Report Finds Gaps, Opportunities in Impact Investment Field

Report Finds Gaps, Opportunities in Impact Investment Field

While demand for impact investing and social justice grantmaking has grown, gaps in documentation and accountability have left investors with few tools to navigate the field, a report from the Jessie Smith Noyes Foundation finds.

The report, Building Power Across the Impact Investment Field (29 pages, PDF), highlights findings from the foundation's seven-month-long search for a mission-driven investment advisor as part of an effort to better align its endowment with its social justice mission. Based on thirty-four responses from impact investment advisors to the foundation's call for LOIs, the study found a broad spectrum of advisory services with wide-ranging definitions of and approaches to the field. Nearly 30 percent of applicants were firms dedicated to impact, socially responsible, community, or ESG (Environmental, Social, Governance) investing, for example, while 44 percent had a dedicated impact team or expert on staff. The report also found that the investment vehicles most often recommended were available through public markets, were more specialized and available only in private markets, or were built around a multifaceted approach using a combination of strategies, including impact investments, ESG stock selection, shareholder engagement and activism, mission-related investments, and program-related investments. In addition, advisors asserted that their impact investing strategies could match or exceed the financial performance of traditional investment strategies.

Despite the focus on fairness and equity, diversity, human and labor rights, access, and economic revitalization, the report notes, the advisory firms lacked racial and gender diversity in their own leadership, which led to a dearth of expertise with respect to how to address gender and racial equity through investments. Only 26 percent of the firms that applied were led by women, while 12 percent were led by minorities and only 9 percent were led by minority women.

At the same time, the report highlights a number of bright spots and opportunities in the still-nascent field, including the accelerating pace of innovation, the institutionalization of expertise, and the role philanthropy can play in advancing the field through knowledge sharing, collaborative investments, and shareholder advocacy, as well as by providing catalytic capital to help establish proof of concept for innovative strategies.

"Our hope is that this paper will inspire anyone managing foundation endowments to explore opportunities for mission-aligned investing to generate long-term systemic change," said Noyes Foundation interim executive director Rini Banerjee. "We invite the sector to join us in this investment journey to regenerate our land, invest in people-powered solutions, and build stronger, more sustainable communities."

"New White Paper Reveals Gaps and Opportunities in Social Impact Investing." Jessie Smith Noyes Foundation Press Release 06/25/2018. "Building Power Across the Impact Investment Field." Jessie Smith Noyes Foundation Report 06/25/2018.