Icsprimer final-140527084152-phpapp02

April 29-30, 2014
Union League Club of Chicago
2014 Primer
Presented by
©CarrClifton
SmarterMoney+

The Kellogg School of
Management
is proud to support the
Impact Capitalism
Summit
and its mission to maximize
impact and return, which
aligns with our vision of
sustainable capital as an
instrument of positive change.

About the Organizer
OVERVIEW: Watershed Capital Group is a specialty consulting firm assisting sustainable companies and fund
managers seeking solutions including raising capital and executing M&A transactions and in evaluating
strategic financial options. Watershed’s clients include entrepreneurs, companies, and fund managers scaling
sustainable solutions that lead to competitive advantages and long-term value creation.
A new model of value creation is emerging deploying capital in strategies that leverage the inherent link
between natural, social and financial capital. strategies that leverage the inherent link between natural, social
and financial capital. The global move toward sustainability represents one of the most attractive investment
opportunities of our era. In the face of increasing resource scarcity and growing global demand for these
resources, sustainable strategies are enabling differentiated competitive advantages that lead to long-term
value creation. Watershed’s clients are entrepreneurs, companies, and fund managers scaling sustainable
solutions.
EXPERIENCE: With over 100 years of experience and over seventy-five engagements, Watershed partners are
committed to assisting its clients achieve success and scale a sustainable economy. Each partner has
domain knowledge in multiple industries, in both operational and financial capacities making Watershed one
of the most experienced teams in the sector. Specific industry sector experience includes: organic foods,
renewable energy, energy efficiency, media, water, sustainable ag and aquaculture, green consumer
products, manufacturing, industrial technologies, recycling, bio-plastics, advanced lighting, green building
products, transportation and environmental services. The Watershed team brings a diverse set of functional
backgrounds to clients including private equity, venture capital, investment banking, securities law, and
operational management.
NETWORK: With an exclusive focus in the sustainable/impact sector, Watershed Capital Group represents one
of the most comprehensive global networks of companies, funds and institutional investors focused in this
sector. Watershed Capital Group maintains a reputation as an innovator in the sustainable sector launching
and developing several initiatives. Some of these initiatives are the Five Fund Forum, Impact Capitalism
Circle, and the Global Cleantech Cluster Association. These activities have given Watershed Capital Group
one of the broadest networks in the industry. Watershed is also proud to be a founding B Corp member.
Michael Whelchel Shawn Lesser Aaron L. Enz Lydia Miller
Managing Partner Managing Partner Partner Managing Director
michael@watershedcapital.com shawn@watershedcapital.com aaron@watershedcapital.com lydia@watershedcapital.com
(828) 251 4645 (404) 257 3382 (415) 686 0068 (773) 415-2063
www.watershedcapital.com
Securities offered through Intellivest Securities, Inc., Member FINRA/SIPC
Impact Capitalism Summit 2014 Primer 3

About the Primer
As Impact Investing mainstreams, Watershed Capital Group recognizes
the importance of the dissemination of research and thought-leadership to
those new and experienced in the sector. This primer, development for the
Impact Capital Summit, includes articles and excerpts articulating the value
and opportunity available to institutional investors interested in Impact
Investing. These capital initiatives harness the power of investment for
positive social and environmental impact alongside maximum return.
Impact Capital is SmarterMoney+.
Watershed Capital Group is pleased to be publishing this primer in
partnership with the Kellogg of School of Management. For the past five
years, under the leadership of Jamie Jones, Kellogg has been a leader in
the area of social enterprise and of impact investing, forming leaders for
the future. In addition to providing assistance in the preparation of this
primer, Kellogg will offer a white paper summary or lessons and findings
noted during the Summit.
The Primer demonstrates the movement of Impact Investing “from the
margins to the mainstream” - a phrase from the World Economic Forum
article. The astute voice and collective experience gathered in the Primer
challenge the traditional investment mindset and encourage, through
sound structure and rigor, an innovative capitalism that generates returns
and addresses world issues.
This compendium of excerpts advances the conversation around impact
investing and shifts the investment mentality around impact from why to
why not, from a defensive of posture of why invest in the sector to a
proactive why not invest. Savvy investors seek to maximize their returns.
These articles drive the point home that if investors are not looking at this
sector, they are forgoing an entire category and opportunity of return.
Regards,
Shawn Lesser Michael Whelchel
Co-Chairs, Impact Capitalism Summit
4 Impact Capitalism Summit 2014 Primer

Table of Contents
Article Contributed By
High-Impact Portfolios Can Outperform
Wall Street
HIP Investor 6
A Portfolio Approach to Impact
Investment: Framework for Balancing
Impact, Return, Risk
J.P. Morgan Social Finance 9
Impact Investing 2.0: 12 Outstanding
Funds Point the Way Forward
PCV, CASE, ImpactAssets 15
Impact investing as part of a responsible
investment portfolio
Principles for Responsible
Investment (PRI)
20
Building Impact Investing Portfolios: From
Strategy to Policy to Implementation
Sonen Capital 22
Agricultural Technology Impact
Assessment Framework
The CAPROCK Group 26
Total Portfolio Activation: A Framework
For Creating Social & Environmental
Impact Across Asset Classes
Trillium Asset Management &
Tellus Institute
30
A Historical Look at the SRI Industry and
Recent Industry Research
US SIF 33
Women, Wealth and Impact: Investing with
a Gender Lens
Veris Wealth Partners 36
From the Margins to the Mainstream World Economic Forum 39
From Ideas to Practice, Pilots to Strategy
Practical Solutions and Actionable Insights
on How to Do Impact Investing
World Economic Forum 43
Articles contained herein have been reprinted with permission

NOTE: All investing risks loss of capital. Past performance does not indicate future results. This is not an offer of securities.
©2006-2014 HIP Investor Inc. and © 2014 HIP Investor Ratings LLC. All Rights Reserved.
The New Fundamentals of Investing
High-Impact Portfolios Can Outperform Wall Street
New Research Reveals a Diversified Portfolio, Rated for Future Risk,
Can Deliver Stronger Returns with Lower Risk + Positive Impact
Executive Summary:
+ Investor portfolios today, even those guided or managed by expert advisors, could achieve
stronger returns with lower risk, and more positive impact on society – if they use all the
meaningful information on future risk that is publicly available on their investments.
+ More than 20 quantifiable metrics of value-creation – which comprise up to 80% of the
S&P500 stock market value – are knowable yet ignored by the majority of investors.
+ For investors who seek a stronger portfolio, a diversified blend of mutual funds and
investments – optimized for future risk and potential return, as well as positive impact using
HIP Investor’s ratings – can produce lower portfolio volatility, higher portfolio returns
(relative to risk), and more positive net benefit to society.
More than $220 trillion is invested globally. Nearly all
investors, advisers, and fund managers evaluate their results
– and decisions to buy or sell – based on measures of past
risk and return. As we all hear: “Past performance is not
indicative of future results.” This is true. Looking forward,
value-creation and volatility depend on evaluating
future risk and return potential. According to interviews
with institutional investors representing trillions of investor
capital, the tools from Morningstar, Bloomberg, FactSet,
and other firms “primarily analyze historical risk and return,
not the full set of factors that drive future risk and return.”
Across the S&P500, 80% of the S&P 500 stock market valuation is driven by factors that are not
accurately captured on the financial statements (Ocean Tomo) – and typically ignored by investors, analysts,
advisers and fund managers. More than 20 quantifiable factors creating cash flow and profit, or lessening risk,
are not used by Wall Street experts. Most financial analysis focuses on historical results, but not all the forward-
looking sources and drivers of shareholder value creation. Also, no common standard is used by Wall Street
investors for measuring net beneficial impact on society. HIP Ratings measure meaningful knowable-yet-
ignored factors – and how they drive financial risk and return.
Investors can enhance return potential and lower risk by:
 Valuing people as an asset: A portfolio model of publicly
listed firms in Fortune’s Best Companies to Work For,
calculated by Wharton finance professor Alex Edmans,
typically outperforms the S&P500 (since 1998).
 Natural Resource Efficiency: The S&P Carbon-Efficient
Index of firms more efficiently using energy has
outperformed the S&P500 since its inception in 2011.
 Leadership Inclusive of All Talent: Boards of firms with 1 or
more women on the Board have realized higher return
on equity with lower volatility (2005-2011), according to Credit Suisse (see chart above).

