Everyone Can Get Involved in Impact Investing. Here Is How
You have read articles about impact investing. You have met people and asked questions. Now you want to start contributing. You wonder what would be the best way to do that, given your own experiences and the resources that you have in hand. This article should give you some idea on where and how to start.
Impact investing is thankfully a broadly defined sector, so there are no stringent requirements of what kind of impact need to be achieved and how they should be achieved. It is also a subset of the overall for-profit sector, hence most of the skillsets in the business world is applicable in the impact investing world. You can tailor your involvement and commitment to the impact sector in many ways that fits your context, whether you are a seasoned executive, a second-generation business owner, or a consultant, lawyer, or banker. Even if you are retired, or on the other extreme, a fresh graduate, there should be a way to get involved.
This article offers eleven ways to participate, organized into 3 sections: participating on the side of the impact enterprises, participating as intermediaries/advisory side, or on the financing side.
1. Advise an Impact Enterprise
Seasoned professionals or accomplished entrepreneurs can provide immense contributions by joining the governing board or advisory board of impact enterprises. You can also opt to be an independent board member or, less commonly, represent one of their investors. Commitment required varies greatly from enterprise to enterprise, but general rule of thumb is that you need to spend around 5–10 hours/month to make meaningful contributions. More than just formal time spent on meetings related to the Company, most of the time board members also act as informal counsel to management and make time when they need it the most.
If you prefer not to focus on one or two enterprises only, you can join a mentorship network like Endeavor, that provide an excellent way for multiple enterprises to engage multiple mentors.
2. Transform Company into an Impact Enterprise
If you already own or run a company, unless your company operates in what typically considered excluded sectors, it is very possible to incorporate impact principles in how your company operates. Even a large a company like Danone strives to become an impact enterprise, and it has made a major step by becoming a B Corp-certified company.
3. Work for an Impact Enterprise
Attracting talent at the management level is one of the biggest challenges of impact enterprises. Most early-stage impact enterprises cannot offer market salaries and the jobs often require moving to remote locations. There are initiatives like this one from LGT VP, aiming to allow impact companies to be able to at least match the market rates.
This talent gap also opens up opportunities for those with less experiences to grab more responsibilities earlier in their career. Working in an impact enterprise at the formative stage of your career offer tremendous chances to thrive in the real world, compared to the safe bubbles provided by prestigious entry-level jobs in consulting or investment banking.
4. Work as an Impact Investor
For me, I had a risk-free transition from the corporate world to the impact investing world. The biggest challenge for me was to change my mindset, as described in one of my previous articles here. Even if you are a fresh grad, you can break into the sector by joining at the entry level. As the sector is still maturing, nobody has really “figured it out” hence even as a junior person you have the tremendous opportunity to shape the sector.
5. Create an Impact Fund
Impact investing is a nascent and still niche sector and it requires a diversity of approaches before they eventually converge to a mature model. There are ways of doing this. If you already have a traditional investment fund, you can set up a new impact vehicle, just like what TPG, Bain, and KKR have done. If you plan to set up a corporate VC, you can incorporate impact and sustainability approach of your industry to the fund. Last but not least, if you want to create a fund from scratch, initiatives like Capria’s should get you off the ground very quickly.
6. Serve as Transaction Advisor
If you’re an investment banker, lawyer, accountant, tax expert, sustainability consultant, or headhunter, you can set up a practice dedicated to the impact investing industry like what Impact Investment Exchange, Intellecap Investment Banking, Unitus Capital, Instellar, or Asco have done. Alternatively, you can start by performing pro-bono or low-bono services to impact enterprises that are aligned your values.
7. Contribute through Crowdfunding/Crowdlending Sites
Kiva.org is probably the most well-known and the earliest example of crowdlending, having been founded as early as 2005. As of today, in Indonesia alone, there are several impact-minded crowdlending websites such as Danadidik, Danacita (both providing education loans), iGrow, or TaniFund (both providing farmer loans). There should be equivalent websites in other countries too, you just make sure that they are certified by the relevant regulators in each country.
8. Allocate Portfolio Towards ESG/SRI Investments/Social Impact Bonds
While the efforts to create the first social impact exchange are still ongoing, the market for ESG (Environmental-Social-Governance) and SRI (Socially Responsible Investing) investment, essentially avoiding making investment with negative impact, is quite mature. Alternatively, you can also invest in “social impact bonds”, an ongoing experiment to provide a direct link positive social impact with financial outcomes.
9. Become an Angel Investor
If your financial net worth is over a certain threshold, you can join an angel network in your city, either as an individual or as legal entities. I have personally been in touch with such networks in markets where I operate, e.g., Altira Group, Angin, Manila Angels, Bali Impact Angels, Lankan Angel Network, or Bangladesh Angels. You probably only have to pay a small fee to get in, so there is almost no risk at all in joining.
10. CSR to Impact Sector
Today, CSR program managers have many more options beyond traditional philanthropy of the past decade. Corporations that are aiming towards more purposeful giving can contribute to the development of an ecosystem that results in a more sustainable outcome. One way is to provide grants to promising impact enterprises, just like Bank Mandiri and DBS Foundation do. Rabo Foundation extends soft loans to promising impact companies in the agri sector. Another way is to support organizations like Kopernik to conduct experimentation on the area of technology distribution or last mile engagement, in which the learnings can be used by many impact enterprises worldwide.
11. Invest in or with Impact Funds
Investing in an impact fund is often seen as a “next step” after angel investing, as funds require larger and longer-term commitment than individual enterprises do. However, investing in impact fund is no longer only the domain of DFIs (Development Finance Institutions) of the world. Hero, a leading industrial business group in India, has invested in Aavishkaar’s sixth fund as part of its foray into startup investing, while some other family offices are doing similar thing.
Some funds allow smaller investors to chip in, even though probably you would not get a seat in the fund’s advisory board. More importantly, the funds would probably allow you to co-invest with them, hence giving you more potential upside as well as a closer look on the market and the portfolio management approach of the fund.
The Safest and The Most Brave Options
Given the broad range of options available as described above, chances are you will be able to find at least 2–3 ways to get involved.
In the very unlikely case that you are still not sure what to do, or maybe you want to take no risks at all, you can always join the ecosystem by talking to the key players, attending conferences, or conducting field visits to impact enterprises. Another way is to join an impact networking platform like AVPN (Asian Venture Philanthropy Network) or a similar organization in your geography, to get exposed to more opportunities and get to know the players better. Last but not least, you can make small steps by adopting a more robust impact/ESG standards in your activities.
On the other extreme, you can also start an impact enterprise from the scratch. From my experience seeing how tough it is even for very capable impact entrepreneurs to start and grow their businesses, I would strongly suggest aspiring entrepreneurs to think through their plans and intentions, and also their inner values and motivation, before taking this drastic leap.
Getting involved in the impact investing industry is not the only way to make real impact, and the sector for sure has its flaws as well, but I personally believe that impact investing is the most practical and structured way of making a positive contribution to the world.