio analysis along with bespoke criteria. They described their methodology in a recent white paper that allows their algorithms to increase the reliability of assessment metrics. The firm incorporates data science, machine learning, and AI to model missing data due to incomplete reporting requirements and standards. They also incorporate natural language processing (NLP) to score controversial incidents of specific companies in real-time. The complexity of their data processing is matched with a clean user interface to aid the decision making of asset owners and other market segments.
MSCI offers comprehensive ESG ratings, data, and analytics, in addition to specific climate investing tools. The company has a comprehensive package of tools and services to support investment decision making around the world. Their clients include many of the world’s largest investors.
Arabesque is a sustainability intelligence firm that joins ESG and AI to guide the creation of sustainable economic value. Their proprietary AI solutions packaged in a clean UX provide wealth management professionals with usable information to customise their priorities and portfolios.
Impact Funds
Many large funds now have impact investing allocations and the list of exclusively impact-oriented funds is growing. There are also investing syndicates oriented toward particular industries and sustainability goals. With collaboration and circularity at the centre of the impact investing space, these players might be best viewed for possible alliances and potential synergies, rather than competition, by family offices.
Impact Partners was Europe’s first impact investing platform. It aligns its portfolio with the United Nations’ SDG with the goal of innovating sustainable capitalism.
Triodos Investment Management, a subsidiary of Triodos Bank, has decades of experience in impact investing with over €6B AUM. They have offices in the Netherlands, Belgium, United Kingdom and Germany, and reach globally with their investments.
Patamar Capital focuses on early-stage technology companies in South East Asia from their base in Indonesia. A founding member of the GIIN, it focuses on innovative technology startups in the fields of financial services, SME digitization, education, healthcare, and agriculture.
Institutional Investors
Institutional investors are increasingly allocating portions of their assets to impact investments. Exemplifying funds are Christian Super in Australia and MN in the Netherlands. Christian Super is a fund that invests the entirety of their AUM within their faith-based ethical framework. It views impact investing as an extension of these priorities and formed a separate team with specialised skills to manage its impact investments. One exemplative Christian Super investment is the Casa Capace, a specialist disability housing development in Australia. MN is an asset manager for several large Dutch pensions. Its impact investing activities are an outgrowth of long-standing ESG investment practices. Institutional investors bring layers of expertise in sustainable investing and ESG that they are extending into their increasing impact investing portfolios.
Banks
Banks are service providers that variously offer sustainable investment products. A 2018 report found that very few western European banks included impact investing opportunities for their clients. While few banks are on the leading edge of the impact investing space, this creates the opportunity for family offices to leverage their banking relationships to expand their offerings.
The Centre for Sustainable Finance and Private Wealth at the University of Zurich developed a tool to help guide wealth owners’ assess the impact investing capabilities of their wealth managers. It is also an effective starting point for family offices to open conversations with their banking partners. The guide helps open clear lines of communication across five categories: listening, offering, building, management and reporting, and alignment. The centre developed another framework, calibrated to analyse the sustainable investment capabilities of private banks.
Triodos Bank is a world leader in sustainable banking based in the Netherlands. Focusing on the environment, culture, and social impact maintains its independence and mission focus.
The Swiss-based Globalance is a leading impact investment bank that caters to the specific needs of family offices. Their investing philosophy looks to the future by seeking innovative opportunities to replace old business models that join sustainability and profit.
Lombard Odier is a Swiss-based private bank with offices around the globe. With a focus on achieving carbon neutrality throughout their corporate orientation and practises, they bring to the table deep expertise on impact investing.
Foundations
There are a large number of foundations with activities spanning the range of socially responsible investing. Many of these foundations view their investing activities within a spectrum of possible financial opportunities from classical investing through to philanthropic grants. Of course, some families also have their own foundations. Impacting investing creates an avenue for families to more closely align their portfolio with their family identity and philanthropic efforts. Foundations can also offer targeted alliances for impact investments in their areas of expertise.
Accelerators
Impact investing accelerators function much the same as traditional business accelerators, but with the added emphasis on scaling startups with sustainable business models. They organise boot camps, facilitate connections with potential investors, and provide businesses with the resources and mentorship needed to maximise their growth. Accelerators vary in topical and regional areas of emphasis.
+impact (Danske Bank) circular economy within agrifood, energy transition & electrification, and circular economy within smart cities verticals with a Nordic focus.
GründerAtelier runs an impact accelerator with their partner Main Incubator GmbH across a range of topical areas from manufacturing and ICT to housing and education. They have a pan-European lens and are run in Germany.
IMPACT accelerator partners with large corporations and organisations like UNICEF to tackle challenges around issues such as inclusive mobility and social impact. It has successfully propelled a long list of global startups to the next level of growth and impact.