A Diversified Portfolio Built to Benefit Society Can Beat Wall Street
“The markets are efficient.” “All available information is built into the stock price as soon as it is available.”
“Index funds are the most reliable way to invest.” These investment mantras are embedded in Wall Street portfolios,
integrated into the curricula of leading business schools, and rewarded with Nobel Prizes in economics. But new
fundamentals of investing portfolios in the 21st
century have arrived – that can lessen risk and enhance returns.
Investors benefit from diversified portfolios across all asset classes. Modern Portfolio Theory (MPT), distilled in
1952 by Nobel-prize-winning Dr. Harry Markowitz at the University of Chicago, is seen as the gold standard of
portfolio construction. To apply MPT systematically, investors typically use index funds that follow the market.
However, the underlying assumptions are that the market prices are efficient and accurate, incorporating all
relevant information. Yet more than 20 factors of future risk, potential return, and net impact appear to be
ignored by the market, and miss out on capturing the full set of drivers of value-creation. Thus, trusting the
market-price based indexes can lead to a sub-optimal portfolio – with higher risk and lesser return.
Sustainable Portfolios Can Beat Wall Street and Modern Portfolio Theory
A more optimal portfolio that lowers risk and ONE-YEAR (2013) PERFORMANCE
enhances returns – and can beat Wall Street – is
possible. In 2006, HIP Investor developed a
unique methodology to rate investments and funds
globally. Today, HIP’s 6000 ratings include 4500
corporations (equity and debt) and 1500+ issues of
bonds (including governments and nonprofit muni-
bonds) on their future risk, return, and impact.
Using HIP’s approach to manage future risk, at least
two diversified portfolio models of mutual funds
and investments (one with 24 funds; another with
10 funds) can lower financial volatility (as calculated
by the standard deviation of monthly returns) and
earn higher annualized returns, for the 1-year and 3-
year periods ending December 31, 2013 (see charts).
Over all time periods analyzed – 1, 3, 5, and 10 year THREE-YEAR (2011-2013) PERFORMANCE
periods – sustainable, high-impact portfolios (HIP
24 HIP 10 models) incurred lower risk (and lower
portfolio Beta) and stronger returns relative to risk
(higher Sharpe ratios). Across all time periods
analyzed, the HIP 10 portfolio approach shows
less risk and exceeds the annualized returns of
the Modern Portfolio Theory approach. New
fundamentals can transform traditional investing.
Sustainable portfolios can outperform the
market, as they integrate meaningful, quantifiable
information (captured by HIP Ratings) that is
knowable yet ignored by most investors, analysts,
endowments, pensions, and foundations. Investors
integrating this info can strengthen their portfolios.
Vanguard
2025 Fund
HIP 10
HIP 24
MPT
0%
5%
10%
15%
20%
0% 5% 10% 15% 20%
Less Risk
RETURNS:
Annualized
Returns*
RISK: Standard
Deviation of Returns*
PORTFOLIO: color of bubbles:
Dark Green = HIP 24
Light Green = HIP 10
Red = Vanguard 2025 Fund
Gray = MPT
MoreReturn
Vanguard
2025 Fund
HIP 10HIP 24
MPT
0%
5%
10%
15%
20%
0% 5% 10% 15% 20%
Less Risk
MoreReturn
RETURNS:
Annualized
Returns*
RISK: Standard
PORTFOLIO: color of bubbles:
Dark Green = HIP 24
Light Green = HIP 10
Red = Vanguard 2025 Fund
Gray = MPT
*For annualized time period over the past 3 years ending 12/31/2013
*For annualized time period over the past 1 year ending 12/31/2013

Smart Portfolios Include Funds & Investments that Can Realize Both Positive Impact + Profit
Smart investor portfolios diversify to mitigate the potential downside of future risks and seek the upside
associated with all the possible opportunities. More than $220 trillion of global financial assets – including
your portfolio – could be stronger and more resilient by measuring its future risk exposure and allocating to
funds and investments that can lower that risk, seek enhanced returns, and spur net positive impact for society.
US-SIF identifies $3.7 trillion in the USA and $4 trillion in Europe that is pursuing positive impact in portfolios.
Every investment – stock, bond, mutual fund, ETF – can be rated for its future risk, financial return potential,
and net impact on society. Investors can track their portfolio performance on all these dimensions. Color-
coded HIP Ratings can visualize future risk and upside potential in portfolios (red connotes riskier; green implies
more resilient, striving for higher impact and possible stronger returns with lesser risk). In the 3 years ending
12/31/2013, a HIP-designed portfolio’s funds exceeded the MPT portfolio funds; more HIP-selected funds
performed above the financial “efficient frontier” and were color-coded “green” for lower future risk and more
positive impact. Using investment ratings of this type to measure and decide can strengthen your portfolio.
3-Year Fund Performance of HIP-24 portfolio** 3-Year Results: Modern Portfolio Theory funds***
* For annualized time period over the past 3 years ending December 31, 2013 (one fund with less than 3 years history blends in its benchmark-index performance)
** HIP 24 funds cover mutual funds, ETFs, and stocks that are fund-like (e.g., KKR private equity, partnered with EDF.org)
*** MPT funds and allocations follow the model approach followed by software-based advisor WealthFront, as published on its website in Q4-2013
Every investment and fund has a future risk-return-impact
profile; HIP rates more than 6000 investments and funds. Muni
bonds can rate higher impact by funding nonprofits in healthcare and
education, as well as government services for water and cities.
Private-equity funds can manage risks and pursue impacts more
systematically than publicly listed companies. Hedge funds can be
low transparency about the portfolio’s future risks.
Do you know the future risks embedded in your
portfolio? Is it built for 21st
century opportunities?
Portfolios designed thoughtfully that incorporate
knowable-yet-ignored factors of value-creation and future-risk reduction – which HIP Ratings
methodically calculate – can result in stronger, more resilient, and higher performing results.
Download the full whitepaper and slideshow at www.HIPinvestor.com
To discuss HIP Ratings, contact: R. Paul Herman, CEO, +1 415 902 7741, Paul@HIPinvestor.com
HIP Investor Inc is a registered investment adviser in CA, WA and IL with clients nationally.
iShares JPMorgan USD Emerg
Markets Bond
iShares iBoxx $
Invst Grade Crp Bond
Vanguard FTSE Developed
Markets ETF
Vanguard Dividend
Apprec Idx ETF
Vanguard REIT Index ETF
Vanguard Total
Stock Market ETF
Vanguard FTSE
Emerging Markets ETF
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
-5% 0% 5% 10% 15% 20% 25% 30% 35%
IMPACT: color of bubbles:
Green = higher IMPACT
Yellow = medium IMPACT
Red = lower IMPACT
ALLOCATION: size of bubbles
is percent (%) allocated to fund
RISK: Standard
RETURNS:
Annualized
Returns*
Ariel Appreciation Investor
DFA Five-Year Global
Fixed-Income I
iShares JPMorgan USD
Emerg Markets Bond
iShares International
Dev Rel Est
KKR & Co LP
2 INDEXES + Shelton Green Alpha
Pax World High Yield Bond
Individual Inv
Pax World Global
Envrnmntl Mkts Indv Inv
iShares Morningstar Small-Cap
Guggenheim Timber ETF
Pope Resources LP
First Trust
S&P REIT Idx
Parnassus
Fixed-Income
Pax World Small Cap
Individual Inv
Parnassus Workplace
Calvert Global
Alternative Energy A
Calvert Global Water A
iShares
S&P 100
ETFS Physical
Swiss Gold Shares
RidgeWorth US Gov Sec
Ultra-Short Bd I
iShares TIPS Bond
Praxis Intermediate Income A
Guggenheim S&P
Global Water Index
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
-5% 0% 5% 10% 15% 20% 25% 30% 35%
IMPACT: color of bubbles:
Green = higher IMPACT
Yellow = medium IMPACT
Red = lower IMPACT
ALLOCATION: size of bubbles
is percent (%) allocated to fund
RISK: Standard
RETURNS:
Annualized
Returns*

A
Portfolio
Approach
to
Impact
Investment:
Framework
for
Balancing
Impact,
Return,
Risk

By
Yasemin
Saltuk,
Director
of
Research,
J.P.
Morgan
Social
Finance

This
is
an
extract
from
A
Portfolio
Approach
to
Impact
Investment
(Y.

Saltuk,
J.P.
Morgan
Social
Finance,
October
2012),
a
report
written
as
a

practical
guide
to
building,
analysing
and
managing
portfolios
of
impact

investments
for
professional
investors.
Since
completing
this
work,
we

have
been
using
the
framework
for
managing
our
own
portfolio
and

representing
the
profile
of
our
targets
and
investments.
For
the
full

report,
visit:
www.jpmorganchase.com/socialfinance.

In
traditional
financial
analysis,
investment
management
tools
allow

investors
to
evaluate
the
return
and
risk
of
individual
investments
and

portfolios.
This
research
presents
a
tool
to
analyse
impact
investments

across
the
three
dimensions
that
determine
the
performance
of
these
assets:
impact,
return
and

risk.
Throughout,
we
reference
the
experiences
of
impact
investors
with
case
studies
of
how
they

approach
each
step
of
the
portfolio
construction
and
management
process.
The
content
for
this

research
was
informed
by
our
own
investment
experience
as
well
as
that
of
23
institutional
investors

that
we
interviewed.
Figure 1
gives
an
overview
of
the
report
structure,
and
we
provide a summary
of
the
key
findings.

Figure
1:
A
Portfolio
Approach
to
Impact
Investment

Source:
J.P.
Morgan

Building
an
Impact
Investment
Portfolio

Find
a
home
for
the
portfolio

To
successfully
build
a
portfolio
of
impact
investments,
investors
need
to
assign
an
individual
or
a

team
to
source,
commit
to
and
manage
this
set
of
investments,
and
institutions
are
setting
up
their

organizations
in
different
ways
to
address
this
need.

Some
institutions
establish
a
separate
portfolio
with
its
own
management
team,
while
others

employ
a
“hub-‐spoke”
strategy
where
a
centralized
impact
team
partners
with
various
portfolio

managers
across
instrument
types
(such
as
fixed
income
and
equity)
to
manage
the
portfolio's

multiple
dimensions.
Still
others
bring
the
total
institution
in
line
with
the
impact
mission.

Define an impact thesisFind a home for the portfolio Define financial parameters
Building an Impact Investment Portfolio
Mapthe individual investmentsMapthe target profile
Mapthe aggregate portfolio
& compare to target
A Framework for Impact, Return and Risk
Manage risk through
structuralfeatures
Identify the risks
in the impact portfolio
Manage friction between
impact and return
Financial & Impact Risk Management
Throughout,
the
term

"social”
is used to

include
both
social
and

environmental
concerns.

