Impact Investing: What Every Advisor Needs to Know in the COVID-19 Era

If there is a silver lining to the current global crisis it is that COVID-19 has brought issues of economic injustice to the forefront of the investment conversation. We see daily proof of the significant inequities affecting every part of our social strata from race to gender to income, health and geography to name a few.

In a matter of weeks, social responsibility has catapulted to the top of every agenda — in government, company boards and households. Individuals and family offices want in on solutions to these problems.

They want in because they want to make a difference not later but now. They want in and demand a range of investment options that fit a variety of risk-return profiles that address the issues that they are passionate about.

For the financial advisor or firm who in the pre-crisis era might have resisted exploring impact investing options as a “nice to have” or on the (mistaken) idea that returns might be inferior to those in the traditional markets, the recent strong performance compared to broader markets of public equity investments using environmental, social and governance criteria has shut the door on that way of thinking.

The conversation is no longer just about impact — especially since these are terms that not every prospect is comfortable with. It’s about good investing. Period.

For the uninitiated this should be a wake-up call. As the CEO of an impact advisory firm, it’s my life’s work to grow and scale impact investing, and we need every financial advisor and firm to join in that effort.

Here are a few options you can explore, ranging from philanthropic solutions to investment strategies that can help you meet your clients’ needs in the COVID-19 era.

How to Answer the “How Can I Get Involved?” Question

Whether it’s social injustice or the environment, here are a few suggestions you can make that will help turn you into a utility player for your clients — before you even get to discussing investment options.

There are a number of ways investors can engage locally as this crisis continues:

Fund food banks — check Feeding America to see which branch is near you.
Purchase gift cards for local restaurants and businesses that are not operating at this time.
Find their local community development financial institution using the Opportunity Finance Network’s CDFI Locator.
Contact their local hospital to understand their hospital bed, PPE and stafﬁng needs that require additional, immediate funding.

How Can I Put Investment Capital to Work Right Now?

There are a number of options available for investors to put money to work immediately to support those investment organizations working to combat this crisis, whether it’s to address the needs of people of color or low-income communities or to support small businesses or social enterprises.

Since speed is of the essence now, RIAs and advisors who are unfamiliar with the due diligence processes should turn to the impact specialist within their firm for guidance. Alternatively, you can consider working with impact advisory firms with outsourced models to be your subject matter experts.

Here are a few ways your clients can put money to work now on issue areas they may take a personal interest in:

On the philanthropic side, there are a number of grant making institutions working quickly to address the crisis in specific impact areas. For example:

Financial Inclusion: Acumen is focused on providing patient capital to existing borrowers (social enterprises in emerging markets) to bridge gaps in salaries, purchase inventory and develop new strategies; and
Diversity, Equity and Inclusion: NDN Collective has a domestic response strategy aimed at supporting indigenous businesses in community development, arts and front-line support.

You can also address many of these issues on the investment side. For example:

Diversity, Equity and Inclusion: If you want to help people of color or low income communities, CNote is supporting rural CDFIs and small businesses in danger of running out of cash that do not otherwise have the funding sources that can facilitate.
Financial Inclusion: If you’re looking to help social enterprises in the U.S. and emerging markets like sub-Saharan Africa where they are just beginning to see the effects of COVID-19, Open Road Impact Fund is specifically targeting this need.

The bottom line is that we’re all impact investors. Every investment has impact — positive or negative. COVID-19 has instilled a renewed sense of urgency on all types of investors to get closer to their dollars and their personal commitment to change the direction we’re going in.

It doesn’t mean that you need to change your stripes overnight and become an impact specialist or want to change the world. But the investment climate has changed, and I believe we are in a new normal.

Financial advisors need to get into the game. What we do today will impact us in the short term as well as the next decade. What are you waiting for? Join us.

Jenn Kenning is co-founder and CEO of Align Impact.