17 Apr 2019

Where impact investment comes from

By Paul Miller

At BGV we see part of our role as helping to build a more supportive ecosystem for tech for good ventures. One important group of people are the asset owners who allocate money to impact investing in the first place and they’re growing in number very quickly. The image below shows how impact investing has doubled in size every year over the past few years. It’s only an estimate but few doubt that impact investing is growing.

Stats about growth of impact investing

One type of asset owner that I have to admit I didn’t know much about until recently is family offices. Family offices are the organisations that decide how to allocate the capital of very wealthy individuals and families. Sometimes they are run by family members themselves or they hire people to help manage investments. The Economist estimates that globally they control up to $4 trillion of assets. They’re a unique type of investor because they don’t have the same constraints as some other types of professional investors. They can take risks that pension funds and endowments cannot. They’re often the pioneers and first investors in new types of investment vehicle.

And something very interesting is happening in family offices at the moment as money is passed down the generations. It seems that the generation inheriting control of family offices is much more motivated by impact than their parents.

Last month we hosted an event with our fellow BCorps and friends at Bridges, Resonance and WHEB. We gathered about 40 people from family offices to learn more about impact investing and it turned out to be a fascinating afternoon. Here are the slides from the afternoon and a few of the views from the event:

  • Everyone recognised that all investments have an impact, the question is whether they are positive or negative. Impact investing is setting out to deliberately have a positive impact and we discussed the definition as set out by the GIIN.
  • There were mixed preconceptions of whether impact investing means that the financial returns will be lower. Many family offices have spent years maximising profit on the one hand and then giving it away through philanthropy on the other, so the idea of investing for both profit and for good is something new. We talked about the Spectrum of Capital (developed by Bridges) which shows that different approaches are possible.
  • The question of whether impact investment was a separate asset class was also raised. Most people agreed that it should be an approach to all investments rather than separate, but many people said they were starting by allocating a proportion of their investments to impact first.
  • The importance of the way that impact is measured was more divisive. Some investors felt that a qualitative method of reporting, such as hearing stories from beneficiaries meant a lot. Others were ardent quantitative measurement fans, suggesting that converting impact to a number is vital, but the challenges of this were also acknowledged. Some pointed out that measuring risk (in traditional profit only investments) is also difficult but that doesn’t stop investment decisions being made.
  • We also explored the risk of impact washing and how to ensure impact integrity. Many investors were wary of big brand name financial services companies starting to say that they were impact investors.
  • We explored whether a ‘star rating’ for impact would be useful for investors. Some thought it was too simplistic but others thought it might be useful to help take impact investing more mainstream.

Thanks to all our friends at Bridges, Resonance and WHEB for helping to put the event together, to the Conduit for hosting us and to James Perry from B Lab UK who gave a fantastic talk to kick off the event. We hope to do more events like this so let us know if you’re interested.

If you’d like to learn more about impact investing, our fellow BCorp (and co-investor in Fairphone) Pymwymic have just released this video to introduce some of the concepts mentioned above to asset owners.