Also,
the
term

“institutional
investor”

refers to
non-‐individual

investors,
including

foundations,
financial

institutions
and
funds.


Table
1
shows
some
examples
of
investors
including
foundations,
pension
funds,
financial

institutions
and
fund
managers,
and
their
organizational
structures.

Table 1:
Organizational
Structures
across
Institutional
Investors

Investor
Type
Example
Portfolio
Management

Foundation
The
Rockefeller
Foundation
Separate
team

The
F.B.
Heron
Foundation
Whole
institution

Pension
fund
TIAA-‐CREF
“Hub-‐spoke”
partnership

PGGM
“Hub-‐spoke”
partnership

Financial
institution
Storebrand
Separate
team

J.P.
Morgan
Social
Finance
Separate
team

Fund
manager
MicroVest
Whole
institution

Sarona
Asset
Management
Whole
institution

Source:
J.P.
Morgan

Define
an
impact
thesis

Once
the
organizational
structure
is
in
place,
the
portfolio
management
team
will
need
to
articulate

the
impact
mission
of
the
portfolio
to
set
the
scope
of
their
investable
universe.
For
many
impact

investors,
the
impact
thesis
is
usually
driven
by
the
value
set
of
an
individual
or
organization
and
can

reference
a
theory
of
change,
often
with
reference
to
specific
impact
objectives
such
as
access
to

clean
water
or
affordable
housing.
An
impact
thesis
can
reference
a
target
population,
business

model
or
set
of
outcomes
through
which
the
investor
intends
to
deliver
the
impact (see Table 2 for

examples).
Table
2:
Illustrative
Components
of
an
Impact
Thesis

Target
Population
Target
Business Model
Target
Impact

Income
level

Product/service
provider
to

target
population

Number
of
target
population

reached

Degree
of
inclusion
Utilizing
target
population
retail

distribution

Per
cent
of
business
reaching

target
population

Region
of
inhabitation
Utilizing
target
population

suppliers

Scale
of
outputs

Implementing
energy
and

natural
resource
efficiency

Quality
of
outputs

Source:
J.P.
Morgan

Define
financial
parameters

Alongside
the
impact
thesis,
the
investment
team
will
determine
the
investment
scope
with
respect

to
the
parameters
that
can
drive
financial
performance.
These
parameters
include
the
instruments

that
will
be
eligible
for
investments;
the
geographies
and
sectors
of
focus;
the
growth
stage
and

scalability
of
the
businesses
that
will
be
targeted;
and
the
risk
appetite
of
the
investor.

Abandon
the
trade-‐off
debate
for
economic
analysis

In
setting
the
investment
scope
and
return
expectations,
we
encourage
investors
to
abandon
broad

debates
about
whether
they
need
to
trade off
financial
return
in
exchange
for
impact.
We
rather

propose
that
investors
rely
on
economic
analysis
on
a
deal-‐by-‐deal
basis
of
the
revenue
potential

and
cost
profile
of
the
intervention
they
are
looking
to
fund,
and
set
risk-‐adjusted
return

expectations
accordingly.

A
Framework
for
Impact,
Return
&
Risk

Once
the
target
characteristics
of
the
portfolio
are
defined,
investors
can
map
the
following
across

the
three
dimensions
of
impact,
return
and
risk:
a
target
profile
for
the
portfolio,
the
expected

profile
of
the
individual
opportunities
and
the
profile
of
the
aggregate
portfolio,
which
can
then
be

assessed
against
the
target.

Map
the
target
profile

To
illustrate
how
different
investors
might
map
their
portfolio
targets,
we
present
the
graph
of
our

own
J.P.
Morgan
Social
Finance
target
portfolio
–
the
shaded
grey
area
in
Figure
2
–
alongside
the

profile
that
might
be
targeted
by
an
investor
with
a
higher
risk
appetite
and
a
lower
return
threshold
(Figure
3),
and
the
graph
that
might
represent
the
target
for
an
investor
pursuing
only
non-‐negative

impact
with
a
low
risk
appetite (Figure
4).
i
Figure 2: J.P. Morgan Social
Finance Target
Portfolio
Graph
Source: J.P. Morgan
Figure 3: High Risk Investor’s
Target Portfolio Graph
Source: J.P. Morgan
Figure 4: “Non-negative Impact”
Investor’s Target Portfolio Graph
Source: J.P. Morgan


Map
the
individual
investments

Next,
we
map
out
expectations
for
an
individual
investment

based
on
assessments
of
the
impact,
return
and
risk.
Once
that

investment
is
mapped,
we
can
then
compare
it
to
the
portfolio

target
as
shown
in
Figure
5.
Although
we
show
an
example
in

which
the
individual
investment
profile
does
fit
within
the

portfolio
targets,
in
general
investors
may
not
require
that
each

investment
necessarily
fits
within
the
target
range,
so
long
as
the

aggregate
does.

Map
the
aggregate
portfolio
and
compare
to
target

Once
the
portfolio
begins
to
grow,
we
can
consolidate
the

individual
investment
graphs
into
one
graph
representing
the

characterization
of
the
portfolio
as
a
whole,
aggregating
the

individual
graphs
by
either
overlaying
them
or
averaging
them

(simply,
or
on
a
notional-‐weighted
basis).
Then,
this
aggregate

can
be
compared
to
the
target
profile
for
the
portfolio
to
ensure

alignment.

Expand
the
dimensions
of
the
graph,
if
desired

Investors
should
consider
the
three-‐dimensional
graph
as
a
template.
For
some,
the
simplicity
of
this

approach
might
be
appropriate
for
aggregating
across
large
portfolios
at
a
high
level.
Others
might

prefer
to
use
a
more
nuanced
framework
that
better
reflects
the
different
contributing
factors
of
the

parameters
represented
on
each
axis
–
impact,
return
and
risk.ii
As
an
example,
we
could
consider

an
investment
graph
across
six
dimensions,
splitting
each
of
the
three
into
two
components,
as

shown
using
a
hypothetical
investment
in
Figure
6.
Alternatively,
an
investor
might
choose
to
show

four
dimensions,
where
risk
is
split
by
financial
risk
and
impact
risk.

Figure
6:
Illustrative
Graph
in
Six
Dimensions

The
bold
blue
hexagon
illustrates
the
profile
of
a
hypothetical
debt
investment.

Source:
J.P.
Morgan.

Figure
5:
One
Investment
in
the

Context
of
Portfolio
Targets

The
shaded grey
area

represents
our
portfolio

targets;
the
bold
blue
triangle

represents
an
individual

investment.

Source:
J.P.
Morgan


Once
the
targets
have
been
set
and
the
portfolio
begins
to
grow,
investors
are
then
faced
with

managing
the
investments
to
ensure
that
the
portfolio
delivers
both
impact
and
financial
returns
in

line
with
the
targets.

Financial
and
Impact
Risk
Management

Identify
the
risks
in
the
impact
portfolio

On
an
individual
investment
basis,
the
risks
that
arise
for
impact
investments
are
often
the
same

risks
that
would
arise
for
a
traditional
investment
in
the
same
sector,
region
or
instrument.
Just
as

we
abandon
the
trade-‐off
debate
on
return
across
the
asset
class
and
encourage
deal-‐by-‐deal

analysis,
we
encourage
investors
to
assess
the
risk
profile
that
results
from
their
particular
impact

thesis
and
motivation.

There
are
also
some
cross-‐market
risks
to
consider,
including
the
early
stage
of
the
market
and
its

supporting
ecosystem;
mission
drift;
the
responsible
combination
of
different
types
of
capital

(including
grants);
and
the
moral
hazard
of
recognizing
impact
failure
or
financial
loss.
The

development
of
the
market
over
time
should
erode
some
of
the
risks
associated
with
its
early
stage

and
ecosystem.
While
some
of
these
risks
will
remain
in
place,
investors
will
likely
develop
better

processes
for
recognizing
and
dealing
with
them.

Manage
risk
through
structural
features

Once
the
risk
profile
of
the
investment
is
determined,
investors
manage
it
using
structural
features

such
as
seniority
in
the
capital
structure,
fund
intermediaries
and
compensation-‐related
or

covenant-‐based
incentives.
With
respect
to
the
currency
risk
that
arises
for
investors
allocating

capital
internationally,
some
investors
referenced
diversification
across
countries
as
the
preferred

means
of
management.

Manage
friction
between
impact
and
return

Many
investors
cite
that
they
pursue
opportunities
where
the
impact
mission
is
synergetic
with
the

financial
return
pursuit.
Several
organizations
also
acknowledged
that,
at
times,
friction
can
arise

between
these
two
pursuits.
Some
of
the
challenges
referenced
include
the
investee’s
growth

coinciding
with
a
reduction
in
jobs;
the
investee
maintaining
mission;
or
ensuring
impact

measurement.
Some
investors
manage
these
challenges
by
building
covenants
referencing
the

mission
into
the
deal.

Portfolio
diversification

Investors
often
find
a
softer
approach
to
diversification
to
be
more
suitable
to
the
private
nature
of

this
market.
Rather
than
setting
exposure
limits
as
can
more
easily
be
done
for
public
equity

portfolios,
impact
investors
tend
to
start
with
a
more
opportunistic
approach.
They
assess
the
merits

of
investments
mostly
on
a
stand-‐alone
basis,
while
monitoring
the
broader
concentrations
in
any

sector,
geography,
instrument
or
impact
pursuit.
Once
the
portfolio
reaches
a
critical
mass,
many
of

them
become
more
strategic
about
diversification,
considering
an
investment’s
individual
merits

alongside
those
in
the
context
of
the
broader
portfolio.


