A Heart and Soul for Impact Investing: financial leaders gather to put capital to work.

A Heart and Soul for Impact Investing: financial leaders gather to put capital to work.

Martha Shaw, EMM correspondent and president of Earth Advertising

TBLI Conference, June 17-18, 2013 New York City

(New York) – At the pulse of the socially responsible investing community are TBLI (Triple Bottom Line Investment) Conferences, which bring together leaders in finance every six months. The events are typically held in Europe and Asia for investors, foundations, fund managers, entrepreneurs, thought leaders and other business professionals to exchange ideas and create collaborations that use the power of investment to affect social change. The term TBLI is also known as ESG (Environmental, Social and Governance) investment, targeting liquid investments such as stocks and bonds, and impact investing, which focuses on private equity, project finance, real estate and other tangible investments.

Today, the TBLI network gathered for the first time in New York City. The format of the TBLI Conference encouraged informal discussions, including barriers that continue to stunt growth and opportunities ahead, and steady progress being made in the sector.

Examples were given about how greater disclosure can benefit companies, and this is a compelling factor. For instance, when working conditions are improved by fair wages, there is less turn over, less downtime and less training needed. Discussions turned to the need to differentiate between environmental impact investing and social impact investing. The latter, it was said, is easier to quantify in the form of more jobs, better working conditions, health insurance, affordable housing, higher wages, and an increase in standard of living.

TBLI officers at major investment firms shared frustrations in the lack of available opportunities for such investments, describing this phenomenon as a supply and demand issue. They also brought up a general lack of track record for both financial and social performance that hinders their argument. The point was often made that financial officers have a duty to their clients to protect their assets, particularly their retirement nest eggs.  This is a priority that won’t change among investors who have entrusted financial institutions with their futures, and is the starting point. From there, choosing investments with social and environmental merit is the task at hand.

It was mentioned that of the 13,000 existing public companies, less than 1000 produced effective CSR (Corporate Social Responsibility) reports, making it often difficult to make assessments. The good news is that more and more managers are limiting their investments only to those who are actively reporting. Though this sets a positive benchmark, it skews toward companies who can afford reporting and sustainability officers.

Indeed, the pipeline of TBLI has strengthened in the last few years. People are more aware of the quality of investments they look for as managers, and the quality of the pipeline has increased. This means that they can put more capital to work in satisfying social missions while achieving returns. The universe of impact investors has also become more heterogeneous, though remains dominated by high net worth individuals.

But the most important audience of the investment decisions for most fund managers is often the board of directors. “The board of directors is often the core audience of the sustainability directors and impact investment officers of financial institutions,” said Amy M. Bell of J.P Morgan Social Finance. “There is difficulty in moving large sums of investment. This year, we moved millions into the sector and this is really exciting for me.” Managers are looking for more stories to take back to their boards of social performance, as well as proof of concept in terms of returns. The conservative nature of the big firms is why you see a rise in the number of boutique advisors.

While financial targets are easy to agree upon, social targets are not. Many are turning to assistance from social impact evaluators and mission ambassadors for the diligence required to properly assess social impact. One approach that has worked well is co-investing with foundations with philanthropically motivated active investors who want to take part in the TBLI pipeline. Foundations are more apt to make direct investments in projects with impact sewn into the fabric of the business proposition. Brinda Ganguly from Rockefeller Foundation gave an excellent example of their investment in Zipcar.

In the case of clean energy, the point was made that it is very difficult to make a good return on investment when the oil industry is so highly subsidized. In the U.S. it is estimated that subsidies are somewhere between 10 and 50 billion dollars, a number which is intentionally kept a mystery.  As one person put it, the reduction of emissions has to be motivated by ideas deep in our brains, where individually we can grasp the true costs of fossil fuels in terms of our health and our environment, said one attendee. The challenge, he continued, is that we assume that we are entitled to fossil fuels. Is it up to the investors to make a moral decision?

What major fund managers are seeing today as far as interest and demand in social impact investing is that there is a lot of interest, but conversion of that interest to commitment doesn’t meet expectations.  The ability to deploy capital toward TBLI is still small, and closely matched to opportunities in the market.

Until social investment becomes more mainstream, there is a need for both managers and investors to take more risk, and the foundations have more flexibility when it comes to deals that are more edgy. They can more actively seek opportunities and participate in deal flow.

It was generally agreed in most circles at the TBLI conference that there is a great need for more transparency, more case studies, and more messaging. The burden cannot rest on the shoulders of either fund managers, project leaders or investors but a concentrated effort to share successes, and bring those stories to investors.

Is impact the right word? A recurring topic throughout the conference was how to communicate the concept of investing in the kind of world we want to leave behind vs. concentrating solely on our own retirement. Perhaps we need to do a better job of pointing out to mainstream investors that it’s not just that their investments may not be helping the world, but they can be doing damage.