By Jerilyn Klein Bier
Faith-based investors laid the groundwork for impact investing long before this moniker was coined several years ago. In the 1960s, they began to pioneer community investment institutions that provide low-interest financing to low-income borrowers. Today, their efforts to generate social impact while capturing some financial return extend worldwide. They're also trying to figure out their future role in this evolving sector.
Mark Regier, director of stewardship investing at Everence, a faith-based investment firm in Goshen, Ind. that advises the Praxis mutual funds, observed some excitement but also confusion when he initiated a conversation about impact investing at the summer meeting of the Interfaith Center on Corporate Responsibility. ICCR members include nearly 300 faith-based institutional investors whose combined portfolios are worth an estimated $100 billion.
"I think the emergence of the impact investing language and the more sophisticated options that have come with it will mean more attention to the space," says Regier says, whose firm was founded in 1945 by the Mennonite Church. "And this means there will be scale." He hopes it will enable Everence to expand its impact investments.
But faith-based investors like Everence-whose top priority with impact investing is to help the poor and disadvantaged, followed by security (i.e. making sure the original investment comes back) and then financial return-plan to cautiously tread the expanding turf.
"How can we find products for our portfolio that do what we want them to do but also have a social impact?" Regier asks. "And how do we sort out what investments have a social impact and which ones are just putting on a light green coat of paint?"
For its part, Everence will continue to invest in enterprises that that not only lend money to the poor and disadvantaged, but also offer mentoring programs that help these recipients build credit history and increase self-sufficiency. "We want to help the economic cycle go around; we don't just want to prop up the middle organization," Regier says.
Everence is also sticking to debt and won't invest in private equity, although the latter has become a major focus in the rapidly expanding impact investing market. "If you're going to do private equity, you have to be ready to lose money," Regier says.
He notes that debt is a better match for the investment firm's risk appetite, expertise and structure.
Of course, there are no guarantees with debt either. But good investment monitoring processes have helped Everence avoid losses on interest and principal in its community investments and other social impact investments over the past 11 years, Regier says.
Everence closely monitors its investments by looking at their quarterly financials, changes in leadership, board composition, relationships with various funders, and how they may be impacted by potential changes in government funding or tax credits.
"Knowing who you're working with is terribly important," Regier says.
Everence uses intermediaries for much of its social impact investments in developing countries. "Very few investors hop overseas and look for a group on the ground," Regier says. "It's too hard and too much risk." Organizations it works with include MicroVest Capital Management LLC, Mennonite Economic Development Associates (MEDA) and Shared Interest.
MicroVest, which manages a family of funds, has provided financing to more than 80 low-income finance institutions across 39 countries since its 2003 launch. Shared Interest provides low-income South Africans of color access to credit and technical support to launch small businesses, create jobs and build secure new communities. Its guarantee fund, supported by investors, is used to move South Africa's major banks to extend credit to communities and institutions they would otherwise consider too costly or too risky to serve. MEDA has helped create and aid microfinance institutions in various countries including Afghanistan, Haiti, Mozambique and Nicaragua.
Closer To Home
Everence's U.S.-focused community investments include the North Carolina-based Self-Help Credit Union, which has a historic commitment to working with the poor; Liberty Bank, which is committed to restoring New Orleans and bringing capital back to the city's underserved community; and the Denver-based Native American Bank, which provides Native Americans and their communities with access to capital.
The overall return of Everence's community investing portfolio is 3.5% to 4.5%.
One percent of each of Everence's Praxis mutual funds is automatically invested in Everence Community Investments. Recently, the firm has been trying to bring individuals into this work through its donor-advised fund. Everence has also sponsored a retail product, OneWorld Community Investment Notes, in partnership with the Calvert Foundation. The product enables individuals to invest directly in community investments for as little as $1,000.
Mission-driven investors have been reflecting on how they can assist others with impact investing, Regier says. They understand how it works and they're experienced with working with the corporate world, so they're hoping to help bridge these two sides. They're also hoping they can help set some standards and get some impact investments off the ground.
He notes that ICCR members are planning to hold a series of conversations over the next year to discuss how they might work together to educate themselves and address the gaps in impact investing.
"The goal is to bring market opportunities together with what it takes to make differences in people's lives," Regier says.