Impact investing was born a decade ago in New York City, but investment firm Reynders, McVeigh wants Boston to be the city in which impact investing matures.
“The wave of enthusiasm for impact investments has been building dramatically for many years now,” says Chat Reynders, chairman and chief executive of Reynders, McVeigh.
In a roundtable discussion in conjunction with the Social Innovation Forum, Reynders, McVeigh made the case for Beantown as the nexus of finance and positive social change—the spot to bring impact investing into its own.
“Greater Boston has always been a hub for social impact. Massachusetts is home to more than 33,000 nonprofits and some of the world’s elite universities, with a population that is consistently willing to take action on issues. That’s why Reynders, McVeigh and our industry colleagues believe investing for impact should be front and center in Boston,” the firm posits in a paper based on the roundtable.
There is a strong case to be made for Boston to become impact investing’s center. On the innovation front, there are a host of technology companies, entrepreneurs and organizations that are focused on tackling social change. And on the investment front, there is an active network of investors, from angels to venture capitalists to family offices. By example, these investors have spurred growth in cybersecurity and life sciences, with venture capital funding alone accounting for an estimated $6.2 billion in 2016, according to Reynders, McVeigh.
For impact investing to take hold anywhere, however, obstacles must be addressed.
For instance, there is no universal definition of impact investing, and this creates misunderstandings and deters some investors.
“Defining ‘impact’ is a great challenge for the market,” observes Reynders.
Also, there are multiple constituencies to satisfy with an impact investment, many of whom have conflicting missions and expectations. “Whereas some investors may be comfortable taking unusual risks for high potential returns in venture-type investments to improve communities or technologies for a better world, others are happy just having their capital used to make a difference and then returned so that they can invest in other good works,” according to Reynders, McVeigh. This proves problematic in offering an all-sum investment opportunity.
But the real achilles of impact investing has always been and continues to lie with measurement. Impact investments not only produce financial returns that are easily quantified, they also produce qualitative returns, which are difficult to measure. Life improvements and social impacts aren’t always easy to score.
“It is, at the least, difficult if not impossible to compare different types of social impact against each other,” notes Reynders. “Is it more important to reduce carbon emissions or to stop discrimination in the workplace?”
Such dilemmas often thwart capital flows.
This week, the Global Impact Investing Network, the industry trade group, released a report promoting the idea of utilizing credit guarantees to induce more impact capital. “The use of guarantees is not new in impact investing, but this valuable tool is extremely underutilized,” said Amit Bouri, CEO and co-founder of the GIIN. “Increased awareness of successful examples of investor collaboration through guarantees—and blended capital more broadly—could help spur much-needed, additional investment into solutions to pressing social and environmental problems. There is an enormous opportunity for different types of investors to collaborate to amplify impact.”
Reynders, McVeigh believes a Boston-centric impact investing industry will further help to free up more capital because it will bridge myriad investor bases.
Impact investment assets under management stand at less than $100 billion. By comparison, globally there is more than $37 trillion in open-end mutual funds, according to the Investment Company Institute, the mutual fund trade organization.
“Boston’s concentration of investors, entrepreneurs, advocates and supportive academic institutions can empower the region to develop programs with secure bottom lines and measurable social outcomes. Our role is to expand the universe of strong impact investments, accurately measure outcomes, and communicate success stories using a common language. As one roundtable participant succinctly stated, ‘we want to change the story of who has access to capital,’” concludes Reynders, McVeigh.
Boston, famous for its slogan “Boston strong,” may indeed become a stronghold for impact investing.