How to Help the U.S. Government Help Impact Investing
Originally posted on Institutional Investor
As the impact investing market in the U.S. continues to grow in size and inventiveness, 27 financial experts have gotten together to form the U.S. National Advisory Board (NAB), a group dedicated to hammering out specific ways the U.S. federal government can encourage that market’s continued development — or at least avoid getting in its way.
After roughly a year of discussions to that end, the group, which includes professionals from NYSE Euronext, the Pension Benefit Guaranty Corp., Bloomberg, Duke University and the impact investing divisions of Goldman Sachs Group and Morgan Stanley, on June 25 released a 64-page report, “Private Capital, Public Good: How Smart Federal Policy Can Galvanize Impact Investing — and Why It’s Urgent,” outlining dozens of recommended actions it says the federal government should take to galvanize the still tiny impact investing sector.
“We tried to be practical and at the same time ambitious in our policy recommendations,” says Tracy Palandjian, CEO of Boston-based nonprofit Social Finance U.S. and a co-chair of the NAB. “These are long-term systems-change recommendations.”
An impact investment is one that targets, alongside a specific financial benefit for the investor, some sort of additional social or environmental benefit. Impact investors may issue microloans in the developing world or support enterprises that seek to address social problems while turning a profit. Other impact investing approaches are more complex, like the social impact bond, first launched in the U.S. in 2012. Social impact bonds invite private investors to pay the up-front funding of government-supported social programs and then pay those investors back when those programs prove successful and accrue savings to their supporting governments. A J.P. Morgan/Global Impact Investing Network (GIIN) survey of 125 major impact investing players released in May showed a total of $46 billion in impact investments under management, a number likely, according to the J.P. Morgan/GIIN report, to increase 19 percent by the end of 2014. Still, as the report points out, this represents a scant 0.02 percent of the $210 trillion invested via the global financial markets.
