Impact investment: making money while doing good

Jennifer Pryce, CEO, Calvert Impact Capital.
30 May 2018

WASHINGTON (Landscape News) — A decade ago, little did investment banker Jennifer Pryce imagine how the struggle of the New York Public Theatre to access a loan would steer her career into a whole new direction. Namely, toward impact investment, in which investors seek to achieve financial, but also social and environmental returns.

“It was not until I volunteered for the theater when they were unable to access funding from traditional sources, that I really connected the potential to put my financial skills to work for deep community impact,” says Pryce, who will make the keynote address at the third Global Landscape Forum (GLF) Investment Case Symposium in Washington on May 30.

As president and CEO of Maryland-based Calvert Impact Capital, her focus is now on investments that support sustainable communities and respond to pressing environmental challenges such as climate change.

Part of the company’s mission has always been to make impact investment accessible for average citizens, and to that point they’ve made the minimum investment amount for their fixed-income product just $20.

Over the past 25 years, the non-profit investment firm has raised close to $2 billion from nearly 20,000 investors. Today, their portfolio of $400 million is invested in roughly 100 mission-driven organizations worldwide, across nine sectors, including the renewable energy, environmental sustainability and sustainable agriculture sectors.

Landscape News caught up with Pryce — who at the outset of her career graduated with a degree in mechanical engineering before volunteering with the Peace Corps, a program coordinated by the U.S. government, in Africa— to discuss the opportunities and challenges of investing in business that serve the pocket, the people and the planet.

Q: How is impact investment supporting environmentally sustainable activities worldwide, and how has this evolved in the last five years?

A: Over the past five years, the pace of innovation in the environmental space has increased rapidly. New business models and approaches for engaging private investment are rapidly emerging, and our tools for monetizing, measuring, and financing environmental goods and services are developing. Many of these new business models, financing approaches, and tools fall outside the familiar scope of traditional capital markets. Our job as impact investors is to help incubate, grow and scale these new models, helping to bridge the ones with potential for scale to the traditional markets. We see impact investing as a way of shifting the behavior of the traditional capital markets — both public and private — to finance scaled solutions to social and environmental problems.

Q: What makes these businesses in the environmental sustainability space disruptive?

A: It depends on the business, but in one way or another they are challenging the status quo, redefining who you can serve and how you can serve them. Many are operating in new sectors such as off-grid solar or serving new customer segments such as low-income populations in Latin America. They may also be demonstrating the viability of new business models such as on-bill energy efficiency financing. This is not “business as usual,” so many of the businesses do not fit into standard templates that traditional capital providers use to evaluate investment decisions, making it difficult for them to raise capital.

Q: What are the key challenges to investing in environmental sustainability projects and to attracting capital?

A: There is a tremendous amount of need and opportunity within environmental markets that are still forming. However, the fundamental issue is: how do you monetize the environmental benefit so that there is a return to the capital? How do you shift businesses practices, align and leverage capital to be more sustainable? There is no easy answer to this. It requires cohorts of businesses with similar characteristics and track records to emerge, evolve and demonstrate success, creating recognizable patterns so investors can understand and price risk. It also calls for intermediation capacity to reach traditional markets and engage capital at greater volume and scale. But first, it requires heavy investing in seed and early stage businesses. Because these environmental markets are still emerging, many deals are at earlier stages that require long-term, patient equity. There is a limited universe of investors who can provide this kind of capital – there will be a need for public and philanthropic-oriented investors who can take more risk, to step up.

Q: How are you addressing these challenges?

A: We focus on incubating and strengthening funds and financial intermediaries that can provide a range of financing to social enterprises and start funding cohorts of similar businesses to evolve. By supporting innovative financing structures, sharing our lessons learned widely and serving as a willing resource to our peers, we hope to motivate other investors to participate in new sectors and structures — in the environmental space and beyond.

Q: What messages would you like to get across at the GLF Investment Case Symposium?

A: Achieving the Sustainable Development Goals (SDGs) related to the environment – or any topic – requires investment at a tremendous scale. We will need all capital to be activated towards advancing these goals, whether it’s private, public, or philanthropic money. But while we need all capital, it’s important to recognize that all capital can’t do all things. Capital providers must understand their place along the financial supply chain – that is, the sources and types of capital that are available to a business at different stages of development, from seed to mature. Where investors can play a role depends on the capital they have, the risk/return profile they seek, and the markets in which they have interest. By understanding their role along the financial supply chain, they can understand how to engage effectively and collaboratively for impact.

Q: What would you like to do you want to get out of your participation in the GLF Investment Case Symposium?

A: I look forward to meeting like-minded actors to “connect, share, learn and act,” in GLF’s words. Calvert Impact Capital shares GLF’s belief that tackling environmental challenges requires collaboration across sectors, countries and the capital spectrum. Our expertise is in structuring investments and raising investment dollars from capital markets, so I am looking forward to learning from experts with deep knowledge of the environmental issues as well.

Q: In the next five years, what role can impact investment play in supporting environmentally sustainable projects, and what opportunities could this sector capitalize on?

A: The potential for this sector to capitalize on investor interest – across the spectrum from individual to institutions– is tremendous as investors are eager to put their money to work to advance environmental causes. The top three issues important to our investors are environmental sustainability (over 55 percent report this as their top concern), followed by renewable energy and sustainable agriculture. Also, women and millennials, the two groups most interested in impact investing, are poised to inherit roughly $59 trillion between 2007 and 2061. Given these trends in the wealth transfer, financial advisors are waking up to current and future client demand for impact investing options.

Incorporating environmental, social and governance concerns into investment decisions has been gaining traction amongst institutional investors as well, as study after study confirms that high ESG performance translates into better financial performance over the long term. If impact investors are able to find and play their right roles and work together in an organized way, combining different types of capital to move from seed stage all the way through the financial value chain to late stage, we can develop markets to realize the scale we will need to achieve the SDGs.

 

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