Is Impact Investing Without Tradeoffs Achievable?

— September 3, 2018

As a result of imbalances in various socio-economic systems in the world, impact investing quickly rose as one of the top solutions an individual can use to create a positive change, enjoying a groundswell of interest. Today’s investors are also increasingly aligning their values with the money they have, and investments with a double bottom line approach are quickly gaining more traction.

The reason behind this growth? Millennials. According to a study published by Morgan Stanley Institute for Sustainable Investing, 86 percent of millennials have expressed interest in sustainable investing more than ever. They are also twice as likely as the overall population of investors to invest in companies that aim for social or environmental change.

However, as with anything, impact investments have misconceptions. One is that they fail to generate the same return as a traditional investment. But a quick search on the internet shows that there is indeed a widespread assumption about investors accepting more modest financial returns in making investments intended to achieve social objectives, as opposed to traditional investments solely intended to gain high returns.

Most of the time, impact investing firms offering social impact with above-market rate returns are frequently asked what’s needed to make an impact investment and if there are any sacrifices in investing to a cause you support. The answer? None, actually.

Of course, the idea of a tradeoff somewhere makes intuitive sense. But seeing as a growing number of social impact investment firms are onto their second or third funding, then it’s fair to say that their earlier funds generated enough returns to guarantee growth and partners that come back.

This can be seen in companies like Exponential, Inc. (XPO2), a for-profit technology firm founded by French-American entrepreneur Dom Einhorn just last year.

Cause-related marketing

Operating as a cause-related technology marketing company, XPO2 has created a crowdfunding platform that connects small to medium-sized nongovernment organizations (NGOs) that founder Dom Einhorn himself personally vetted with supporters and potential investors. The company does in two ways: through direct dollar contributions and through the “cashless contribution” module, which the company itself pioneered. With the latter, contributors and supporters receive exclusive access to discounts in their purchases via a simple browser extension and contribute to partner groups they have chosen.

Highly regarded for giving chances to small and medium-sized NGOs often set aside, effectively makes every contributor an impact investor with the freedom to invest for a cause they believe in without having to worry about waiting for returns. Currently, the firm has participating merchants all over the world, with plans to help 10,000 NGOs by the year 2023.

In a recent effort to further raise capital, the firm launched its rewards-based fundraising campaign. With a target amount of $ 500,000, XPO2 will use the collected funds to help more NGOs worldwide. The firm will also use said funds to positively impact more than 1 billion people’s lives over the next five years. Through this campaign, the firm hopes to set a good example for other impact investing firms, as well as become a standard for impact investing itself while also increasing people’s awareness of their social responsibilities.

Of course, given that XPO2 essentially pioneered its own “cashless contribution” module and Kickstarter-for-NGOs platform, it’s fair to say that it’s a category all on its own, albeit a great one.

Where does this leave us then?

According to a 2017 Forbes article, GIIN released a report that reviewed available research on the financial performance of impact investments. The article concluded that the returns conventional markets usually receive do not differ much to those obtained from private market strategies, including fixed income, private equity, and real assets.

Overall, no comprehensive data on financial and social impact returns are publicly available for now. Still, with companies like XPO2 doing significant progress in their respective niche, it still stands to say that maybe other businesses should look at these firms’ deeds and learn a thing or two.

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Author: J. Frank Sigerson

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