Looking
Forward

Challenges
should
ease
over
time

To
be
successful
today,
investors
need
to
be
realistic
about
the
stage
of
the
market,
employing

patient
capital,
bringing
a
dynamic
approach
and
taking
an
active
management
role
to
the

investment.
Whether
investing
directly
or
indirectly,
they
need
to
navigate
a
broad
ecosystem
to

ensure
success.
Investors
today
share
a
collaborative
spirit
in
meeting
these
challenges
with
the

broader
goal
of
catalysing
capital
towards
impact
investments.
This
research
has
been
a
first
step

towards
sharing
the
experiences
of
these
field
builders
to
help
investors
establish
a
strategic

approach
to
portfolio
management
for
impact
investments.

About
J.P.
Morgan
Social
Finance

J.P.
Morgan
Social
Finance
was
launched
in
2007
to
catalyse
the
growing
market
for
impact

investments
and
accelerate
the
delivery
of
market-‐based
solutions
to
social,
economic
and

environmental
challenges.
Our
business
is
dedicated
to
growing
this
market
through
client
advisory

services,
principal
investments
and
research.

Disclosures

________________________________________

J.P.
Morgan
is
the
global
brand
name
for
J.P.
Morgan
Securities
LLC
and
its
affiliates
worldwide.
This

research
is
written
by
Social
Finance
Research
and
is
not
the
product
of
J.P.
Morgan’s
research

departments. For further disclosures, please see the full publication at
www.jpmorganchase.com/socialfinance.
________________________________________

Copyright
2012
JPMorgan
Chase
& Co.

i
The term “non-negative” is used to indicate, for example, a socially responsible investor that might employ some
negative screening to exclude negative impact from a portfolio, but does not actively pursue positive impact.
Readers should note that no particular correlation or relationship between impact, return and risk is implied.
ii
To ensure the investment profile is not oversimplified, the use of this framework is advocated – whether in three
dimensions or more – in conjunction with a more detailed understanding of the investments, and never on a
stand-alone basis.

Impact Investing 2.0: 12 Outstanding Funds Point the Way Forward
By Cathy Clark, Jed Emerson and Ben Thornley1
From its origins in socially responsible investing, community finance, microfinance, and
international development, impact investing has emerged as a distinct practice. This has
warranted the creation of new field-level infrastructure, like the Global Impact Investing
Network and Impact Investing Policy Collaborative, and motivated volumes of excellent
research adding tremendous depth to the conversation among practitioners.
All this has played out in the first, “1.0 era” of the market’s emergence – where
“observation” has necessarily trumped “evidence.” However while observation has so
far been sufficient to align key stakeholders, and drive product development and
demand from capital providers like high net worth individuals, private foundations, and
even commercial institutions, it is no longer enough. The market has not been growing
as fast as many practitioners had hoped, in part because the larger wealth advisors and
institutional investors on which growth depends are demanding a level of product and
performance specificity that only time and experience can provide. And to the extent
that impact investing can be more difficult to perfect than traditional investing –
operating as many impact investors do in newly forming markets, with financial tools
and infrastructure that necessitate extreme creativity and collaboration – the need for
evidence is even more acute.
The three of us, together with colleagues at Pacific Community Ventures and CASE at
Duke, have spent the last three years shifting the discussion from the “why” of impact
investing to the “how,” by examining the practices and performance of 12 outstanding
funds in detail, culled from an initial list of 350. Detailed case studies, information on
our research methods, and full findings are available at our project microsite:
www.pacificcommunityventures.org/impinv2. A recently released e-book, Collaborative
Capitalism and the Rise of Impact Investing (John Wiley & Sons), also connects the
experiences of the 12 funds to the bigger picture of a more outcomes-oriented,
transparent, and responsive form of business and finance writ large.
What the 12 funds demonstrate is that, while inherently diverse in its application,
impact investing is in fact a cohesive discipline. With decades of practice to draw upon,
there is no need to speculate on what impact investing might be or debate whether it is
1 The Impact Investor project – a research collaboration between Insight at Pacific Community Ventures,
CASE at Duke University and ImpactAssets – was made possible with the generous support of Omidyar
Network, Annie E Casey Foundation, RS Group, Heron Foundation, W.K. Kellogg Foundation, and Deutsche
Bank. This article is an edited excerpt from the final project report published in November 2013, Impact
Investing 2.0: The Way Forward – Insight from 12 Outstanding Funds. The 12 firms/funds studied include
Aaavishkaar, Accion Texas, Bridges Ventures, Business Partners Limited, Calvert Foundation, Deutsche
Bank, Elevar, Huntington Capital, The W.K. Kellogg Foundation, MicroVest, RSF Social Finance, and SEAF.

possible for investors to receive financial returns along with social and/or environmental
impacts. This level of doubt was warranted in the 1.0 era, but the 12 funds we studied
prove the opposite.
The bottom line is this: a first generation of private impact investing funds has delivered
on the promise of concurrently delivering financial returns and explicit social outcomes.
Developed and emerging market equity and hybrid funds, all with some participation of
commercial investors aiming for market-rate performance, have generated financial
returns of 3-22 percent. Social debt funds – with primarily individual, philanthropic or
policy-driven bank investors – have returned 0-3 percent, matching their targets and
never losing a dime.
We can now enter a “2.0 generation” of impact investing with confidence, knowing
what practices undergird success and building on these lessons to bring the field to
scale.
Four Practices Common to 12 Outstanding Impact Investing Funds
Outstanding impact investing funds undertake many practices common to all asset
managers; they carefully nurture their brand, leverage all of the relationships at their
disposal, are often headed or backed by singularly reputable or experienced individuals
and institutions, demonstrate exceptional financial discipline, are models of operational
excellence, and work relentlessly to support the growth of their investees. However
there are four qualities that are distinct to impact investing:
1. Policy Symbiosis
2. Catalytic Capital
3. Multilingual Leadership
4. Mission First and Last
Policy Symbiosis
While many people believe that the most successful capital market is one in which
government is least involved, our 12 funds prove that impact investing is grounded in
deep cross-sector partnership that benefits from the government’s engagement. In fact
the public sector is ubiquitous in impact investing at all levels of government, consistent
with its strong interest in maximizing social and environmental benefits to society, and
the promise that impact investing can deliver these benefits at scale.
Many of our funds actively maintain relationships with government, either seeking
direct investment from public entities or leveraging other policy incentives. And the

relationship is not one-sided. The funds also use their experience in the field to
influence the creation of more enabling and supportive public policy environments.
The UK Government played a foundational role helping to form Bridges Ventures and
provided a 1:1 investment match for every pound raised in the £40 million Sustainable
Growth Fund I. Business Partners Limited was created as a partnership between the
South African government and some of that country’s largest corporations. And
Huntington Capital’s second fund received investment from institutions motivated by
both the U.S. Community Reinvestment Act and California state-level regulations.
Funds should be aware of policies that apply to them, cultivate relationships with public
officials, be part of the field-level conversation, and invite policymakers to the table as a
real partners in impact investing.
Catalytic Capital
The concept of Catalytic Capital is relatively intuitive: one set of investments triggers
additional capital that may not have otherwise been available to a fund, enterprise,
sector or geography, thereby generating exponential social or environmental value. We
know that investors providing capital for strategic in addition to financial reasons have
been critical to the development of impact investing; however, we did not expect
Catalytic Capital to have been so prevalent. As it happens, every one of the 12 funds
benefitted from, or deploys, Catalytic Capital.
Catalytic Capital in the form of grants, guarantees, or concessionary or cornerstone
investments may have the potential to negatively distort markets, particularly at the
investee level. However at the fund level, our 12 case studies show Catalytic Capital has
been nothing short of transformative, unlocking billions of dollars of non-catalytic
investments.
Accion Texas receives half of its $14 million operating budget for making high-impact
microloans from grants—a proportion that is falling but will likely never reach zero.
Deutsche Bank’s Global Commercial Microfinance Consortium was made possible by a
grant from the Department for International Development in the UK, which provided
operating income during fund creation, and additional security to other investors. And
RSF Social Finance is becoming adept at using an “integrated” approach in its lending,
tapping philanthropic capital, at the margins, to make more borrowers eligible for
financing.
Funds should re-conceptualize the motivations of investors (with an awareness of the
wide range of factors for individuals and institutions that drive their engagement in
impact investing), target and partner with investors who are both mission- and strategy-
aligned, and create peer groups of structural innovators given the importance of layered
funds in making newer or more idiosyncratic markets investable.

