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25 Apr. 2017 | Comments (0)
Lisa Green Hall co-manages and led the launch of a global initiative known as Skopos Impact Fund, focused on delivering social, environmental and financial returns. As the former CEO of Calvert Foundation, a global leader in impact investing, and a board member of the Nonprofit Finance Fund, Lisa Green Hall has a rich perspective on what works. In this Q&A, Lisa Green Hall shares how impact investing is an opportunity to expand economic prosperity globally and leverage the influence of women and people of color in business and finance.
Q: You believe in the force of impact investing to drive innovative solutions to global challenges—economic, social, and environmental. What’s your definition of impact investing?
A: I often describe impact investing in contrast with philanthropy, as a hand up, not a handout. Impact investing is a relatively new term, which was first coined by the Rockefeller Foundation in 2007. However, the concept dates back centuries. In the modern industrial age, one of the best examples of impact investing is Benjamin Franklin’s Leather Apron Club, which more than 200 years ago financed a library, a hospital, an academy for educating youth and numerous other social enterprises. For a more nuanced and generally accepted definition of impact investing, I like to refer to how the term is defined by the Global Impact Investing Network (GIIN), whose membership includes many of the largest and most active impact investors in the world. The GIIN defines impact investments as “investments made into companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets and target a range of returns from below market to market rate, depending on the investors’ strategic goals.” I would add to the characteristics in the GIIN definition that it can be misleading to think of impact investing as its own asset class. Impact investing is an approach to investing that spans a wide range of asset classes from cash deposits in community development banks to private equity in emerging markets to publicly traded stock in B Corps.
Q: What’s important about the voices of women and people of color in impact investing, and why should mainstream finance and business care?
A: Women and people of color are consumers, investors, entrepreneurs, corporate executives, board directors, and philanthropists. The combined numbers of women and people of color are growing, but more importantly their influence is growing. According to EY, by the year 2028, women will control close to 75 percent of discretionary spending worldwide. The data also show that women engage in purchasing and investment decisions differently than men. The case for taking women into account when it comes to investing is detailed in the recently published book Gender Lens Investing: Uncovering Opportunities for Growth, Returns and Impact by Jackie Vanderbrug and Joseph Quinlan. The book examines why investing with a gender lens is not just a nice idea—it leads to better financial performance. I believe the same dynamic is true with respect to people of color who bring their diverse racial and ethnic backgrounds to help improve decision-making at companies, nonprofit organizations, and in fund management. There are multiple efforts underway to expand access to capital to ethnic and racial minorities. I am a big fan of the current campaign known as #RiseoftheRest, which was launched recently by the Case Foundation to highlight the importance of inclusion in entrepreneurship and impact investing. The Milken Institute, in partnership with the U.S. Small Business Administration, also recently launched the PLUM (Partnership for Lending in Underserved Markets) Initiative to bring attention and capital to these same issues. As the racial and ethnic demographics of the world change, it will be imperative to include as many different types of people as possible in economic growth. And while understanding the political implications of economic inequality is important, I think it is similarly important to understand that greater access and more investment in women and people of color is a matter of prosperity for all. As a global society we have an opportunity to grow the pie—not simply to divide it into more pieces. Most impact investors aim to expand opportunity and prosperity. As an evolving and dynamic field, impact investing is well positioned to include more voices and perspectives from communities different from traditional investment, where capital is still largely controlled by people who are not women and not people of color. In the not-too-distant future, I believe that all investing will be considered impact investing, where the goal is to achieve financial returns at the same time that positive good is created. Eventually, it will no longer be acceptable from an investment standpoint to ignore the positive and negative impacts of an investment. And this type of approach to investing cannot be achieved without reflecting the needs, perspectives, and experiences of women and people of color.
Q: Is there evidence of how women approach investing and giving?
A: In addition to the book by Vanderbrug and Quinlan on gender lens investing, there are numerous resources and studies about women and investing. One of my favorite online resources is Women Effect—a hub for thought and strategy on gender lens investing, which will soon be hosted online by the Wharton Social Impact Initiative. I also really enjoy reading WILK, a new blog, dedicated to women and investing, published by Kimberlee Cornett, a leading impact investor. The latest in her series features Kesha Cash, the CEO of Impact America Fund. And for those who are interested in the facts and just the facts, consider these often referenced findings:
- Fortune 500 companies with the highest representation of women board directors attained significantly higher financial performance, on average, than those with the lowest representation of women board directors, according to Catalyst’s most recent report, The Bottom Line: Corporate Performance and Women’s Representation on Boards. In addition, the report points out, on average, notably stronger-than-average performance at companies with three or more women board directors.
- A 2009 study described in a white paper by Cindy Padnos found that venture-backed companies in Silicon Valley run by women had annual revenues that were 12 percent higher and had lower failure rates than those led by men.
- Organizations that are the most inclusive of women in top management achieve 35 percent higher return on equity (ROE) and 34 percent total return to shareholders versus their peers.
For more great evidence of the results generated by gender lens investing, check out the report from Veris Wealth Partners which can be found here.
Q: What do we know about the interests of refugees and diasporas in impact investing?
A: The media constantly shines a light on the refugee crisis, reminding us that millions of people around the globe leave their countries of origin, in the case of refugees, involuntarily. Society and history are filled with examples of individuals and entire families leaving their native countries to flee persecution, but many also leave in search of economic opportunity. Immigrants are often drawn to entrepreneurship or find it a less complicated to pursue than formal employment. Small and sometimes large fortunes result from their business endeavors. In other cases, financial success comes through employment with companies. In both instances, immigrants generally remain connected directly or indirectly to their countries of origin. Impact investing efforts that try to connect these individuals and their diaspora communities with their countries of origin include Homestrings, an online investment platform for overseas African diaspora to link financially with their home countries. Homestrings has been the subject of a case study at Harvard Business School and has grown rapidly since it was founded less than 10 years ago. It recently expanded into a new initiative which will be known as Movement Capital. Calvert Foundation also offers a number of targeted investment notes focused on diaspora communities including an Indian Diaspora Initiative.
Q: How can investors be a force for advancing women ownership and gender diversity on boards?
A: One of my favorite impact investors likes to say that the impact investment community could benefit from less talk and more action. My advice to investors is to take action—whether it is a small step or a big step. Investors can have a significant influence on companies or funds in which they hold stock or debt. As investors, my team is always interested in understanding gender diversity of the funds we consider. As part of our initial assessment we want to know how many women are on the board? How is the customer base reflected in the diversity of the senior management team? Simply asking the question creates an opportunity for discussion that can lead to a result which the company or fund might not have otherwise considered. In the case of publicly owned companies, shareholder advocacy can be a powerful way to effect change. We believe it is important to not only screen for gender diversity issues, but to also work with companies and funds that may not be best in class but are willing to make changes. In the end we win as an investor and they win as an investee because these considerations lead to better performance in the long run.