Impact investors like Liesel Pritzker Simmons are a passionate bunch, who care about social and environmental issues and believe their investments should reflect that. So what happens when that conviction meets a presidential administration that doesn’t seem interested in, say, battling climate change or protecting workers’ rights?
Let’s put it this way: Donald Trump does seem to have a knack for motivating people.
“I’ve been having a lot of conversations with other investors about how you can’t rely on government to make good and ethical choices. You have to take the responsibility because your government won’t necessarily do the right thing,” says Pritzker Simmons, who invests alongside her husband Ian Simmons through their family office, Blue Haven Initiative. “These are uncertain times, so where are you going to find certainty? You find certainty in your values.”
Like the rest of the country, impact investors are adjusting to the reality of a Trump presidency and what it means for the issues they care about. Since the November election, charities and nonprofits—from the Sierra Club to Planned Parenthood to the American Civil Liberties Union—have reported surges in what they now call “rage donations,” which seem unlikely to let up as the new president rolls out his agenda. During the weekend following Trump’s executive order on immigration, the ACLU received $24 million in online contributions from more than 356,000 people, six times what it typically gets over an entire year, a spokesman told The Washington Post. Investing to generate both social impact and financial return is, of course, more complicated. Not all problems have obvious market-based solutions—attacks on civil rights being one example—and nobody would advocate buying stock online in a moment of passion. So it will take time to know whether impact investing sees the Trump effect in dollars. But if the intentions of certain wealthy families give us any indication, it just might.
“I see values-aligned investors doubling down,” says Abigail Noble, CEO of The ImPact, a nonprofit co-founded by Justin Rockefeller, Ford heir Jason Ingle and Pritzker Simmons that educates family offices in investing for impact. “People are identifying specific causes they care deeply about, such as access to education and to health care or renewable energy solutions, and planning to deploy more capital to those high-impact businesses to ensure the right outcomes happen.”
How a broader Trump-driven spike in sustainable, responsible and impact (SRI) investing might play out in 2017 and beyond is unclear. Could SRI see an increase across the board—across sectors, geographies and investor types? Or, like the nonprofit contributions, might certain areas, such as the environment, experience a bump? Are we talking about a boost in dedicated assets from investors already involved in SRI, or could individuals and institutions who’ve been in wait-and-see mode finally take the plunge?
Then again, the cautious might also see Trump’s policies as reason for even more caution. And sophisticated impact investors, who largely focus on private equity, private debt and venture capital, could pull back from sectors in the U.S. that might be stalled by the president’s domestic policies and proposed budget cuts, such as affordable housing and early-stage clean tech, which lean heavily on federal initiatives.
Trump has vowed to slash federal agency budgets—the blueprint being used by his team would reduce spending by $10.5 trillion over 10 years—leading some impact investment advocates to believe in the potential for partnering with government to fill spending gaps and meet common goals. The U.S. Impact Investing Alliance, a nonprofit that works to increase the flow of institutional SRI capital, has already begun meeting with members of Congress to discuss what that might look like, says Fran Seegull, the organization’s new executive director.
“We think there are some strong opportunities to partner with the new administration to achieve mutually desirable outcomes,” says Seegull, who previously served as chief investment officer at ImpactAssets, a Bethesda, Md.-based nonprofit financial services firm.
“The impacts we seek are strong jobs; strong education outcomes; access to health care and affordable housing; and sustainable infrastructure for water, energy and transportation. Those are very commensurate with policy outcomes. … In a world where it seems that the administration will be cutting some agency budgets, private capital for public good becomes even more important.”
Of course, it should be pointed out that, although he may wish it so, the president of the United States is not a king. As we’ve seen with the court rulings against Trump’s executive order on immigration, which aimed to temporarily ban immigrants from seven predominately Muslim countries, there are limits to presidential power. There are also economic and societal forces beyond the president’s control. For example, much has been written about the declining cost of wind and solar energy and battery storage, and how the clean energy revolution will rage on despite U.S. federal policies. Much has also been written about how the millennial generation pays particular attention to the practices of the companies they buy goods and services from, and their willingness to drop the ones they disapprove of like a hot potato. Just ask Uber. (Hundreds of customers deleted the Uber app in solidarity with Muslim ban protesters in New York City, following claims the company continued to operate at John F. Kennedy International Airport after other taxi services called a strike.)
Similarly, SRI investment has seen steady growth for a decade now, especially over the last three years. Since 2014, SRI assets have ballooned to $8.72 trillion in the U.S., an increase of 33%, according to a recent report by the Washington D.C.-based Forum for Sustainable and Responsible Investment (US SIF). The report was based on a survey of more than 1,800 institutional investors, money managers and community investing financial institutions. Of the 300 money managers who responded, the number one reason cited for their involvement (85%) was client demand.
While the US SIF survey looks at the SRI space broadly—everything from socially responsible mutual funds to institutions that simply screen out certain types of investments, such as fossil fuel companies—most wealthy individuals and families involved in impact investing go much further, committing private equity and debt to businesses or projects that produce a measurable social or environmental outcome. And these folks have become the driving force behind this sort of “deep impact” investing. More than 60% of family offices are now active or expect to be active in values-aligned investing, according to the recent Global Family Office Report by London-based Campden Wealth, which was based on a quantitative, online survey of more than 240 family offices around the world during 2016. Millennial heirs, like those who founded The ImPact, are a key catalyst for this change, but not the only one. Some 47% of family offices believe that impact investing is a more efficient use of funds than philanthropy to achieve social and environmental outcomes, the report says.
