Research Fellow, SauderS3i
Bruno's Reading List
Impact Investing 101
First, a (short) history lesson.
If you're new to the idea of social finance, the best place to start is at the very beginning - a history lesson of sorts. I was first exposed to the idea of social finance through Dan Pallotta's iconic TEDTalk "The Way We Think About Charity Is Dead Wrong". In it, Pallotta addresses the long-standing divide between social impact and financial profit. These two outcomes are seen as mutually exclusive and as a result, charities are evaluated based on how little they spend on overhead. Why are we so critical with charities spending money on operations but not with corporations that are much less socially impactful?
If we are able to break this divide - this perception that doing good cannot create profits - then we can open up many more channels and vehicles for social good: multinational corporations, mutual funds, the stock market, even Bitcoin!
I want a little bit of everything, just give me a great overview of the impact investing
- The first report I read on impact investing was by my eventual employer - SauderS3i - a thinktank based at the UBC Sauder School of Business. The report, "Demystifying Impact Investing", does exactly as its title suggests. It breaks down the market, the investor types, and the numerous types of financial instruments that are being used for social impact.
- The other reports I would suggest are the Global Impact Investor Network's annual surveys. Since 2010, they have tracked the size of the market, the assets being used, trends and challenges that investors and entrepreneurs face. The most recent survey was released in May 2017.
Now break it down - what kinds of financial products are available for impact investors?
There are quite a few financial products out there. I'll narrow it down to what I think are two of the most interesting asset classes.
- Private equity & venture capital: I consider Omidyar Network's "Frontier Capital" to be one of the best reports on venture capital in impact investing. Different types of start-ups need different types of capital - a early-stage venture debuting a highly innovative healthcare device in an emerging market will require "friendlier", more risk-tolerant capital than, say, a medium-sized venture running restaurants in under-served communities. This report breaks it all down.
- Pay-For-Success (PFS) & Social Impact Bonds (SIBs): In my opinion, PFS/SIBs are some of the fascinating impact investing instruments. When I was writing a brief on social impact bonds for our clients, I found Brookings Institution's "The potential and limitations of impact bonds" very comprehensive and useful for beginners and experts alike. If you're not looking to read a full-length report, check out Emma Tomkinson's blog.
I'm Canadian - what's going on in Canada's social finance market?
Although it's a little dated, MaRS and Purpose Capital's "State of the Nation: Impact Investing in Canada" report provides a great snapshot of the Canadian market. It breaks down the market by capital suppliers, the demand for capital, and everything in between (intermediaries and enablers). If you want to know which Canadian organizations are active in impact investing, this is the report for you.
The Responsible Investment Association (RIA Canada) also does some great work on this front. Their report "2016 Canadian Impact Investment Trends" provides a more updated look at the Canadian market - including market sizes, available investment products, and investor outlook & opinions.