Multilingual Leadership
Those responsible for making investments must execute with unshakable financial
discipline, but successful fund leadership is about more than simply effective money
management. The founders and leaders of the 12 funds in this study often had cross-
sector experience in multiple essential areas: finance/business, policy, and
impact/philanthropy.
Multilingual Leadership takes this notion a step further and indicates the
institutionalization of a fund’s ability to move seamlessly among diverse stakeholders
and audiences. Taken as a whole, each fund team exhibited fluency in the vocabularies,
networks, and unwritten norms of the private, public and nonprofit sectors.
Kellogg Foundation’s Mission-Driven Investment program was created and led by two
“intrapreneurs” with deep programmatic experience and institutional credibility,
championed by a CEO who had been a pioneer in venture philanthropy, and
implemented in partnership with a third-party investment consultant. MicroVest has a
governing board mostly composed of social sector representatives, even while
management operates autonomously with an explicit goal of achieving market rates of
financial return.
Funds should recognize the need for different kinds of expertise, leverage strong
individual or institutional foundations into strong teams, be open to growth and
transformation (constantly evaluating and adding expertise), and actively work to train
the next generation of leaders to be multilingual.
Mission First and Last
While a defining piece of conventional wisdom in the 1.0 era has been that investors
approach impact investing through either a financial-first or impact-first lens, this is
rarely the case. In reality, funds put financial and social objectives on an equal footing by
establishing a clearly embedded strategy and structure for achieving mission prior to
investment, enabling a predominantly financial focus throughout the life of the
investment.
Knowing early and explicitly that impact is in a fund’s DNA, all parties (investors,
investees and the fund itself) are able to move forward with the investment disciplines
akin to any other financial transaction, confident that mission drift is unlikely. Towards
the end of the investment, the focus of funds returns to the impact achieved according
to a stated mission. Mission First and Last demonstrates that, in practice, every fund
combines explicit impact intention with operational accountability to impact, and
suggests that it is time to retire our dichotomous financial-first or impact-first thinking.

There are a number of ways to essentially “lock in” mission. Calvert Foundation
manages a community investment note registered in all 50 U.S. states accessible to non-
accredited investors. The impact thesis and constraints of the fund are built into the
registered security. The Bridges Ventures Sustainable Growth Funds I and II focus on a
cluster of thematic areas where established social or environmental need creates a
commercial growth opportunity for market-rate or market-beating returns, and then
report rigorously on the impacts that its investees are delivering. RSF offers mortgage
loans, construction loans, and working capital lines of credit exclusively to nonprofit and
for-profit social enterprises that meet stringent impact criteria.
Funds should lock in their mission (establishing a clear “investment thesis of change”
highlighting the intentional social or environmental impacts they seek to create, and the
manner in which they will be delivered through investment), align accountabilities with
mission, track targeted metrics and strengthen feedback loops, and maintain absolute
financial discipline.
Looking Ahead
When taken together, the four themes help explain why building scale is a gradual and
deliberate endeavor:
 Funds take the time to build teams with multi-sector experiences, approaches
and skill sets;
 They become familiar with policy and spend energy cultivating mutually
beneficial relationships with philanthropists as well as governmental actors;
 They are less masters of the universe than they are both masters of
collaboration (soft skills) and financial structuring (hard skills); and
 They recognize and act on their accountability to multiple stakeholders.
We need to be careful about our generalizations and not claim them as universal too
soon. Yet we are pleased to celebrate the arrival of the 2.0 era in impact investing: a
core set of successful practices taken from illuminating, real-world examples of
investors, funds, entrepreneurs and beneficiaries doing well and doing good together.

Impact
investing
as
part
of
a
responsible
investment
portfolio

By
Karin
Malmberg

Impact
investing
is
an
approach
to
responsible
investment
which
signatories
to
the
United
Nations-‐
supported
Principles
for
Responsible
Investment
(PRI)
are
becoming
increasingly
interested
in.
We

work
with
those
signatories
to
explore
investment
opportunities
that
deliver
positive
environmental

and
social
benefits,
while
producing
attractive
financial
returns.

PRI
signatories
have
fiduciary
responsibilities
which
means
all
their
investments
must
meet
certain

risk
and
return
requirements.
We
might
therefore
talk
about
'finance
first'
impact
investing,
or

environmental
and
social
(E&S)
themed
investing.
Figure
1
below
illustrates
how
such
an
approach

fits
with
other
investment
approaches.

Figure
1:
The
spectrum
of
investment
approaches

Source:
Adapted
from
Bridges
Ventures

Institutional
investor
case
studies

These
seven
case
studies
demonstrate
how
E&S
themed
investing
can
form
a
valuable
part
of
an

institutional
investors’
approach
to
responsible
investment,
focusing
on
a
particular
aspect
of
the

investment
process.
All
major
asset
classes
and
several
themes,
such
as
affordable
housing,
health,

agriculture,
microfinance
and
sustainable
infrastructure,
are
covered
in
the
investments
profiled.

• Environment
Agency
Pension
Fund
This
case
study
describes
how
clear
and
stringent
ESG

requirements
were
embedded
into
the
tendering
and
appointment
processes
for
a
recent

mandate
in
environmentally
themed
funds
in
property,
sustainable
infrastructure,

forestry/timberland
and
agriculture/farmland.


• Wespath
Investment
Management
This
case
study
outlines
how
this
US
investor
developed
its

highly
successful
Positive
Social
Purpose
Lending
Program
and
overcame
the
challenges
it

faced.

• Local
Government
Super
This
case
study
looks
at
the
Australian
pension
fund’s
environmental

and
social
themed
investments
within
four
asset
classes:
international
listed
equities,
private

equity,
sovereign
bonds
and
absolute
return
strategies.
It
describes
how
these
investments

help
LG
Super
hedge
against
climate
change
risk,
their
performance
to
date
and
how
LGS

identifies
and
executes
them.

• PGGM
This
case
study
outlines
how
the
Dutch
pension
administrator
goes
about

understanding
the
direct
and
wider
impacts
of
its
E&S
themed
investments,
illustrated
using

examples
of
how
it
applies
its
approach
to
microfinance
investments.

• Storebrand
This
case
study
looks
at
the
Norwegian
insurance
company’s
investments
in

health
and
agriculture
sectors
focusing
particularly
on
the
strict
criteria
Storebrand
uses
to

identify
and
evaluate
these
investments.

• Merseyside
Pension
Fund
This
case
study
outlines
the
rationale
for,
and
the
structure
of,

investments
made
to
support
local
regeneration.

• Christian
Super
This
case
study
focuses
on
the
Australian
pension
fund’s
investments
in

community
infrastructure
and
community
finance.
It
illustrates
the
clear
social
impacts
the

selected
funds
aim
to
deliver.
It
also
outlines
the
investment
structures
and
risk
mitigation

strategies
these
funds
employ
to
facilitate
institutional
investment.

Measuring
impact

The
paper
Understanding
the
environmental
and
social
impact
of
your
investments
explains
the

value
of
measuring
impact,
provides
guidance
on
what
investors
should
be
tracking
and
summarises

practical
tools
and
techniques
available.

The
paper
is
supported
by
two
case
studies
looking
at
indirect
investor
approaches
to
measuring

impact:

Obviam

Sarona
Asset
Management

PRI
in
Person
2014

PRI
in
Person
is
the
leading
global
responsible
investment
conference.
At
this
year’s
event,
taking

place
in
Montréal
22-‐26
September,
topics
discussed
will
include
green
bonds,
impact
measurement

and
institutional
investor
case
studies.
Please
go
to
unpri.org/montreal
to
find
out
more.

Find
out
more

These
case
studies
and
other
resources
can
be
accessed
on
PRI’s
website:

http://www.unpri.org/areas-‐of-‐work/implementation-‐support/environmental-‐and-‐social-‐themed/

Please
contact
Karin.malmberg@unpri.org
if
you
are
interested
in
finding
out
more.

Karin
Malmberg
is
Manager,
Environmental
and
Social
Themed
Investing
at
The
United
Nations-‐
supported
Principles
for
Responsible
Investment
(PRI)
Initiative.

PRI
is
an
international
network
of
over
1200
investors
and
intermediaries,
together
managing
over

US$
34
trillion
in
assets.
These
signatories
work
together
to
put
the
six
Principles
for
Responsible

Investment
into
practice.
Our
goal
is
to
understand
the
implications
of
sustainability
for
investors

and
support
signatories
to
incorporate
these
issues
into
their
investment
decision
making
and

ownership
practices.


Building
Impact
Investing
Portfolios:
From
Strategy
to
Policy
to
Implementation

Sonen
Capital
LLC
Authors:
Justina
Lai,
Associate
Director;
Will
Morgan,
Director
of
Impact;

Joshua
Newman,
Investment
Analyst;
and
Raúl
Pomares,
Senior
Managing
Director.

Key
Insights

• An
impact
investing
policy
is
the
critical
link
to
translating
an
impact
investing
strategy
into

tangible
implementation
steps.

• Impact
investors
can
benefit
from
an
additional
layer
of
due
diligence
by
using
specific
impact

lenses
to
identify
investments
that
fit
clients’
financial
and
impact
requirements.

• In
addition
to
diversifying
across
asset
classes,
impact
investors
can
increasingly
diversify
across

impact
sectors
as
markets
deepen.

Introduction:
The
following
was
adapted
from
Evolution
of
an
Impact
Portfolio:
From

Implementation
to
Results,
a
landmark
report
released
in
October
2013
by
Sonen
Capital
in

collaboration
with
the
KL
Felicitas
Foundation
(KLF,
or
the
Foundation).
The
report
demonstrates
to

investors
that
impact
investments
can
compete
with,
and
at
times
outperform,
traditional
asset
class

strategies
while
pursuing
meaningful
and
measurable
social
and
environmental
results.i

In
2004,
to
meaningfully
address
the
world’s
most
pressing
social
and
environmental
issues,
KLF

began
a
process
that
would
eventually
allocate
100%
of
the
Foundation’s
capital
to
impact

investments.
Over
the
seven-‐year
period
of
2006-‐2012,
the
Foundation
moved
from
2%
of
assets

allocated
to
impact
to
over
85%,
while
generating
index-‐competitive,
risk-‐adjusted
returns.
This

article
highlights
Sonen
Capital’s
strategy
for
building
impact
investment
portfolios,
utilizing
our

experience
in
investing
KLF’s
assets
as
a
case
study
to
concretely
illustrate
this
approach.ii

The
full

report
is
available
for
download
via
Sonen’s
website
at:
http://www.sonencapital.com/evolution-‐of-‐
impact.php

Creating
an
Impact
Investment
Policy:
Constructing
KLF’s
impact
investment
portfolio
required

following
a
framework
through
which
investors
could
move
towards
action
–
from
establishing
to

executing
and
maintaining
an
impact
investing
strategy.
This
cycle,
depicted
below
and
described
in

detail
in
Solutions
for
Impact
Investors:
From
Strategy
to
Implementationiii
,
provides
a
roadmap
for

building
impact
investment
portfolios.
Central
to
this
process
is
developing
a
comprehensive
Impact

Investing
Policy,
the
critical
link
to
translating
a
strategy
into
a
tangible
implementation
plan.

