Yes, impact investing does boost financial returns, but does more, according to the latest study confirming this finding, which also zeroed in on 10 “unique drivers” that “can enhance or add financial value” for investors. The new research study, The Alpha in Impact, comes from Tideline, an impact investing consulting firm, and Impact Capital Managers, a network of private funds that manage more than $8 billion focusing on impact investing.
“As many studies have demonstrated, impact investments can perform in line with — and sometimes better than — relevant benchmarks. But those studies are often silent on the role of impact in contributing to those returns,” write Dave Kirkpatrick, managing director of SJF Ventures, and Brian Trelstad, partner of Bridges Fund Management, two of the ICM firms that worked with Tideline to generate the study using their own investment experience examples.
A key purpose of the study, the authors write, is to jump start the conversation beyond whether impact investing adds alpha to a fund, as the study shows it does. The10 drivers that enhance investment value are dived into three areas:
I) Accessing unique and high quality investment opportunities
- Source deals through mission aligned networks
- Uncover opportunities through deep market experience
- Build values alignment with investors
II) Creating value across the portfolio
- Leverage impact expertise to develop more effective businesses
- Enhance investee branding and story telling
- Attract and maintain investee talent
- Unlock public and philanthropic capital
III) Strengthening outcomes through operational rigor and risk management
- Promote efficiency and discipline in operations through impact accountability
- Establish credibility with impact-driven stakeholders
- Optimize social, environmental and reputational risk management
The study provides a series of case studies from several of the ICM fund managers. One such example showed how an investment of $2.25 million in Mayvenn, an e-commerce platform for independent hairstylists, primarily those of color who are microbusiness owners, saw revenues grow five-fold over three years. Today, the company has a network of 50,000 stylists who have earned $20 million in commissions.