Unreasonable Impact is the result of a partnership between Barclays and the Unreasonable Group. It runs programs targeting three geographical areas of emphasis: the Americas, Asia Pacific, and UK / Europe.
Aspen Network of Development Entrepreneurs is a program of the Aspen Institute that connects entrepreneurs in developing countries to financial, educational, and educational support to help grow their businesses.
Media
One of the potential ways to increase the impact of ethical investments is through telling stories to bring attention to investment outcomes. Media in the impact investing ecosystem include reports produced by frameworks, networks, and investors themselves. It also includes investors pushing out press releases to shape coverage in mainstream publications.
Supernova creates impact reports from ESG categories to assist your impact communications. They generate content and visualisations geared towards the current media landscape. Supernova also has tools to help clients understand their own values.
3. The place of family offices in the impact investing landscape
Impact investing creates opportunities for family offices to align a greater portion of their profit-oriented investment portfolio with their ethical and philanthropic priorities. It is an effective mechanism for families to move their investments farther along the spectrum of outcomes, past harm avoidance and on toward financing businesses creating innovative solutions to social and environmental challenges. As asset owners, family offices have a range of resources to draw upon to move forward as they explore, plan, execute, and evaluate their impact investments.
In practice, many family offices are forging their own paths when they make impact investments. They translate their business acumen and networks into a new outcome orientation, with some FOs only selectively reaching out to external stakeholders in the broader impact investing ecosystem. There is also discussion over the limits of impact investing through listed equities. There is perhaps a soft division between ESG and impact investing, where ESG tools are best suited for portfolio management while the impact investing outlook is best oriented toward direct investments. It seems clear that the biggest impact can be made through direct investments even though this can take many forms. FOs might have the resources to be the “patient” capital or to take the “first loss” in an innovative endeavour. They might also view their initial investment in a new sector as initiating an effort to “crowd in” capital to solve a pressing social or environmental concern. The multitude of approaches and entry points come through strongly in the case studies in the following section, reminding us that there is not a single correct approach. Regardless of your individual path, the impact investing ecosystem is populated with a rich array of possible collaborators that can be engaged along your impact investing journey.
Explore
Exploring impacting investing at your FO might begin with internal conversations among family members. Family norms and the broader social environments of HNWIs shape their investing activities. A recent study found that the families of HNWIs tend to set profit-based norms when evaluating investment performance. Preserving wealth for future generations feeds scepticism about sustainable investing and impact investing when profit and ROI are the points of reference. Peer groups of active impact investors can form a community of values and provide the space to explore the rewards and paths to profitability for impact investing. A lesson for family members interested in impact investing to take away from this study, especially if facing scepticism from others in the family, is to reach out and interact with peers already active in impact investing and participate in impact investing network activities early in your exploration process. Connecting your office to the existing resources, from networks to advisors, will build your knowledge and can ease your entry into the impact investing community.
Another entry point into impact investing might come from an examination of your FO’s existing investment portfolio alongside the Sustainable Development Goals or ESG criteria. Engaging with ESG rating providers can help you understand the impact of your current investments. ESG ratings and impact evaluation frameworks can provide definable metrics to weigh along with financial accounting. This is an advantage when considering impact investing against demands for market returns.
Another consideration for family offices to consider in their exploration of impact investing is the activities of large funds, which potentially shape the market for family office participation.
At the exploration stage potential impact investors will probably also assess their risk tolerance, the impact area that they want to focus upon, and the profit potential. Weighing all three factors accordingly, reaching out to knowledgeable advisors and networks, and evaluating current portfolios should provide enough information to smoothly transition to strategizing entry into impact investing.
Strategize
Once family offices move to identify investment opportunities and strategize their execution, they are often moving into terrain in which they have significant expertise.
There are multiple directions that FOs might take to identify investment opportunities. On the more formal and organised side of the possible entry points, FOs that joined an impact investing network or attended impact investing gatherings might be connected to potential opportunities through these activities. FOs might also reach out to investment managers, funds, or advisors that focus on impact investing. These firms may offer services ranging from identifying investment opportunities, completing the necessary due diligence processes, and referencing evaluation metrics that fit the specific type of investment.
The point of entry of many FOs into impact investing comes as an outgrowth of their ongoing investing. FOs actively making private equity investments often have extensive networks in the startup communities in their region or sectors of interest. They probably also have internal staff and/or external partners to assist in evaluating potential direct investments. Shifting this knowledge and skillset to impact investing requires retooling to meet a new set of criteria. Basing decision making on impact reports generated by firms seeking investment and engaging advisors or other stakeholders with expertise in impact investing for due diligence for specific investment opportunities will provide extended support beyond early-stage network engagement. The greatest impact comes from direct equity investments, rather than in listed companies, which increases the burden and possible reward for the engaged family office. It is crucial to determine success criteria at this stage and decide on the terms and conditions of potential investments.