Impact
Investing
Cycle

Source:
Solutions
for
Impact
Investors:
From
Strategy
to
Implementation.
Rockefeller
Philanthropy
Advisors,
2009.


KLF’s
Impact
Investing
Policy
was
designed
to
incorporate
impact
criteria
into
the
portfolio

construction
process
and,
to
the
extent
possible,
select
impact
investments
that
satisfied
the

Foundation's
Investment
Policy
Guidelines.iv

The
selected
policy
targets
reframed
KLF's
Investment

Policy
with
respect
to
asset
allocation
to
achieve
both
financial
and
impact
objectives.

Anchored
by
rigorous
financial
analysis
and
ongoing
assessments
of
factors
affecting

macroeconomic
conditions,
the
asset
allocation
targets
are
still
designed
to
diversify
KLF's

investments
across
and
within
asset
classes,
while
achieving
lower
volatility
and
risk
over
time
to

protect
portfolio
capital
and
achieve
competitive
returns
across
market
cycles.

Figure
9:
KLF
Impact
Investments
by
Impact
Strategy
and
Asset
Class

Source:
Sonen
Capital

Portfolio
Construction:
As
KLF’s
assets
were
moved
into
impact,
a
balance
was
sought
between

financial
and
impact
considerations.
As
the
impact
investment
universe
expanded,
so
did
the

opportunity-‐set
through
which
KLF
could
express
preferences
for
impact
themes
and
investment

views
according
to
asset
class
targets.
KLF’s
Return-‐Based
Impact
investments
performed
in
line
with

their
asset-‐class
exposures
while
providing
for
diversification
benefits.
The
impact
industry
has
since

matured
enough
to
offer
a
more
complete
set
of
investment
options,
making
it
increasingly
possible

to
find
financially
compelling
investments
across
asset
classes
that
achieve
required
impact
criteria.

Adding
“Impact”
to
Investment
Due
Diligence:
In
addition
to
the
fundamental
financial
analysis
and

discipline
that
goes
into
investment
decision-‐making,
KLF
used
a
specific
impact
lens
based
on
the

Foundation's
charitable
mission
and
its
founders'
values
to
further
refine
the
investment
selection

process.
This
included
an
assessment
of
a
potential
investee's
impact
strategy,
impact
reporting

capabilities
and
fit
with
the
Foundation's
mission.
Meetings
were
set
up
with
portfolio
managers
and

analysts,
and
each
team's
investment
process
was
studied
to
understand
how
investment
decisions

were
made,
all
in
an
effort
to
understand
how
ESG
or
impact
factors
are
integrated
to
add
value.


Due
Diligence
(Public
Strategies):
We
classify
investment
opportunities
principally
according
to

three
categories,
listed
from
lowest
to
highest
impact:

After
categorizing
strategies,
quantitative
screens
for
financial
track
records
are
applied.
Impact

investors
should
analyse
not
only
the
returns
of
a
strategy,
but
also
attempt
to
understand
the

underlying
drivers
of
returns
and
risk,
including
the
factors
to
which
each
strategy
is
exposed.
After

promising
candidates
have
been
isolated
within
each
asset
class,
investors
must
thoroughly
analyse

managers’
impact
strategies.
As
investors
become
more
comfortable
with
the
options
in
the
impact

marketplace,
they
can
begin
to
think
about
“impact
allocations”
–
allocating
their
investments

optimally
across
various
impact
approaches
and
target
themes
–
in
addition
to
asset
and
risk

allocations.

Due
Diligence
(Private
Strategies):
For
investors
able
to
access
private
market
investments,

alternative
strategies
are
critical
components
of
an
investor’s
diversified
asset
allocation
strategies.

Private
investments
offer
both
compelling
economic
exposures
and
the
potential
to
capture
unique

impact
opportunities
through
highly
thematic
exposures.
For
example,
private
strategies
can

provide
exposure
to
direct
impact
in
themes
important
to
investors,
such
as
clean
energy
and

technology,
community
development,
sustainable
forestry,
sustainable
ranchland
and
financial

services
for
base-‐of-‐the-‐pyramid
(BoP)
communities.v

Just
as
in
the
public
markets,
private
investments
require
extensive
financial,
impact
and
operational

due
diligence.
Investors
should
be
aware
that
the
due
diligence
process
is
iterative
and
non-‐linear;

new
quantitative
and
qualitative
data
points,
enhancing
the
quality
of
due
diligence
and
ongoing

monitoring,
can
surface
by
integrating
impact
criteria
into
the
investment
process.

Asset
Allocation:
For
KLF,
once
appropriate
investments
were
identified,
each
investment
was

matched
to
the
Foundation’s
overall
asset
allocation
targets.
KLF’s
impact
investments
were

allocated
across
all
asset
classes,
making
it
possible
to
identify
specific
social
or
environmental

impacts
for
each.
As
a
greater
number
and
wider
spectrum
of
impact
investment
opportunities

continue
to
become
available
to
investors,
all
asset
classes
are
expected
to
be
capable
of
delivering

risk-‐adjusted,
financially
competitive
and
mission-‐aligned
impact
returns
to
investors.

Next
Steps
for
Investors:
For
investors
seeking
to
integrate
impact
across
their
investment

portfolios,
the
impact
investing
cycle
roadmap
can
serve
as
a
useful
guide
for
moving
from
strategy

to
implementation
to
results.

1. Ask
for
impact:
Asset
owners
should
no
longer
accept
the
premise
that
sacrificing
financial

performance
is
necessary
to
achieve
measurable
and
meaningful
impact.
Evolution
of
an

Impact
Portfolio:
From
Implementation
to
Results
can
serve
as
a
reference.

Responsible:

Negative
Screening

Sustainable:

Positive
Screening

Thematic:

Social/Environmental
Themes

When
high-impact

opportunities
are
unavailable

as
a
result
of
portfolio

construction
necessities,

investors
may
opt
to
screen

out
issue
areas
such
as

tobacco,
firearms
or
alcohol.

Investors
should
note
that
the

use
of
sometimes arbitrary

negative
screens
can
reduce

the
efficiency
of
portfolios
and

may
entail
certain
risk/return

trade-‐offs.

Investors
can
add
value
to
the

investment
process
by

incorporating
ESG
criteria
or

sustainability
considerations
into

manager
or
security
selection.

Positive
screening
allows
managers

to
express
themes
and
investment

ideas
through
best-‐in-‐class

approaches
or
through
careful

selection
of
companies
that
manage

their
ESG
risks
and
opportunities
in

a
proactive
manner.

Thematic
strategies
look
to

focus
on
a
particular
social
or

environmental
trend
by

expressing
investment
ideas
that

are
best
positioned
to
benefit

from
exposure
to
the
theme.

Typically,
managers
identify
and

invest
in
the
most
progressive

companies
(or
other
issuers)

with
strong
ESG
performance

within
a
theme.


2. Reclaim
ownership
of
assets:
If
the
service
provider
is
not
willing
and/or
not
able
to
deploy

assets
to
impact,
another
service
provider
should
be
found
who
is.

3. Become
more
educated:
Growing
industry
networks
and
an
abundant
set
of
topical

resources
are
available
to
those
interested
in
learning
more.

4. Widen
options:
The
industry
continues
to
evolve,
and
investors
today
have
an
increasing

number
of
choices
to
implement
their
impact
strategies.
More
high-‐quality,
turnkey

solutions
are
available
in
the
marketplace
than
ever
before.

i

For
a
complete
understanding
of
the
strategies,
principles
and
performance
results,
please
see
Evolution
of
an
Impact
Portfolio:
From

Implementation
to
Results,
October
2013.
San
Francisco,
CA:
Sonen
Capital,
http://www.sonencapital.com/evolution-‐of-‐impact.php.

ii

Sonen
Capital
was
founded
in
September
2011,
and
therefore
much
of
the
performance
commentary
relates
to
investments
made
under

the
supervision
of
Raúl
Pomares
(with
significant
input
from
KLF)
before
the
existence
of
Sonen
Capital,
and
by
an
investment
team
that
is

different
from
that
of
Sonen
Capital.
There
can
be
no
assurances
that
Sonen
Capital
would
have
achieved
similar
performance,
or
that

investments
made
by
Sonen
Capital
in
the
future
will
achieve
their
stated
objectives
or
avoid
losses.

iii

Godeke,
S,
Pomares,
R.
Solutions
for
Impact
Investors:
From
Strategy
to
Implementation.
Rockefeller
Philanthropy
Advisors,
2009.

iv

The
complete
investment
policy
is
available
at
http://www.klfelicitasfoundation.org/
and
depicted
in
Evolution
of
an
Impact
Portfolio:

From
Implementation
to
Results.

v

Base
of
the
pyramid
refers
to
the
4
billion
people
with
annual
income
under
US$
3,000
in
local
purchasing
power.
Hammond,
A,

Kramer,
W,
Tran,
J,
Katz,
R
and
Walker,
C.
“The
Next
Four
Billion:
Market
Size
and
Business
Strategy
at
the
Base
of
the
Pyramid”.