The idea that impact investing, in certain cases, works better than philanthropy for solving problems is gaining ground, and it has begun to dovetail with another trend: social entrepreneurship. An increasing number of start-ups are for-profit social enterprises that seek to solve problems and make money at the same time. One metric for measuring this comes from Echoing Green, a New York-based organization that provides seed funding and technical assistance to emerging social entrepreneurs. Echoing Green receives fellowship applications from hopeful nonprofit, for-profit and hybrid start-ups all over the world. In 2016, nearly 50% of the applicant pool proposed for-profit and hybrid business models, a 30% increase since 2006.
“What’s most exciting for me is, in an environment where there’s political uncertainty, you can expect entrepreneurs to increasingly create businesses to address pressing social issues,” says Josh Cohen, a managing partner at City Light Capital, an early-stage venture capital firm that invests in U.S.-based companies. “I expect that people will be increasingly less reliant on government only or philanthropy only to solve problems, and for-profit companies will play a more meaningful role.”
This change, Cohen says, is not administration-specific but a macro-trend that will continue long into the future. “I feel pretty good about the prospects of being an impact investor in this day and age,” says Cohen, who is also a co-founder of The ImPact. “There will be more high-quality opportunities to choose from as an investor.”
Matthew Weatherley-White, managing director at the CAPROCK Group, a multifamily office with more than $2.5 billion in assets under advisement, takes it a step further. He is among those who believe the lines between impact and conventional investing have begun to blur. “More and more of the investments we’re approving for our impact clients are appearing in the portfolios of our conventional investors, mainly because these are just really good investments,” he says.
Folks like Weatherley-White, who is the architect of CAPROCK’s impact investing platform, say that the steady growth of strong investable opportunities—coupled with the increasing desire to use investing as a force for good—could very well drive the transformation of the capital markets. “We believe that at some point in the future it will simply be unacceptable to deploy capital while disregarding the environmental and social consequences of doing so,” he says. “We believe this is an evolutionary force, in the same way that, 150 years ago, we thought colonialism was a perfectly acceptable way to organize capital in the world and now we look at it as morally reprehensible. … My sense is that this change is going to happen sooner rather than later. I think the open question is: Is it going to be too late?”
The extent to which this evolution takes place depends on the commitment of institutional investors—the sovereign wealth funds, pensions and endowments that nearly always bring up the rear of any investment trend. There has long been a gap between institutional interest in impact investing and the actual deployment of funds. That’s understandable, since institutions have a fiduciary responsibility to protect their beneficiaries’ assets and tend to employ the wait-and-see approach. But even the people whose money they protect have begun demanding action (on fossil fuel divestment, for example), and that is something one can only imagine gaining force under the Trump administration.
The US SIF report says both money managers and institutional investors (475 of which responded) cited climate change as a leading factor for restricting investment capital. Could Trump wind up being a catalyst for the long-awaited surge in institutional impact investing? Perhaps, considering his environmental agenda, including the likelihood he will abandon the U.S. commitment to reduce carbon emissions under the Paris Agreement.
Concerns about climate change and population growth, and their effects on our global food and water supply, have already begun to spur substantial increases in conservation investment. Private capital committed to conservation jumped by 62%, to $8.2 billion, from 2013 to 2015, according to a recent report by the nonprofit Forest Trends’ Ecosystem Marketplace initiative, completed with the help of JPMorgan Chase and NatureVest, the impact investment unit of the Nature Conservancy. Conservation investing includes sustainable agriculture, fisheries, forestry, habitat and water initiatives.
The study was based on a 2016 survey of nearly 130 mostly North American and European fund managers, companies, family offices, foundations and non-governmental organizations directly investing in conservation. Investments in sustainable food (including both agriculture and fisheries) and fiber accounted for the vast majority of total funds committed, some $6.5 billion. And these investors appear to believe in the financial prospects of investing in conservation. Ninety percent of the survey’s for-profit respondents said they expected returns of between 5% and 10% or higher.
Pritzker Simmons, an heir to the Chicago Pritzker fortune who carved out her piece in a high-profile court battle 12 years ago, couldn’t agree more that one need not sacrifice financial gains for values. In a move that some investors might find shocking, she and Simmons decided some years ago to invest 100% of their portfolio for social and environmental impact. She says they got serious about the total portfolio strategy around 2012 and have since seen returns in line with traditional benchmarks.
Blue Haven invests in publicly traded equities and fixed income through third-party investment managers, and it funds early stage ventures through direct investment. Much of its venture capital goes to clean energy and financial services companies working in sub-Saharan Africa, such as Nairobi, Kenya-based M-Kopa Solar, which has provided affordable solar-powered generators to more than 400,000 homes in Kenya, Tanzania and Uganda.
Pritzker Simmons has a message for would-be impact investors, whether they be institutions, individuals or families (30% of the family offices responding to the Campden survey said they expect to become involved in impact investing in the future but aren’t yet). “The perfect is the enemy of the good,” she says. “In this space, a lot people sit and wait for the perfect unicorn that ticks all of their boxes. Don’t sit on the sidelines because you’re waiting for the perfect time. It’s never going to happen.”
Then again, if the ideal time comes in the form of a certain president, that’s OK too.