Execute
Executing impact investments is similar to traditional investing, although with different expectations and parameters. Family offices might choose different paths of continued active participation or be content to maintain a layer of separation between themselves and the investee, possibly through an intermediary. Making impact investments through a fund or with the assistance of dedicated impact investing advisors can reduce the burden of FOs.
Leading researchers on impact investing offer three main paths for impact investing. Family offices, especially those that continue to play active roles in family-owned firms can have a special role in facilitating positive outcomes. First, impact investors can provide capital investments to established firms to direct new outcomes through specific projects. Second, impact investors can invest in firms established to generate positive social and/or environmental impact. Third, impact investors can push for change through post-investment actions such as voting and engagement. Execution strategies take distinct paths for each path and can involve different combinations of stakeholders in the ecosystem depending on the capacity and preferences of the FO. The common theme is working toward a shared outcome and maintaining shared expectations with stakeholders.
Evaluate
Evaluating impact can come through the bespoke tools of data and rating agencies. It can also occur through building understandings of harder to calculate intangibles at your family office. One of the challenges of making impact investments in startups is that most lack sustainability data because of their early stage of development. The key point to remember is that centring success criteria in the strategic discussions before execution establishes an evaluative metric to reference through the entire process.
The Impact Management Project lays out five dimensions of impact. These factors are:
4. Case studies
Currently, family offices show the most interest in making impact investments in three markets: education 2) agriculture and food 3) environmental conservation. Though interest does not directly equate to completed transactions. On the other side of the coin, the markets with the least interest are services for the base of the pyramid (BoP), water, agriculture and food. FOs view their gaps in knowledge and the lack of investable solutions as creating this disconnect.
The case studies below begin to illustrate the range of knowledge, internal resources and capacity, collaborations, and types of impact investments being made. Deploying capital to drive sustainable innovation binds their differences.
Direct Investments: One approach to impact investing is through the traditional investing activities of HNWIs and FOs. One active investing family in Denmark insists, from experience, that it is crucial to not ‘go it alone’; one needs to bring the right people to the table with the funds and the skills to share learning. This can take the shape of advisors or by creating an impact investing syndicate. The FOs external partners include their extensive network within the local startup scene, among the global impact investing community, other investors, and topical, financial, and legal advisors. Often, the organisational vehicle, from FO to private equity fund or VC fund, is less important than the startup ecosystem. This investor recognized the opportunity that impact investments could have through their participation in the private investing sphere. More and more of the pitches before them are focused upon impact. They see their role in impact investing as being able to keep their expectations on financial return on par with their traditional investments, but they can extend the timeline to take the role of patient capital. This investor made early investments (pre-seed or seed) in Labster, an educational service provider with virtual labs and science simulations, and Seaborg, the creators of an innovative, barge-based nuclear power generating system. The first has clear impacts on broadening student learning and the second promises to safely reduce carbon emissions.
Facilitating Intermediaries: Kimpa Impact Family Office offers full-spectrum services that begin with discussions with FOs to clarify their expectations, support to define impact strategies, investment solutions to effectively deploy capital, and, finally, to measure impact. Kimpa is a leader in bringing impact investing resources under one roof to work with entrepreneurial families through their entire impact journey. Betteries is one innovative startup that KIMPA facilitated a direct investment from a FO. Their business upcycles electric vehicle batteries into a range of affordable and adaptable power systems. The new batteries are modular and can be joined to create alternative power sources to replace petrol-powered generators, power small vehicles, and store solar power in mini-grids. Betteries is an example of a climate solution creating significant social and economic impacts.
Fund-Based Investments: Maj Invest is a Danish asset manager that offers family offices the opportunity to invest in sustainable financial services in emerging markets alongside large institutional investors in private equity funds. This can increase confidence in FOs as they can benefit from the due diligence expertise of the institutions. One example of this investment structure is Maj Invest’s Financial Inclusion Fund II investing Belstar, a financial inclusion institution in India, in 2018. Belstar is led by Hand In Hand India, an international non-profit social program with initiatives in community economic development. In collaboration, Belstar has been contributing to local economic development in the community, empowering women, promoting gender equality, and reducing poverty in India. Belstar targets raising capital to support its growth and expansion, in order to offer more loans via Self-Help group and Joint-Liability group models, to reach the underserved rural regions in India. The company was introduced to Maj Invest by an experienced investment banker as a proprietary deal.