World
Resources
Institute,
2007.

Agricultural Technology Impact Assessment Framework
The Agricultural Technology (AgTech) sector is emerging as the key weapon in the battle for global food
security. The triple threat of population growth, rising incomes among the emerging middle class, and
limited arable land and water resources are projected to cause widespread food shortages, high levels
of food price instability, and increased strain on existing environmental and governmental resources.
AgTech seeks to address the food security threat using technological solutions to raise agricultural
yields, improve supply chain efficiencies to lower food spoilage, improve water resource management,
and combat food safety issues. AgTech innovations could raise global crop yields by up to 67% and
lower food prices by up to 49% by 2050.1
From a financial perspective, the high demand for food
security solutions could result in attractive exit valuations and potentially compelling cash yields.
This said, several debates have emerged that question the ultimate beneficial impact of AgTech
investments beyond increased crop yields. Is there impact intentionality in AgTech, given that exits are
likely to involve strategic sales to large multi-nationals operating in the food and agri industries? Does
AgTech facilitate the industrialization of food production, with potentially negative environmental
consequences? Does it threaten organic/natural, local farming practices? Are production yields rising at
the potential expense of public health, due to the unknown consequences of genetically modified crops
and increased reliance on hormones and antibiotics in animal proteins? Is any AgTech benefit trickling
down to small scale farmers, notably those in developing economies?
The purpose of this paper is to provide investors with a framework for making informed decisions about
whether or not to pursue investments in the AgTech sector, considering all sides of the debate, most
notably the ultimate social benefits of an adequate food supply vs. the question of intrinsic impact. This
should be done within the context of the investor’s investment philosophy and financial objectives.
Decision points to frame an Investor’s AgTech strategy:
 To what extent does the investor want exposure to the AgTech sector? Why?
 What is the investor’s position on the lack of impact intentionality in most AgTech investments
vs. the end goal of increased food security? Does the meaningful benefit to society outweigh the
impact mission drift risk?
 Can an investor occupy a position of innovation leadership in impact investing, yet still invest in
the AgTech space? Does AgTech investing optimize the investor’s capacity to add value?
 Would direct investing in AgTech be a better strategy to pursue, as it would allow investors to
seek out specific AgTech investments that could offer intrinsic impact?
 If we define success as “the intention of an investment being materialized and fulfilled,” then
what does that look like in the AgTech context?
There are three reasons investors may want to participate in AgTech investing:
1. To generate positive financial return from a sector with projected high product
demand.
2. To enhance long-term food security through new technologies.
3. To ameliorate food inflation.
There are three primary strategies to pursue exposure to the AgTech sector:
1. Direct private investment into AgTech companies.
2. Investment in AgTech companies through the public securities’ markets.
3. Investment in private funds focused on AgTech, mainly using PE or VC vehicles.

Backup Research/Thoughts on AgTech
Trends driving the AgTech debate:
 Population growth. While the rate of growth is slowing, world population continues to expand:
it is expected to reach 9.1 bn by 2050, a 70% increase.2
This will drive increased demand for
food, as well as higher prices.
 Rising food prices are driving more people into poverty. 110 million people were driven into
poverty, and 44 million more became undernourished, in 2008. 925 million people go hungry
because they cannot afford to pay for daily nutrition. In many developing countries, people
spend 50-80% of their income on food.3
 Growth in EMG middle class. Emerging markets are also seeing unprecedented growth in the
middle class, as income levels rise. GDP worldwide is projected to increase by 3.3% annually
over the next decade, but by 5.6% annually in emerging markets. This will increase demand for
animal protein and certain produce, both of which previously were too expensive for this group.
Meat consumption during this period is projected to rise 2.4% annually in emerging markets, vs.
0.9% in developed countries.4
Demand for livestock feed, and the land on which to grow it, will
rise as a result, putting additional pressure on traditional food resources.
 Food inflation. Despite declining per capita consumption of wheat and rice, the rising
population, particularly in developing countries, is expected to increase global demand for
staple food grains. According to the USDA, 82% of the increase in world wheat consumption
over the 2013-22 period will be driven by emerging markets.5
This could result in food inflation
spikes similar to that seen during the 2008 food crisis, as global supply curves destabilize.
 Increased transportation costs. Inexpensive transportation fuels have made the global food
supply chain profitable and efficient. Increased transportation costs threaten this supply chain,
as the countries who may experience sharp increases in food import needs are the same
countries least able to afford it.
 Limited land supply. There is a limited supply of arable land, water resources are becoming
more scarce, and desertification continues to claim previously arable land across the globe.
Farmland prices in the US are rising at unprecedented rates, up more than 400% over the last
ten years, and more than 90% over the past five. 6
This ultimately increases the end cost of food
to the consumer.
 Land grab in EMG. Increased demand for arable land is resulting in land grabs in emerging
markets, which is destroying rainforests and reducing carbon offsets, disrupting indigenous
populations, increasing the strain on the water supply, increasing the burden on the global food
supply chain and creating mono-cultures in previously diverse food ecosystems.
 Strain on water resources. Rising demand for food, and notably the growth in animal protein
consumption, will increase agriculturally-based water demand. 1 kg of rice production uses
3,500 liters of water, whereas 1 kg of beef requires 15,000 liters. Current water management
techniques in agriculture are changing ecosystems significantly, and rendering the provision of
ecosystem services ineffective. The external cost in the US is US$9–20 billion per year.7
 Food loss/waste. 30% of food production is lost or wasted each year, meaning the productive
inputs (water and land) are also wasted.8
 Greenhouse Gases. Agriculture contributes to greenhouse gas emmissions.9
 Biodiesel demand. Rising demand for biodiesel is increasing demand for vegetable oils in
emerging markets.
AgTech investments can ameliorate some of these issues:
Benefits:

 Poised to raise crop yields by up to 67% and lower food prices by up to 49% by 2050.10
 Increase productivity and crop yields on existing farmland through technological advancements
in seed technology, fertilizers, agri equipment, and precision agriculture (notably irrigation).
 Improve animal protein yields through programs and investments promoting animal health and
innovations in livestock feed.
 Reduce food spoilage and loss through supply chain innovations, with cold storage being a
notable near-term opportunity. Similarly, vertical integration or direct
grower/distributor/consumer interaction can reduce food cost.
 Increase effective water management through improved irrigation techniques that reduce water
waste during the growing process; develop water recovery/repurposing systems to increase
water recapture.
 Reduce food safety issues through innovations in diagnostics, processing, and packaging.
 Solid investment exit opportunities exist through strategic sales. High demand for food security
solutions could result in attractive exit valuations and interest from multiple buyers.
However, there are concerns arising from the AgTech strategy:
Risks:
 Mission drift upon exit: Strategic sales would likely be to large companies in the food and agri
business, resulting in an increased industrialization of the food supply. Many of these
corporations are utterly devoid of impact intentionality (example: ConAgra).
 Higher crop and protein yields are often achieved through genetic modification to seeds and
crops, and hormones and antibiotics used in animal protein production. Debate continues over
the long-term public health impact of these techniques.
 AgTech innovations may not be environmentally friendly (ex: pesticides and fertilizers).
 Increased automation in the farming process could reduce jobs for LMI populations.
 The potential for higher profits via rising crop yields, plus a lack of environmental regulation
around land usage, could encourage additional transformation of rainforest/jungle to farmland,
resulting in the negative externalities mentioned above, but potentially impacting region-scale
ecosystems.
 Productivity improvements in emerging markets meant to support domestic consumption needs
may instead enhance the export market, depending on relative pricing.
Investor Interest:
 Increased awareness of the food security dilemma and the potential for solid returns is
attracting more investors to the sector. However, the development of AgTech-focused
investment vehicles is still nascent, resulting in fewer fund investment options for interested
AgTech investors.
 To our knowledge, there are no purely AgTech-focused funds that require impact intentionality
on behalf of their portfolio companies (funds that eschew the environmental and social
negatives mentioned above while also investing solely in AgTech).
 Investing in AgTech may result in deviation from parts of the investor’s stated investment policy.
Impact:
 AgTech investments bring an undeniable enhancement to global food security by raising the
productive capacity of existing farmland and the efficiency of the agricultural supply chain.
 Productivity increases could help control food inflation.
 More productive farmland could reduce the demand for land conversions in emerging markets (I
know this conflicts with a similar point listed under Risks; it could go either way).
 Water consumption and waste could be reduced.

