Looking at the numbers is not enough (in fact, we feel the same way about our conventional investments). We engage management, with the goal of learning directly from a CEO, executive director, fund manager or entrepreneur about their vision for the future. What in their past has given them the skills and experience to plan for and eventually achieve their goals?
For a private fund, we might look to their prior experience in the impact space. How does the manager understand the goals they are setting for portfolio companies, and are they incorporating impact measurement from the start? Is measurement an afterthought to catch on to a recent trend? How transparent are they about their work? How diverse is the management team and what is their commitment to employing diverse backgrounds?
Is The Community Engaged?
Many social and environmental issues can only be confronted productively in partnership with others and through integrated investment and grant opportunities. We therefore go outside the organization itself to engage with the surrounding community. This gives us valuable information about their reputation, their value as a partner, and other insights that can only be gained through firsthand experience.
For example, when we have explored investing in a Community Development Financial Institution (CDFI), we want to know if it is a trusted, well-known player in the community. How defined is its mission and how does it fulfill it? Do borrowers prefer to work with the organization over other options? How is technical assistance provided? Do Board members come from committed impact backgrounds?
How Is The Impact Measured?
Impact measurement is a fast-evolving field, and we look to understand how an organization develops metrics. Are they using a third party? Are they benchmarking themselves? What is important to their Theory of Change? How are they communicating their impact? When working specifically on social issues like affordable housing and small business lending in low income communities, does the organization or business draw employees from these neighborhoods? Have they earned trust and respect by engaging with the community?
Impact measurement is a thorny field. Some outputs are more common and easily measured, such as job creation or community members served. But grander impact goals can be much more difficult to track, especially over long periods of time. How can a number be accurately applied to closing the racial achievement gap or even the wealth gap? This is a nascent area of the field, borrowing heavily from the world of grants evaluation for foundations and philanthropy. But while the discipline of impact measurement evolves, clients can still move forward with an integrated portfolio, considering impact as well as financial return.
Ultimately, any impact investment has to fit a client’s objectives. Having real conversations with them help to define their financial and impact goals, helps to better align clients and advisors, opens doors to broader investment opportunities, and drives capital to areas that will truly benefit.
Carrie Endries, Ph.D., is director of impact investments for Reynders, McVeigh Capital Management.