By Samantha Penabad, CRB Student Advisory Board & MBA ’18 Candidate
On March 20, the The Global Impact Investing Network launched the Roadmap for the Future of Impact Investing, setting vision, a course, and a call to action for professionals in and adjacent to the impact industry. Well-researched and synthesizing input from 70 thought leaders and 200 practitioners, the roadmap provides a thorough assessment of the role investment professionals, market-builders and banks can and should play to advance the field in the next ten years.
My five years in Washington D.C. taught me a lot about the importance of convening these types of institutional actors. But more recently, as I reflect on my time at Berkeley – the birthplace of many a social movement – I also realize the importance of marrying the institutional approach with grassroots focus. As a student and entrepreneur, I’m interested in understanding how we can advance Impact Investing outside of formal institutions and structures. Here are my top three actions to add to the roadmap, from a grassroots perspective:
(1) Empower individuals to ask for change themselves
(2) Listen and learn from your users
(3) Engage the masses by reshaping product offerings
Empower Individuals to Ask for Change Themselves
When it comes to responsible investing, public pension funds like CALPERs and the Government Pension Fund of Norway are most often in the spotlight. However, an additional $9 Trillion sits in private pensions in the US. That’s the money that everyday private sector employees have put aside through their company plans to save for retirement. Ask any ESG professional (and I’ve asked many!) and they will tell you – private companies are extremely behind in their uptake of responsible investment products. Not only does this leave $9 Trillion dollars on the table, but it also leaves employees forced to funnel their retirement savings into products that do not consider externalities. If offered responsible investing options in their 401(k)s, many employees would take advantage of them. One report from Morgan Stanley indicates that up to 90% of millennials surveyed said they want more responsible investing options for their 401(k)s.
What does this mean for empowering individuals? As the GIIN roadmap rightly alludes, fiduciary duty policies must be clarified – in part, so that businesses feel comfortable adding ESG-aligned products to their product mix. Still, the roadmap doesn’t stop with policy. Individual employees have the power to demand change from the bottom up. In fact, companies aren’t likely to change their investment options unless demand is expressed from within.
In ten years, impact investing will have progressed if employees are engaged and active in their discussions with management about the impact and responsibility of the investment options offered in their 401(k) benefits. This is the vision of αlign, an organization I help lead. αlign focuses on educating employees about responsible investment options, enabling them to organize and demand better options, and supporting them through their discussions with HR and Finance Committee teams. With this in mind, individuals can begin to integrate impact investing principles into even the basics of their financial life.
While it is important to improve the clarity of policies like ERISA, which governs fiduciary duty in private pensions, and expand institutional-quality investment products so that employees have a range of options, the power of everyday individuals can’t be overlooked in moving trillions ($9 Trillion to be exact!) into more impact-forward investment products.
Listen and Learn from Your Users
Attend any impact investing conference, and you’ll hear it – the “need to align on a common vocabulary.” It’s true – impact investing means many things to many people, and its important that the professionals get on the same page and have some set of standardized language.
But what’s being left out is the language of the everyday individual. Whether it’s an equity investment, a fixed-income instrument, or a yet-to-be-developed blended financing vehicle, our terminology to the market must match consumer’s vocabulary. We can do that by taking a lesson from Silicon Valley, and focus more on product-market fit, rather than just developing financial products in backrooms with actuaries and lawyers.
If you ask a millennial about how they think about their impact capital, they don’t make distinctions between traditional asset classes. Instead, they talk about the timing and the intent of their capital. Through dozens of conversations with young professionals about their money and their impact, these are the five thematic areas I see pop-up most:
- In-the-moment help: This capital is deployed in-the moment and is usually motivated by (1) A natural disaster (2) A friend or family member asking for support for a cause or (3) A provoked desire to help (maybe as a result of tweet or a new article) that sparks a one-time donation.
