Investing directly into community impact

Investing directly into community impact

Copyright Image: William Booth / www.photosport.nz

Clive Pedley
Director, Giving Architects Ltd
27 August 2018

Values-based investment is an important consideration for all socially-minded investors, none more so than Community Foundations.  When investment can generate not only the revenue required for our donor-inspired grants programmes, but also generate an intentional measured positive impact, values-based investment takes on a whole new meaning. Welcome to impact investment.

The Responsible Investment Association of Australasia (RIAA) has released its latest benchmark reports in recent weeks which shows the incredible growth and generally superior performance of responsible investment (RI) portfolios.  In New Zealand RI has grown from $17Bn in 2010 to over $180Bn in 2018.  Within the responsible investment spectrum is a growing and in-demand impact investment opportunity.

Impact investment was described by David Carrington, as UK-based Associate of Giving Architects, earlier this year as: “The investment of funds in an organisation with the deliberate intention that those funds will help to secure a clear, positive and measurable public benefit, while also generating a financial return”.

The New Zealand National Advisory Board on Impact Investment (NAB) was launched in April this year and is scheduled to be approved as a member of the Global Steering Group on Impact Investment in Delhi in October.  The NAB, along with a number of practitioners and early adopter investors in the local market, are working to increase the scale and scope of impact investment opportunities in New Zealand.

While relatively new in its current format in New Zealand (there are many examples of an impact investment approach in Maori culture pre-dating European arrival), in its modern form it is well established in international markets and is also effectively used by Community Foundations, including in Canada, as highlighted in this document.

What makes an impact investment unique from the also good responsible investment option, is:

  • The investor and the investee are both intentional about this investment delivering a blended value social/environmental/cultural/economic return alongside a financial return;
  • The impact intended is clearly defined, evidenced and will be robustly measured; and
  • The investment has additionality features, such as building on existing assets and delivering an impact that would not or could not be achieved otherwise by the market.

In New Zealand most recently, awareness of impact investment has been largely limited to Social Impact Bonds and equity investment into social enterprises.  There are other options, especially social lending, which is significant in more mature markets.  Options here are limited but certainly likely to increase, along with a growing awareness of the complementary relationship between traditional philanthropy and impact investment.

Whether through debt (i.e. social lending), equity (i.e. social enterprise investment) or fixed interest products (under development), impact investment offers Community Foundations an incredible opportunity to move one step beyond achieving socially responsible investment returns through robust investment policies.

Investing directly into community impact is possible, there are trail blazers ahead of us showing the way, and our society will increasingly expect it from us.

 

Clive Pedley is the Director of Giving Architects and on the inaugural Board of the new Community Foundation which will be launching 2019 in the Manawatu region.