Virginia leaders in finance, business and government are helping expand “impact investing” - keeping money local and directing it toward positive social outcomes. 88.9 WCVE’s Catherine Komp has more for Virginia Currents.
Learn More: Follow Matt Illian's blog The SRI Investor and the Virginia Impact Investing Forum. Read more about impact investing at the Global Impact Investing Network and the Principles for Positive Impact Finance, a framework to help achieve the UN’s Sustainable Development Goals.
Socially responsible investing has a long history. Methodists and Quakers refused to profit from slavery and war. Divestment campaigns have targeted Apartheid, fossil fuels and for-profit prisons.
Matt Illian: This industry is old but new.
Investment manager Matt Illian says this strategy uses “negative screening,” or avoiding companies that don’t align with one’s ethics. But another option is emerging: Sustainable Responsible Impact Investing.
Illian: The sustainable is really starting to look more at how do we integrate our values to emphasize more sustainable practices, so that could be from the environmental perspective, how do we limit our ecological footprint to sustainable employee practices; how do we build up an employee base that’s healthy and vibrant to our supply chain.
The impact part of it, says Illian, is about making a positive contribution socially, regionally or environmentally.
Illian: So where the others are screening out those practices that might be negative, the sustainable and impact investing are really focusing on how do we include and emphasize and encourage those business practices that we think are building the kind of society and culture we want to be part of.
The goal is to make investments in the greater social good and get a return. Illian lists some examples: building affordable housing, putting a grocery store in a food desert.
Illian: Investing in clean water is a big area, sustainable agriculture, sustainable timber, local local investments, all the way up to the public equity market side of things where it’s investing in businesses that are publicly traded that are using and emphasizing those best practices to really think about being a good neighbor.
Historically that’s been known as “corporate social responsibility” - but Illian says that model’s problematic. It uses the “two-pocket” theory of money.
Illian: Which is this idea, in one pocket over here we’re achieving incredible social impact through these different programs that we have in the community, but really with the majority of our money in this pocket it’s all about the bottom line which is profits. And that really wasn’t meant to be, it creates a split personality within an organization and within an individual to think about those two pockets. So what we want to do and what impact investing is doing is really saying let’s think about this all in one pocket, let’s think about a unified, ethical approach to investing. In the same way that you and I carry ourselves in our community, we want our money, our resources, we want our enterprise to carry itself that way in the community.
Illian and financial analyst Peter Hartman recently started Vestedin to help expand impact investing locally.
Peter Hartman: Money flows very freely around the globe, your money can go anywhere in the world that you want it to. But we’re back to the neighborhood, what has the biggest impact on me, is perhaps what happens in my next door neighbor's yard or somewhere quite close to me. So Matt and I use the example, maybe you like Ben and Jerry’s, but they’re in Vermont. Maybe you like Patagonia but they’re California. How about the companies that are close to me and the corporate actions that are taking place close to where I live, shouldn’t I have some involvement there? Shouldn’t I as an investor have some kind of dialogue with those companies so that they know what my sensibilities are? We think the answer is yes and that’s at heart of soul of the firm.
Leaders from businesses, non-profits and government created The Virginia Impact Investing Forum to help expand these efforts. At a recent meet-up was one of the Forum’s founding members, Larry Wilder. He’s advisor for social entrepreneurship and innovation in the Governor’s office. Wilder says the state is partnering with private and philanthropic groups on the social impact finance model Pay For Success. Currently, they’re focusing on prenatal health and supportive housing for people who’ve been incarcerated.
Larry Wilder: Also in Northern Virginia, one of workforce investment boards is doing a project that’s working with at-risk youth to help prevent them from getting into judicial system and when they do, to help them reenter, providing jobs and opportunities to lower recidivism.
Wilder sees a lot of potential for impact investing. He says Virginia could become a hub for the “purpose economy.”
Wilder: Just like you have other hubs like Silicon Valley, Virginia could be a nexus for businesses that have impact and that this a great place to be in terms of lifestyle but we have the ecosystems that we’re talking about the people who get it. So, the orientation if you have a business that you want to thrive and do well but also do good, Virginia is the place to come. I think at a minimum it would be great to have that happen, it could be a showcase for the rest of the country, rest of the world.
The impact investing industry is still in its infancy says Matt Illian, so it’s a bit more challenging for individual investors.
Illian: Unfortunately at this time, a lot of the retail funds that are available to individuals often carry very, very high expenses to be able to put your values out there. This isn’t true across the board, but in certain circumstances. So you just need to be careful if you’re an individual investing, looking for an SRI portfolio, it could be that you’re investing with good intentions, but it ends up being a marketing campaign to get folks who are wanting to make impact but they end up paying a lot of their retirement savings to accomplish that.
But says Illian, the industry is going in right direction, fees are coming down and impact is increasing. Locally, there are options too, including the decade old Virginia Community Capital, a Community Development Financial Institution.
Illian: That is chartered to invest their resources like a bank but focused on underserved communities, both on environment and social side. They’re the ones investing money in grocery stores and food deserts and revitalizing historic downtowns. But then individuals can get a CD or buy a note through that institution and know their money is going back into the local community and they’re getting a financial return at the same time. That’s the point of impact investing, you have these social and environmental impacts, at the same time you’re saying we’re not giving up this financial expectation, capital is going to be returned and we can reinvest it.
Illian and Hartman connect socially responsible impact investing to other movements, like buying local and growing organic food.
Hartman: In part this is a reaction to some bigger trends that are happening and the idea that people would be more community spirited and community-minded. We see it in the local food movement which we think is great and we’re supportive of that and the idea of begin at home. At the heart of that is the Christian message treat your neighbor as yourself. And we think there’s a secular application of that as well
Illian adds there’s something really powerful in a phrase we hear frequently - the Commonwealth of Virginia.
Illian: Making a profit is good, that’s rewarding. Doing that while at the same time is having a positive environmental and social impact on your community, incredibly more powerful.
For Virginia Currents, I’m Catherine Komp, WCVE News.