Stewardship: Another approach to FO impact investing can be seen in the cooperation between an investment firm and a family. As large funds are increasing their impact investing allocations and their investments mature, they will need to find suitable partners to provide stewardship of their projects as they exit to redeploy their capital elsewhere. One example of this approach is a transaction between a family and Beartooth Capital. Beartooth Capital acquired a large parcel of land in a degraded environmental condition in Montana, USA. Their goal was to rehabilitate the water systems on the land to increase its value. A clear example of the kind of win-win scenarios generated through impact investing. After the work was completed they found a buyer that shared their interest in preserving the land, a search that took longer than expected, providing another example of patient capital facilitating impact goals.
“Co-creation with problem solvers”: Not all investments are neatly packaged in the impact investing space and sometimes investors and companies work together to create innovative solutions and financial mechanisms. One example of this dynamic is a recent partnership between PensionDenmark and Ørsted, a Danish energy firm, on a renewable energy project. Ørsted was beginning to transform itself from fossil fuels to renewables. PensionDenmark shared their sustainability interests, while they also wanted to diversify their assets away from equity and bond markets after the 2008 crisis. The two entities created a joint venture that allowed PensionDenmark to mitigate their risk through price support, profit sharing, and by only converting their initial construction loan to equity after the project became fully operational. Active investors with capital have the freedom and flexibility to work closely with innovative partners from ideation to execution. Although this example involves a large fund, many family offices are ideally positioned to leverage their capital and knowledge to form active impact investment partnerships.
Reallocating to impact investing through intermediaries: Large multi-family offices around the world are expanding their strategies into impact investing in cooperation with their families. Waterfield is a globally recognized and connected MFO in India that views their impact investing as an extension of their long-held view of purpose driven-wealth. They see two entry points into impact investing for their wealth owners: a journey from philanthropy to social venture capitalism and a journey from commercial venture capitalism to social venture capitalism. In most cases, expectations of returns and their priority (i.e., impact first or returns first) are dependent on the point of entry. However, most of our families clearly view impact investing as an investment strategy and consequently expect their investments to give them risk-adjusted, market-rate returns. An example impact investment began when they were approached by a veteran philanthropist that wanted to increase her impact by leveraging investment capital to create a sustainably invested pool that would generate returns, which would be ploughed back into impact investing and philanthropy. Waterfield assisted in easing her entry into the private equity and venture capital space, including by the head of their alternative investments team working with her and her team on risk-return expectations and allocation. They formulated a structure that divided the allocation into three separate investment branches – impact funds, direct investments into impact enterprises within sectors of interest, and investments into hybrid social finance models. With an allocation in place, we worked with veteran impact fund managers to help narrow the focus down to specific sectors. The team also sourced and evaluated direct deals and hybrid social finance models. They continue their support by scanning the ecosystem to proactively identify and evaluate deals to ensure that she has access to a constant stream of experts and content to allow for continued opportunities.
Philanthropy-led Impact Investing: North-East’s interest in impact investing came as an outgrowth from their families’ philanthropic activities. In conversation with their family members, they started asking questions about how they could create investment opportunities in direct support of philanthropic objectives. North-East concentrates on both the intentionality and the additionality of their impact investments. The majority of the impact investments of their families are carried out through philanthropic structures to support their philanthropic objectives. They focus on topics where a market dynamic can generate scalable solutions to an issue, e.g., in the area of environmental sustainability or social enterprises. The investments are usually early-stage, higher-risk and require more internal resources in relation to the funds allocated as compared to other investments. This family office approaches impact investments similar to their grants-based partnerships, with the impact as the main objective, but with a clear assessment of the investment potential as well. North-East benchmarks the investment potential through its opportunity cost: what return could it generate from allocating the funds to other investments with a similar risk profile? What impact could be generated by allocating the funds as a grant? They then utilise both their philanthropic and investment competencies throughout due diligence, the structuring process, and the investment’s lifespan. They conduct the impact investments in close collaboration with their families.
5. Conclusion
Impact investing is a strategy with a proven track record and a growing ecosystem of knowledgeable stakeholders for family offices to collaborate. The pressing need to shift to centre sustainability in all our activities and throughout the economy is clear. Impact investing is one mechanism to feed capital to innovate the transition across a spectrum of the pressing issues affecting the world today.
6. Acknowledgements
Simple wishes to thank the following people for sharing their time, knowledge, and expertise in impact investing. All errors and omissions are our own.
Soumya Rajan, with support from Yash Bhargava, Waterfield Advisors
Vincent Piche, Kimpa Impact Family Office
Julien Lescs, Kimpa Impact Family Office
Mette Ekeroth & the North-East Family Office
Kyle Zeno Macdonald & Christelle Vigot, Simple Expert Practitioners
Mette Fløe Nielsen, M.I.L. Invest
Ricardo Pinho, SoPact
Peter Pulkkinen, Lombard Odier Investment Managers
Kasper Svarrer, Maj Invest
Jostein Urne, Oslo Family Office