- Planned Philanthropy: Omidyar Network’s Rafa de la Guia recently described this as the “R&D of the social sector”. Different from in-the-moment help, planned philanthropy says less about one’s ability to empathize in the moment, and more about what drives a person’s purpose and passion. This capital is usually deployed with research and focus.
- Sustainable Impact: For impact investing funds, much of the strategy of a fund focuses on risk/return, discussing where exactly on the continuum they hope to be. Yet, for the millennials I’ve spoken with, many see venture-capital type impact investing as simply a cool way to support social causes in a more sustainable way. It’s less about the size of the returns and the lock-up period, and more about the underlying model of sustainability that causes them to want to engage in impact investing – a hand-up, rather than a hand-out.
- Responsible Investing: “I just don’t want my money in anything bad,” is how millennials put it when they talk about negative screens. In this thematic area, they expect institutional-investment quality products like ETFs, or bonds, but without anything that makes them feel “icky.”
- Conscious Consumerism: Not a financial investment, but still a use of capital, millennials also consider the types of products they buy as an important part of how they use their capital for impact.
These thematic areas are by no means perfect, and reflect mostly qualitative interviews from everyday individuals about how they see their capital and broader impact collide. For the purposes of the roadmap, it matters less what these thematic areas are, and more that we take the time to listen to how everyday people engage with and think about the impact of their capital.
In ten years, impact investing will have progressed if everyday people are thinking about the intent and timing of their capital, and using the language of impact investing as it is meaningful to them. Our goal should be to have individuals think about not only incorporating impact into each of their investments, but also diversifying type of capital they deploy. It’s not just about changing mindsets about the role of capital in society, but doing so on a continuum of philanthropic contributions, investments and purchase behavior.
Engage the Masses by Reshaping Product Offerings
Early on, the Roadmap refers to the enormous opportunity of “retail investors [who] currently lack options to participate in the field, which represents massive untapped potential.” As noted, emerging fintech companies such as OpenInvest and Swell have helped to open up these markets by providing low-cost, digitized platforms to retail investors at considerably lower minimums than their competitors.
But this revolution is about so much more than just lowering minimums. It’s about rethinking financial flows, and reshaping power dynamics across industries.
Neighborly lowers barriers to investing in real assets with impact, allowing everyday people to be owners of their community development. CNote provides impact investing with quarterly liquidity and low minimums – challenging the notion of the need for long lockups for the sake of impact. Aspiration makes your standard bank account a vehicle for investment. GivingFund (the Donor Advised Fund I co-founded while at Haas) is making it easier for anyone to have their own personal foundation, and grow your endowment with impact investments until you’re ready to make donations.
In ten years, impact investing will have progressed if everyday individuals have multiple options for investment products and platforms that meet their needs. Having engaged first hand in the ecosystem of start-up founders focused on democratizing access to impact investing, I am constantly energized by the creativity of offerings and approaches being seeded across the marketplace.
The roadmap ahead that the GIIN has laid out is an ambitious one and will take collaboration and focus from actors across sectors. And while these established actors look to create structures, products, policies and best practices that guide the industry, I’m excited by the opportunity that grassroots individuals have to fill out the ecosystem and work together across stakeholders. As individuals, we have the power to use our voices to demand from our companies more responsible options. We can, and should, talk about impact investing in words that have meaning to us, so that institutions recognize our “user needs” and reflect these as the field develops. Finally, we have the incredible opportunity experiment with products and services that make impact investing attainable and relatable. Together as institutions and individuals, and simultaneously from the top down and the bottom up, I look forward to the growth and development the next ten years of impact investing will bring.
About the author:
Samantha is an MBA student at the University of California, Haas School of Business and a member of the CRB’s Student Advisory Board. She is particularly interested in innovative funding models for social impact – understanding how institutions, businesses and individuals support sustainable social change through investment, purchase, and donation decisions. Outside of Haas, Samantha is the co-founder of a Donor Advised Fund, GivingFund and leads αlign, an advocacy organization focused on responsible investing in 401(k)s.