Getting a market-rate return is something impact investors are comfortable with, but a lower return makes it harder to attract enough investors, said Trenton Allen, managing director and chief executive of Sustainable Capital Advisors. “It’s not impossible,” he said. “But you’re narrowing the number of investors you have access to.”
Traditional impact investors also argue that accepting different returns for different investments is already happening. Consider bondlike returns for fixed-income types of risk.
“Impact investing is a big tent and should be a big tent,” said Nancy Pfund, managing partner at DBL Partners, an impact venture capital fund. “The challenge is, we shouldn’t muddy the waters and think impact-first is the only kind of investment. We also don’t want to step backward and deal with biases about returns that we have spent at least 10 years fighting.”
Even those who have taken the approach agree that it is a luxury.
“If the organizing priority is impact, that’s a privilege, but you have to have a deep tolerance for risk,” said Margot Kane, chief investment officer of Spring Point Partners, which is a social venture fund created by the Berwind family of Philadelphia, whose wealth dates to 19th-century coal mining.
For anyone considering taking the middle ground, here are the two key questions: How do you determine if an investment qualifies as impact first? And since impact, not return, is the primary motivation, how do you measure it?
Let’s start with selection.
“One of the things we ask ourselves when we’re doing due diligence on one of these projects is, ‘Is this a really great catalytic investment or a very bad market-rate investment?’” said Liesel Pritzker Simmons, co-founder and principal of Blue Haven Initiative and a member of the family whose wealth derives from Hyatt hotels.
“Honestly, it tends to come down to what is the problem they’re trying to solve and is the nature of that solution super-scalable or not?” she said.