From the January 2013 issue of Investment Advisor • Subscribe!

December 21, 2012

Heavy Impact

You knew it would happen.

With alternative investments multiplying faster than a furry tribble, it was only a matter of time before they hit the socially responsible investing space. And that time is now.

In mid-December, the Renewable Energy Industrial Index (RENIXX) hit its lowest point ever. The index tracks 30 of the largest green energy producers. It reached its nadir just as news broke that A123, a Massachusetts-based company that manufactured electric car batteries and received a $249 million federal grant, was purchased by China’s largest auto parts maker at a bankruptcy auction.

It reminds us that although it might lead to a better sense of satisfaction and self-worth, green investing still struggles to deliver greenbacks. It encourages critics of SRI, ESG and other screens to argue for chucking it all, investing for maximum return no matter the sector or industry, and donating part of the proceeds to pet projects.

Tim Freundlich doesn’t buy it.

“Is investing [in general] purely economically driven, like in a really fundamental sense?” the president of Impact Assets rhetorically asked. “No. It’s all sorts of stuff including ego and brand. So I just reject it as too simplistic.”

Impact Assets is a donor-advised fund dedicated to the concept of impact investing, a next-gen SRI play that “takes the best of the for-profit and the nonprofit systems and blends them to yield social, environmental and financial returns.” It’s a spin-off from the Calvert Foundation, which is convenient, since Freundlich has zeal for the cause bordering on religious.

“It is very much oriented around creating a direct, measurable impact in the world around the issue areas in which the investors care,” he said. “At its core, in terms of the vehicles, it tends to correlate more toward direct private debt, as well as equity alternatives categories.”

More importantly, “it actually invests in real enterprises on the ground, real entrepreneurs and innovators who are solving some of the most intractable social and environmental problems of our times, and they’re creating real, scalable businesses.”

It’s attracted the attention of the Clinton Global Initiative, the stable of business, entertainment and government heavies lined up by the former president. As my colleague Michael Fischer noted in December, Goldman Sachs and Bank of America have recently launched impact investing products, which means there’s real money behind the strategy.

In 2011, $4.4 billion was dedicated to impact investing, which Freundlich said is the “tip of the iceberg,” with $650 billion in immediate market potential “if they could figure out what it was and where to do it.”

That’s a major reason he’s out there educating and informing.

“The tech cash-outs, they’re all over this stuff. Peer-to-peer and crowdfunding—the future of the Web is going to feed massively into this. The JOBS Act is going to help impact investing a ton once Congress finally gets its act together. Millennials are just totally all over it. This is the future.”

Let’s hope so.

Reprints Discuss this story
This is where the comments go.