Wealthy individuals and families are uniquely positioned to pursue "impact-first" investments that prioritize social and environmental gains over financial returns, a report from the Bridgespan Group argues.
Based on interviews with high-net-worth individuals (HNWIs), family-office directors, fund managers, and intermediaries, the report, Back to the Frontier: Investing that Puts Impact First (19 pages), found that pioneers in the field of "catalytic capital" — including Omidyar Network, Blue Haven Initiative, Ceniarth, and Spring Point Partners — have overcome barriers to the impact-first approach through a three-step process: clarifying a commitment to impact; relying on trusted collaborators; and choosing how best to invest, which can range from outsourcing to advisors and fund managers, to working with one or two impact specialists who complement an existing family office staff, to hiring a team and building an organization dedicated to impact investing.
According to the report, HNWIs (those with between $1 million and $30 million in investable assets) and and ultra-HNWIs (those with more than $30 million) have seen their wealth double over the last fifteen years, yet catalytic capital accounted for only 7.5 percent of new impact investments in 2019. The COVID-19 pandemic and heightened concerns about climate change, racial injustice, and income inequality have highlighted the need for more impact-first investing, the report argues.
"Foundations meet a small part of the need with program-related investments, which typically target below-market returns. Conventional impact investment funds that have raised capital from multiple investors with the explicit intent to deliver market rate returns can't participate because of fiduciary obligations," the report's authors write. "That leaves HNWIs and family offices in a unique position to champion impact-first investing. Their investable assets dwarf that of foundations, and they have the discretionary power to declare impact a priority."
The report provides examples of themes, sectors, and geographies for impact-first investing and highlights the emerging role of donor-advised funds as a vehicle for impact-first investing.
"A growing number of HNWIs and family offices are taking advantage of the opportunities created by fund managers and intermediaries to explore investment opportunities in the middle ground between philanthropic grants and market-rate impact investments," said Bridgespan partner Michael Etzel, who co-authored the report. "If impact-first means leaving returns on the table in exchange for social or environmental benefit, it is a tradeoff we believe is worth making."