Investing With A Purpose: Impact Investing

by Galia Gichon on March 14, 2012

impact investingI have long been familiar with Socially Responsible Investing (SRI).  I’ve had many clients over the years choose these mutual funds for their IRAs.  You can find a complete list of almost every SRI fund at socialfunds.com.  It’s a fantastic way to support your causes and beliefs with your investing dollars.  However, my main two complaints about SRI has been that they don’t always provide the best returns and their fees tend to be higher than the Fidelity and Vanguard funds I usually eschew.

As you may know from my recent post, I’ve embarked on an amazing personal and professional journey with the Pipeline Fellowship.  This group trains women to become angel investors through education, mentoring, and practice.  Our goal is two-fold: Invest in a woman-owned business and Pick a business that is socially conscious.  We recently had a workshop on Impact Investing – or SRI for individual private companies.  It was led by the talented and experienced Morgan Simon, co-Foudner of TONIIC.  TONIIC is the most active social investor network in the world.

From strictly a performance and fee perspective, I’m not a fan of SRI mutual funds.  However, Morgan pointed out that a benefit of SRI fund is that while they may not be the top performer, the funds do have shareholder activism; for example getting McDonald’s not to use pesticides. It was a point I had not considered and will definitely take another look at SRI funds for that reason.

Can We Own Both?
As Angel Investors, can we achieve multiple goals at the same time?  Most of us think about making money in one area and donating philanthropy in another.  Can we invest or create a company that is socially conscious and financially solvent?  At a recent Pipeline Fellowship meeting, we had our first discussion about the actual companies we are evaluating.   Our discussion definitely bounced back and forth from the social impact to the market viability, management experience and barriers to entry.  It was enlightening to be in a room of talented women that were able to have both discussions at the same time.  It is a goal of mine to pick companies that are FOR profit, focus on the bottom line AND are socially conscious.  There is no better way to make change than with our dollars!  There is also the 3-pronged approach, which applies more to investing in a group of companies.  While all the companies are designed for impact investing, some companies you choose first for their financial viability, some you choose more for their socially conscious impact and some you choose for equal parts.

Invest Your Cash With Purpose
Morgan suggested an EASY way for us as individuals and organizations to start impact investing RIGHT AWAY!  Where are you putting your cash?  I’ve been a big fan of ING DIRECT for years.  While they have been one of the highest interest paying banks around, the difference these days is nominal and won’t make you rich anytime soon.  One option is picking a community bank that supports your local community and invests in areas that need community support.  For example, a New Orleans bank that invests in rebuilding or Carver Bank in NYC that is minority owned.  They have the same FDIC protection but giving your cash to this type of bank can make more of a difference in local communities.

Beyond Paycheck to Paycheck
We also learned about picking companies that are creating value for the employee.  The obvious way to understand this is through stock options for the employees.  That isn’t exactly what they mean.  When looking at individual companies, choose one that creates value for the employee beyond paycheck to paycheck.  There is an SJF report, “Beyond paycheck to paycheck,” that profiles 12 different ways that companies can create value beyond paychecks (http://www.sjfventures.com/).  Companies will often have up to 35% more productivity and performance.   Some examples are financial literacy programs, retirement plans, profit sharing, individual development accounts, home ownership assistance, and stock options.

After 18 plus years of financial services experiences, I’m thrilled to be learning about investing with a different perspective.  Stay tuned for more about my journey into Angel Investing with Pipeline Fellowship.

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