Fran Seegull, Executive Director of U.S. Impact Investing Alliance
What is your background, and how did you get into impact investing?
Early in my career, I served as a program officer at a family foundation in Los Angeles, helping oversee the 5% payout in grants. Though I was fulfilled by the work of grant making, over time, I started thinking more about the endowment – was the endowment, the other 95%, being invested in a way that advanced the foundation’s mission?
This question led me to Harvard Business School where I embarked on an independent study on the nature of value – financial value as well as social, economic and environmental value. I found that putting an exclusive focus on near-term shareholder value failed to account for the externalities playing out in the market – negative impacts like pollution, but also the positive social and environmental outcomes that businesses create. I realized then and still believe now that the Milton Friedman model of maximizing shareholder value was a fallacy. This course of study formed the blueprint for my career in impact investing.
Since graduating, I have consulted for and operated many mission-driven businesses, worked with family offices and foundations to explore more integrated models of value, and incubated and invested in impact start-ups. I served as Chief Investment Officer at ImpactAssets, a donor advised fund focused on investing across asset classes for impact. I also created and taught a graduate-level course on investing in impact ventures at the Marshall School of Business at USC. In late 2016, I became the inaugural Executive Director of the U.S. Impact Investing Alliance (the “Alliance”).
What role does the U.S. Impact Investing Alliance play in building the impact investing movement?
The Alliance is a field building organization committed to catalyzing the flow of private capital to impact investing. We work with asset owners, financial advisors, consultants, asset managers, NGOs and policymakers to advance the practice of impact investing. This gives us access to unique insights into the various opportunities and challenges facing these different stakeholders, and what barriers need to be removed to allow for the flow of more capital to impact investments. The Alliance’s long-term vision is to place measurable social, economic and environmental impact alongside financial return and risk at the center of every investment decision.
What are some of the highlights of the Alliance’s recent work?
We are excited to see the incredible growth and interest in impact investing in recent years, and we are pleased to have played a role in building this movement. Here are just a few of the things we have been working on recently at the Alliance:
Released the Opportunity Zones Reporting Framework in partnership with the Beeck Center at Georgetown in an effort to define best practices for investors, wealth advisors, fund managers and community stakeholders seeking to invest in Opportunity Zones.
Worked with officials at the Overseas Private Investment Corporation (OPIC) to provide input and support on the implementation of the BUILD Act, which will significantly expand and modernize OPIC’s capacity to partner with the private sector.
Convened the Presidents’ Council on Impact Investing, a group of 20 U.S. foundation presidents with about $80 billion in combined endowment assets. We work to help members deepen the practice of impact investing at their own institutions and to partner together to grow the overall field.
What do you see as some of the biggest opportunities or challenges in impact investing?
Impact investing is going mainstream. It seems that every week there is a new headline announcing a billion-dollar impact fund or a major institutional investor shifting assets to impact. We certainly aren’t talking about a niche market anymore.
Some of this is response to demand as wealth advisors and fund managers are being pushed by clients eager to invest in alignment with values. But we also see long-term investors like pensions and insurance companies increasingly recognize that strategies like ESG integration can mitigate risk and improve performance over time. Look no further than the recent bankruptcy of PG&E to see that in today’s world, environmental risk is financial risk.
We believe that these trends have the potential to transform finance, and place impact at the center of investment decision making, alongside risk and return. In that context, we see a few challenges and opportunities that will shape development of the field:
Democratizing of impact investing – Most capital flowing to impact investments today comes from institutional investors. But, for this movement to really scale, all investors must be able to participate. We see some positive signs that this is starting to happen, especially with the rise of ESG- and impact-focused roboadvisors and the growing availability of impact-oriented mutual funds and ETFs. So, the product set is growing, forming an important onramp for retail investors to join in. However, what’s still missing is a lack of familiarity with impact investing, both for investors and financial advisors. We believe this will change over time, driven by the substantial and coming wealth transfer to women and millennials. Once we bridge the awareness and education gap, we will start seeing significant inflows to impact investments from retail investors.
‘Trickle up’ theory – There is a lot of talk these days about impact washing. To be sure, there is plenty of marketing and pandering in this space. But as the field grows, so too will the community’s understanding of best practices and industry standards. One thing I always look at to determine a firm’s credibility in impact investing is if they’re going ‘all-in’ or if they’re just dipping their toes in the water. For example, if an investment firm announces a commitment to impact investing and launches an impact fund, what happens to the rest of the firm’s assets? Is this an asset gathering strategy, or is the firm a true believer? Will the impact commitment trickle up to the rest of the firm? If the answer is no, then is it fair to call that firm an impact investor? If the answer is yes, then the important question becomes – how long will that process take?
Building an infrastructure for impact investing – Impact investing is still an emerging field of practice. And like any emerging field, it can only be successful if there is strong infrastructure to support it. The pioneers of impact investing have made incredible progress laying the groundwork, whether it be focused on public policy, research, data, impact measurement, product development or storytelling. But, we all recognize how much work still remains in building these “public goods” that will allow impact capital to flow smoothly and with integrity. The existing tools have served us well for the first 10 years of impact investing, but we need a more robust infrastructure to continue to scale up this growing market.
What will you be discussing as part of your panel on “Sustainable Investment in Turbulent Times”?
There is plenty of data to show that ESG- and impact-oriented investments can serve as a bulwark against risk, a mitigant to dampen volatility and a driver of strong financial returns. We believe this will become even more apparent in a down market as those companies that have embraced ESG factors tend to be better positioned to perform strongly during market fluctuations.
On the private asset class side, we know that investments in microfinance and community development finance institutions (CDFIs) outperformed during the last financial crisis. In a world of increasing volatility and with the prospect of a market correction, these impact investment options could play a role in impact and traditional portfolios alike.
Disclaimer: Investments cited here are neither endorsements nor investment recommendations. Comments are intended only to provide information and analysis about the range and types of impact investments in the marketplace. Please seek the advice of a wealth advisor before making any investment.