Good Intentions In Impact Investing Are Not Enough

ON March 13, 2018

Good Intentions In Impact Investing Are Not Enough

didn’t get into impact investing because of a life goal to become a banker, a dream to become a CFA, or a quest for new investment strategies. I fell into this business because I wanted to change the world. That sounds corny, I know, but I was a teenager in the 70’s growing up watching Free to Be You and Me, believing anything was possible: curing cancer, saving the earth, and creating a just world.

Impact investing is going mainstream. These days even the traditionalist CFA Institute requires candidates to evaluate environmental, social and governance risks.

So why am I worried?

John Goeppinger, Adam Rao, Courtney Overby, Stephannie Lewis, and Susan Hammel represent Minnesota at SOCAP

The impact investing business has four flaws it needs to overcome: impact washing, lack of transparency, risk aversion, and — most importantly — insufficient diversity.

There is a widespread lack of diversity among impact investing practitioners. The problem stems from the asset management industry overall in which “women- and minority-owned firms comprise 3–9%, and assets under management range from 1–5%.”, per the Knight Foundation.

How are we going to change the world if we’re leaving out 90% of people? If those of us dedicated to diversity remain silent and passive, impact investing will be just another investment fad-du jour.

“The world is a dangerous place to live; not because of the people who are evil, but because of the people who don’t do anything about it.” — Albert Einstein

I doubt most investment professionals consider themselves anti-woman or racist. They likely view themselves as fair, objective, and dedicated to the facts. However, one fact they tend to ignore is that the decks are stacked against women, people of color, LGBTQ, and rural folks. And by the decks are stacked, I mean really stacked.

In a recent podcast, Reveal, the Center for Investigative Reporting covered a story on the “new” redlining (The Red Line: Racial Disparities in Lending). After analyzing 31 million government mortgage records, they “determined that people of color were more likely than whites to be denied a conventional home loan in 61 metro areas, including Atlanta, Detroit and Washington. That’s after controlling for a variety of factors, including applicants’ income, loan amount and neighborhood.” The Community Reinvestment Act (“CRA”) was supposed to solve that, wasn’t it? The devil lies in the details: banks are lending in CRA qualified census tracts, just not to the people of color who live there.

As the old proverb says, the road to hell is lined with good intentions.

No doubt the people who created and enforce the CRA are chock full of good intentions. Even the bankers lending in CRA tracts may have good intentions. And yet the outcomes are drastically unequal and unfair.

For impact investing to fulfil its promise (and I still think it can), we need to look deeper; we need to do better than mere good intentions alone. For example, in our Twin Cities Impact Investing Ecosystem, early on we adopted an intentional outreach to communities of color. We want leaders at the table with us, defining what our ecosystem looks like now and what we want it to be. This year we’ve added talent, Elaine Rasmussen, CEO of Social Impact Strategies Group as a project co-lead, part of the Launch Team with Mary Rick, CEO of Impact Hub and Finnovation Lab. Together, and with Elaine’s guidance, we are weaving a Diversity Equity Inclusion (DEI) lens throughout the work.

What can well-intentioned people do differently?

First, we can notice. The next time you’re invited to an impact investing symposium, think about who may not be invited who should be there. Take a listen to the time I did that and really “got” it: “Structural Racism, the Ecosystem and Unaccredited Investors in Impact Investing.”

Second, if you see something, say something. Let the host know the invited guests should include diverse perspectives and people. Ask the host if you can extend an invitation to your colleagues and then prioritize under-represented groups.

Third, co-create with people from diverse groups. If you’re white, try not be like Kevin Kline in Grand Canyon where he clumsily introduces his only 2 black friends to each other, even though they have nothing in common. Expand your circle so you are working with a diverse group of people from many types of communities.

Fourth, take ownership of your own education in learning about the history and issues facing people of color, women and other diverse groups. Don’t assume you have all the answers. Also, don’t expect your friends to educate you. Read up on Native American history and Black American history and understand how they inform the present.

Fifth, acknowledge that present day and historical discrimination is real. You can input your own address by texting Reveal, above; learn your community’s history of overt discrimination. Even here in the land of Minnesota Nice we have a history of redlining, decimating thriving black neighborhoods, and anti-semitism.

On a positive note, I’m encouraged by many things I see here and nationally.

I’m excited that our Minnesota Council on Foundations adopted a new strategic framework that puts equity at the center of their work and affirms that commitment from its 180 members. When asset owners and grant givers ask questions about the inclusivity and equity, people listen.

Austin Texas based True Wealth Ventures just closed its almost $20 million fund women-led health tech ventures and sustainable consumer brands.

Back in Minnesota I’m delighted to be co-producing ConnectUP! MN, a 6 month educational program to bridge the 180 degrees of separation between investors and investees to create a supportive, inclusive economy that works for all.

And then there’s the Otto Bremer Trust’s support for MEDA, creating a much-needed patient capital fund for minority-owned businesses.

The innovative and St. Paul-based Bush Foundation is creating pathways into philanthropy for diverse professionals through its support for the Ron McKinley Fellowship.

I could go on with more examples but I’d rather hear about them from you. Please comment with your favorite examples of impact investing going beyond good intentions.

As the Deacon says when we leave Mass, our charge is to go forth and glorify the Lord with our lives. Or to paraphrase, faith, like good intention without action is meaningless. As impact investors, we need to do better.


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What I'm doing now

The tide is turning: more people are thinking about their moral, social and environmental values when they shop, play, and invest. Impact investing is going mainstream with more robust and consistent impact measurement and monitoring happening every day. The blowback on ESG (Environmental, Social, Governance) makes true impact investing (which requires impact measurement) all the more relevant. Will changing how people view money change the world? Well, it isn’t a panacea for all that afflicts us but as they say, “follow the money”. Investors have power. Use yours wisely.