Democratise Impact Investing — Part 2: The How

Improved Access

Provide the opportunity for more people to access impact investment products. 

At the moment, the opportunity for people to express their values through the way they invest is not open to everyone. They might be restricted by high minimum investment thresholds, or investment managers’ licence conditions or the prohibitive costs of investing. Here are two ways these barriers could be addressed.

• Superannuation funds
  Almost all working Australians have a superannuation account. Of the 29 million accounts, almost 28 million are in retail, industry or public sector funds, as opposed to self-managed funds. That makes superannuation the most broadly accessed means of investing in the country. If more superannuation funds invested with deliberate impact, it would follow that more Australians would be participating in impact investing and there would be more avenues to do so. Granted, there are serious inequities in superannuation; women have lower balances, on average, reflecting the wage gap and patterns in parental leave. There are significant challenges to developing products that are suitable for super funds – size, timing, fees, asset allocation limits, liquidity and risk being the most obvious ones. However, impact investing also provides elements that benefit super funds. We have seen recent research suggesting that some impact investment opportunities offer diversification benefits as there may be low correlation with other investment classes. We also believe that impact investments meet some account holders’ demands for investments demonstrably in line with their values and focused on creating a better world for them to retire into.
• Retail opportunities
  Direct investment products designed for retail investors may also provide a channel for democratising impact investing.[1] Building retail opportunities provides an investment manager with the chance to form direct relationships with people. Those relationships can become the platform for important conversations about money and values.

Sharing

A form of democratising impact investment would be to ensure that a wider group of people influence investment decisions and decisions about the projects and assets that are funded by the investment. This could include intentionally supporting options that match their values and ensuring a wider group of people ultimately derive both financial and shared social and environmental benefits.

• Community engagement and consultation
  The stakeholders of the underlying assets and projects in our investments can and should contribute to the plans and ongoing operations. This is intertwined with planning and delivering social impact. As the NGO sector has found, designing social impacts alongside the beneficiaries helps protect against implementing measures that no one wants. At IIG we experienced this when we worked alongside the staff at the Quiksilver distribution centre in Corio Bay to co-design their recreation and break areas.
  In Kensington, the community engagement team for IIG’s Younghusband project helped convert community suspicion into support, which resulted in significant savings in legal fees and accelerated the project’s development timeline.
• Sharing via our procurement channels
  Managers make decisions about each dollar that is turned over in an impact investment product, whether it’s the acquisition of the underlying asset or the goods and services used through the term of the investment. Those decisions can proactively direct spending on goods, services and assets to people and businesses that have been disadvantaged or otherwise bypassed by economic growth.
• Diversifying the workforce in the industry
  We’re writing this article from the narrow perspective of IIG; we haven’t seen comprehensive research about who’s working in our industry. With that caveat, let us share this observation of our own team and the people we see and meet at industry events and through our work. IIG’s staff includes people who don’t have family wealth and our team is reasonably gender and race diverse. However, I suspect we still don’t hear many voices of people unlike us when we’re making our decisions. Mostly, it’s people who are well educated and well capitalised. Looking around the room at responsible investing and impact investing events, that pattern is even more pronounced.
• Target a broad social impact first, then design and structure the investment
  Impacts such as education, housing, health and financial literacy are particularly beneficial for shared prosperity and could credibly be included when we’re thinking about democratisation. However, within these areas it is difficult for investors to capture the broader social returns (often called spillover effects or positive externalities) and so may require government support or partnering to generate commercial Alternatively, an investment manager could attempt to drive demand for high-impact investments with lower financial returns. Intentional investment, through a broader number of investors, could actively demonstrate the desired social benefits our community wants – investors walking the talk, if you will.

Evangelism

Tell more people to invest for impact, whether through our opportunities or others.

• Spread the word!
  Most people still haven’t heard of impact investing, responsible investing or the case for adopting the practice. Democratising impact investing can make it a mainstream conversation, one that becomes common around the barbecue instead of being confined to conference event appearances. Media columns and engagement events can spread the word more broadly. We can drive the case for impact investing to be adopted as the mainstream.

Political Activism

Change the conditions of the market, so that (assuming rationality!) more people invest for impact.

• Invest in advocacy
  The incentives for investment are heavily influenced by federal, state and local government policy. This is especially true of taxation, but also the broader policy levers that could make impactful investments more attractive (Australia’s climate energy wars being a case in point). The first step would be to identify what those policies are and which of those we have a reasonable ability to influence. The introduction of a price on carbon would have provided incentive for renewables investment, while regulation on building standards could drive investment in assets similar to those we develop. The not-for-profit real estate and property management agency Homeground had great success in obtaining a Tax Office ruling that landlords who rent to socially or economically disadvantaged tenants can claim a deduction. Next, they are targeting council rates, land tax and mandated utility charges.

We Want Your Input

This is intended as a conversation starter. However, it is coming from just one party, so your voice is missing. We appreciate the people who wrote back to our first piece on the what and why (and we’ve updated the page with a selection of the points that were raised).

We really want to hear from:

• people who are outside our circles
• people who don’t have spare money to invest
• people who haven’t invested for impact, but would like to.

One reader, Zach Tung, a Project Manager for an organisation in the UK called Social Investment Business, has replied with a very thoughtful response, and identified a couple of factors we’d missed:

• “In democratising, I also think it is important to note the role of Government. Both in terms of enabling the growth of the sector but also their ongoing role in being accountable to voters in governing as more responsibility is placed on businesses to deliver social programmes/return. We have some tax incentives here in the UK that have had mixed success. These include Community Investment Tax Relief and Social Investment Tax Relief (which the Government will be reviewing in 2019).
• Technology will also play a key role in democratising impact investing. Both in helping engage people and support education in and facilitation of social impact investing. Some interesting examples include Triodos know where your money goes and Open Invest in the US

[1] Given the majority of most Australians’ financial investments are held in superannuation portfolios, it is likely that direct retail funds would serve a relatively wealthy population.