Democratise Impact Investing — Part 1: The Why

At IIG, we like impact investing, we think there should be more of it, and more people should do it. A phrase we throw around at the IIG offices is “democratising impact investment”. But it turns out that different folk mean different things when they (we) invoke that word. That reveals a lot about what motivates us and what we’re trying to achieve.
So we’re sharing some of our thinking with you, our friends and co-investors, and we’d love to hear what you think.
Here are some of our versions of what we mean and why we care about democratising impact investment.

  • Democratising impact investing means people collectively expressing themselves with their investment dollars
    We live in a world where, if you have money you can use it to get the things done that you care about. In the context of impact investing that might be building a solar farmfunding educationfunding a vaccination program, or planting trees. Often, those things are quite expensive — more than individuals are able to commit to. But working together collectives of aligned individuals can provide enough capital for great change.
  • Broad participation means more minds and hearts at work
    This is an argument for increasing the number of people working in the industry and broadening their types. Impact Investing remains a relatively new concept and community. The industry and the people it in are still growing, improving, and learning how to tackle problems that have long histories and deep roots. We are not the first people to consider gambling harm, social inclusion, or the health of our environmental ecosystems.
    We are also learning how to apply established investment techniques onto challenges where investment approaches haven’t been previously applied. We can benefit from working with a broader group of people, so we learn from their experience and they learn from ours. The bigger and more diverse our community is, the more opportunities we’ll have to harness the crowd’s intelligence.
  • Democratising impact investing means having more money to solve problems
    This is an argument for making impact investment products suitable for retail and institutional investors. More than 55% of Australia’s wealth is owned by households who don’t meet the hurdles for wholesale or sophisticated investing[1]. But unfortunately many impact investing opportunities (including those offered by IIG) are only directly available to qualifying wholesale investors. These uses — and the environmental and social benefits they are intended to address — therefore cannot be met with the vast majority of Australia’s wealth[2] and cannot bring in a broad base of investors.
  • Broad participation helps provide impact investing with legitimacy and a social license.
    At the core of impact investing is an idea that investors can help fund solutions to environmental and societal challenges and often generate a financial benefit to the investor. Those solutions are interventions in the real world that can affect people. Consider a social impact bond intended to keep people out of prison. That is an intervention with exceptionally high stakes for the intended beneficiaries and their communities.
    However, at the moment both the industry and the number of impact investors comprise a very small minority of the population. That means a small minority making impactful decisions and reaping financial benefits. That could well lead to impact investing being seen as an endeavour run for and by elites. That kind of perception has seen other business sectors being attacked in the public sphere, perhaps with justification. The royal commission into the finance industry is the most vivid example.
    Meanwhile, the concept has arisen of companies needing a social license to operate. From a political standpoint, more people investing and benefiting creates more supporters in the public sphere. From an innate sense of fairness, it seems that many people as possible should have a chance at prosperity, and have input into decisions that affect their communities.
  • Broader access provides more people the ability to invest in line with values
    It feels rotten to think you’re making money from coal-fired power plants that spew toxins into their neighbours’ air, or from companies that lock up kids. It feels great to be helping build solar farms, or build schools, or upcycle waste. Why should those great feelings be the preserve of the few?

So these are some of the motivations and definitions for democratising impact investments that we’ve discovered around the IIG offices. And we’re just a handful of people, so we’d love to hear what you think. Email us back if you have thoughts.

In the next few weeks, we’ll share some thoughts about how we might democratise this work. We’ll also work through any problems that turn up.


1- It’s actually much more than 55% if you correct for financial wealth vs the family home, and have finer categorisation that the deciles and quintiles that the ABS and Productivity Commission publish to the public, but the point stands regardless. The mean wealth for the top 10% households in 2015/16 was around $2.2m; far less than the $2.5m hurdle qualifying investors as ‘wholesale’. (That means even within the top decile, more than half of the households don’t clear the hurdle). In 2015/16, the last available data, the mean net wealth for all Australian households was $929,000 and the median was even lower; $527,000 (and most of that was non-financial assets; probably the family home).

2 -Institutional investors, of course, clear the hurdle for wholesale investing and quite a lot of Australia’s wealth (approximately $1.8 trillion) is held in superannuation funds that aren’t self-managed. However, only a small number of super funds have started to participate in the impact investing industry. Part of this is that many impact investing products are quite small, have capital raising timelines that are too fast for super funds, or otherwise don’t fit institutional super funds’ needs.