3 Q's Organizations Should Answer Before Starting Their #ImpInv Journey
(This article was originally featured on LinkedIn on September 2018.)
The most popular question within impact investing today isn't "what is it" or "should I do it," but rather, "how?"
In a world of constrained resources and growing challenges, the value proposition of blending your financial and impact goals seems worthwhile. But what that means for each unique organization, with different capabilities, constraints, and assets, can be complicated to decipher.
Here are 3 questions you should ask yourself before you get started on your own impact investing journey:
1. What is the change I want to see?
We recently wrote about our motivation to start a strategy-focused firm in the impact investing sector, which begins by asking, "to what end?" More than 10 years after the formalization of this field, many organizations are reflecting on their investments to understand what kind of impact they've had. Without starting with an outcomes-based approach, it's easy to lose sight of why we're investing in the first place.
Start by identifying the grand challenge you're passionate about.
Whether it's a new area of interest or you have decades-long experience in this work, clearly articulate the problem you're addressing. Outline the long-term change you want to see and be bold - but pragmatic - about what success would look like. Be sure to come to that conclusion based on facts, reputable research and insights from practitioners. In other words, don't reinvent the wheel.
Based on how your organization is structured, thinking about outcomes (or long-term systems change) might be a luxury. If that's the case, identify the measurable outputs that you believe will positively contribute towards that change. Big systems change is an all-hands-on-deck scenario. One organization alone won't have the complete answer. But being specific in articulating both the problem and vision will help you decide what type of investment might best get this done.
More importantly, it'll help you understand which partners you need work with to create the change you want to see.
2. What assets do I have to work with?
For many organizations, the capital needed to embark on this journey can be a constraining (and often unexciting) consideration. Asking yourself how much is available to help tackle this problem will help determine what types of instruments are best suited to you.
But in addition to the amount of capital needed, the type of capital is equally important. Is it highly liquid and/or accessible? Can it be reallocated, moved, or re-invested with limited cost to you and your organization? Will it cannibalize or jeopardize other important organizational activities that are already making meaningful change?
And finally, dollars and cents are only one such approach to thinking about your "assets." Non-financial capital has played a monumental role in growing the impact investing field to-date. That type of catalytic change continues, regardless of how quickly AUM grows across this ecosystem. You too will have organization-specific skills and resources to allocate to the problem which exist outside of your balance sheet. What other resources do you typically employ to enact change?
All of these nuanced considerations around what - exactly - you have to bring to the table are critical for understanding the best impact investment tools for you.
3. What are your capabilities and limitations (honestly?)
Whenever we work with clients, the starting point is always one of honest reflection. More often than not, it can be the hardest part of our engagement.
Organizations with a broad and ambitious vision are an integral part of innovating on these complex challenges - without that passion and dedication nothing would ever change. But organizational and cultural constraints are real too. Left unaddressed, they can quickly disenfranchise an enthused and proactive team ready to innovate.
Start by interrogating how decision-making happens in your organization. Is it top-down? If the answer is yes, high-level buy-in or championship at senior levels will be integral. As a result, part of your plan should be to bring key leaders along the learning journey. If it's fairly decentralized, where should this innovation sit? Which team is best suited to take this exploration on - not just in terms of strategic fit - but the right staff, bandwidth, and resources?
This cultural exploration, which includes a tactical conversation about your risk, return and impact expectations is not simply a nice to have - it's essential. Answering questions on the willingness and ability to measure performance, withstand a failed experiment, or discuss that learning journey (regardless of the outcome) will reframe your investment options in a significant way.
Last but not least, assess whether you can build this approach yourself or if you need help. First, look to see if there's someone internally who can lead this charge. An engaged employee will already be well versed in how your organization works. If not - or if you need a neutral third party to ask tough questions - reach out to service providers who have experience taking organizations through this journey.
Regardless of which path you choose, starting with these questions will ensure you are embarking on an impact investing strategy poised for success.