 A greater share of the value chain could be pulled to the producer, as technology-enabled
farmers can connect directly to end markets.
Complications:
 A debate has evolved within the impact investment community concerning the need for food
security (an adequate, affordable food supply, notably to emerging market populations) vs. the
environmental need for sustainable and natural farming, local agriculture and LMI livelihood
promotion, and concern over the public health unknowns related to productivity enhancements.
Impact investors recognize that all aspects of the argument present pressing concerns, but
disagree on which is most important. Does the investor need to formulate a view concerning
this debate?
 Does the investor’s commitment to impact intentionality outweigh the fact that most AgTech
funds do not invest with the goal of creating social impact, despite their ultimate goal of
increased food security?
 Can the investor occupy a position of innovation leadership in impact investing, yet ignore the
concerns above?
Notes:
1. http://www.ifpri.org/pressrelease/agricultural-technologies-could-increase-global-crop-yields-
much-67-percent-and-cut-foo
2. UN http://www.un.org/waterforlifedecade/food_security.shtml
3. Ibid.
4. http://www.ers.usda.gov/amber-waves/2013-august/developing-countries-dominate-world-
demand-for-agricultural-products.aspx#.Uzdgs1ydrwI
5. Ibid.
6. http://www.ncreif.org/farmland-returns.aspx
7. http://www.un.org/waterforlifedecade/food_security.shtml
8. Ibid.
9. Ibid.
10. http://www.ifpri.org/pressrelease/agricultural-technologies-could-increase-global-crop-yields-
much-67-percent-and-cut-foo
Disclosure: The CAPROCK Group, Inc. (‘CAPROCK”) is an SEC Registered Investment Adviser. CAPROCK provides individual
client services only in states in which it is filed or where an exemption or exclusion from such filing exists. Provided for informational
purposes only. Independent advice should be sought in all cases. Investment in securities or financial instruments involves the risk
of loss. Impact investing does not guarantee any level of performance. Past performance is not a guarantee of future performance.
Alternative and private investments, including private placements, involve additional risk, including lack of liquidity, restrictions on
withdrawal/redemption/transferability and the risk of loss of a full investment. Because these types of investments involve certain
additional degrees of risk, they should only be utilized when consistent with the client’s investment objectives, tolerance for risk,
liquidity and suitability.

TOTAL
PORTFOLIO
ACTIVATION

A
FRAMEWORK
FOR
CREATING
SOCIAL

AND
ENVIRONMENTAL
IMPACT
ACROSS

ASSET
CLASSES

A
paper
published
by
Tides,
Trillium
Asset
Management,

and
Tellus
Institute
has
developed
a
novel
framework

for
pursuing
social
and
environmental
impact

opportunities
across
asset
classes.

The
study
“Total
Portfolio
Activation,”
by
Joshua

Humphreys,
Ann
Solomon
and
Christi
Electris,
provides

concrete
steps
to
help
institutional
investors
begin

working
toward
a
fuller
activation
of
their
portfolio
to

advance
their
mission.

The
basic
insight
that
drives
Total
Portfolio
Activation
is

that
every
investment
across
every
asset
class
has
social

and
environmental
impacts—positive
and
negative.
The

paper
provides
both
a
framework
and
a
set
of
analytical

tools
to
help
mission-‐driven
investors
understand
the

specific
impact
opportunity
set
that
can
be
pursued.

In
addition
to
wide-‐ranging
research
on
the
burgeoning

field
of
sustainable,
responsible,
and
impact
investing,

the
authors
relied
on
the
advice
and
examples
of

numerous
investors,
investment
officers,
and
fund

managers
who
agreed
to
speak
about
their
efforts
to

pursue
investment
impact,
whether
across
their

portfolios
or
within
asset
classes.
With
case
studies
of

The
Oneida
Trust,
Equity
Foundation
and
Dominican

Sisters
of
Hope
among
others,
the
report
provides

specific
examples
of
investors
who
have
begun
to

activate
increasing
allocations
of
their
portfolios
for

deeper
social
and
environmental
impact.

Total
Portfolio
Activation
outlines
four
related
areas
of

activity
where
opportunities
for
impact
can
be
readily

seized
within
each
asset
class
and
ten
key
steps
that

investors
can
take
in
order
to
implement
the
Total

Portfolio
Activation
framework.

Download
the
full
report,
Total
Portfolio

Activation:
A
Framework
for
Creating
Social

and
Environmental
Impact
across
Asset
Classes

http://croataninstitute.org/publications/publicat
ion/total-‐portfolio-‐activation-‐2012

The
following
is
an
excerpt
from
the
paper:

nterest
in
investment
that
pursues
social
and

environmental
impact
has
exploded
in
recent

years.

Although
opportunities
for
impact
investing

have
emerged
across
asset
classes,
most
impact-‐
investment
activity
has
remained
largely
confined
to
a

I


limited
array
of
private
investments,
touching
only
a

small
percentage
of
investor
portfolios.1

For
organizations
and
individuals
seeking
greater

impact
and
better
alignment
between
their
investment

activities
and
their
mission
or
values,
there
remains
a

pressing
need
for
tools
to
help
investors
identify
and

seize
opportunities
to
activate
more
of
their
assets
for

social
and
environmental
benefit.

To
help
fill
this
gap,
this
paper
introduces
a
simple

conceptual
framework:
Total
Portfolio
Activation.

“Total
Portfolio
Activation”
is
a
framework
for

conceptualizing
social
and
environmental
impact

investment
not
as
an
asset
class,
but
rather
as
an

approach
to
be
pursued
across
all
asset
classes
in
a

diversified
portfolio.

At
a
time
when
most
"impact

investment"
has
seemingly
been
confined
to
private

equity
and
private
debt
investments,
the
basic
insight

that
drives
Total
Portfolio
Activation
(TPA)
is
that

every
investment
across
every
asset
class
has

potential
social
and
environmental
impacts
–
both

positive
and
negative.

However,
we
lack
a
coherent

framework
for
evaluating
the
opportunity
for
impact

across
all
holdings
in
a
diversified
portfolio.

Specifically,
the
paper
identifies
four
related
areas
of

activity
where
opportunities
for
impact
can
be
readily

seized
within
each
asset
class
in
order
to
increase
an

investor’s
potential
for
social
or
environmental

impact:

1.
Investment
selection
–
incorporating

environmental,
social
or
governance
(ESG)
issues
and

impact
into
investment
review,
decision-‐making
and

performance
analysis.

Investors
will
have
specific

criteria
related
to
environmental
or
social
issue
areas

or
targeted
geographies
around
which
they
structure

their
investment
selection
process
and
then
monitor

their
impact.

2.
Active
ownership
–
exercising
the
stewardship

rights
and
responsibilities,
voice
and
votes,
that
often

accompany
owning
an
asset.

Investing
in
assets
can

often
open
opportunities
to
engage
in
activities
as
an

owner,
whether
directly
or
indirectly.

1
Yasemin
Saltuk,
Amit
Bouri,
and
Giselle
Leung,

“Insight
into
the
Impact
Investment
Market,”
J.
P.

Morgan
and
the
GIIN,
December
2011.

3.
Networks
–
joining
wider
groups
and
coalitions
of

stakeholders
around
common
environmental
and

social
issues
of
concern,
in
order
to
leverage
collective

power
to
generate
greater
impact
than
any
single

investor
could
on
its
own.

4.
Policy
–
engaging
in
public-‐policy
activities
as
an

investor
in
order
to
tap
government
resources
and

incentives
or
encourage
regulatory
oversight
and

intervention
in
support
of
impact
objectives.

Policy

activity
acknowledges
the
potential
role
government

support,
regulation
and
intervention
can
play
in
the

investment
process
to
encourage
positive
social
and

environmental
outcomes.

Each
activity
area
can
be
applied
within
each
asset

class,
and
increasing
portfolio
activation
can
have

significant
leveraging
effects
on
an
investors’
potential

impact.

At
the
same
time,
the
relative
importance
of

each
activity
for
increasing
potential
impact
will
vary

within
each
asset
class
and
depend
on
the
investor’s

specific
social
or
environmental
concerns
or
goals.

The
process
of
selecting
an
investment
because
of
its

impact
attributes
is
key
for
every
asset
class,
but
we


have
also
found
meaningful
opportunities
to
increase

the
potential
for
impact
in
the
other
activity
areas
as

well:
by
taking
more
active
ownership
of
assets,

joining
with
other
stakeholders
in
networks
of

common
concern,
and
using
policy
tools
and

strategies.

Specific
asset
classes
are
also
better
suited
for

generating
particular
kinds
of
impact,
so
investors

with
targeted
issue
areas
of
concern
will
need
to
place

greater
stress
on
the
activities
and
investments
that

align
with
their
impact
objectives.

Cash
and
fixed-‐
income
investments
in
community
development

financial
institutions,
for
example,
are
particularly

useful
ways
to
support
affordable
housing
in
targeted,

low-‐income
geographies.

Active
ownership
initiatives,

by
contrast,
appear
particularly
germane
to

investments
in
public
and
private
equity
and
real

assets,
though
they
take
very
different
forms
in
each

asset
class,
ranging
from
high-‐impact
shareholder

engagement
with
publicly
traded
companies,
to

directly
influencing
companies
through
a
board
seat
in

private
equity,
to
sustainably
managing
timberlands
in

real
assets.

Ultimately,
each
investor
will
need
to
assess
the

primary
social
and
environmental
issue
areas
that
are

core
to
its
mission
and
then
evaluate
the
activities

within
each
asset
class
that
are
most
appropriate
for

increasing
its
potential
for
impact
in
those
areas.

The

framework
of
Total
Portfolio
Activation
provides
a

clear
process
for
identifying
what
we
term
an

investor’s
“impact
opportunity
set,”
by
assessing
the

impact
activities
and
investment
opportunities
within

each
asset
class
of
its
portfolio
that
are
most
relevant

to
increasing
potential
social
or
environmental
impact.

IMPACT
OF
EQUITY

ENGAGEMENT
(IE2):

EVALUATING
THE
IMPACT
OF

PUBLIC
EQUITY
INVESTING
IN

TOTAL
PORTFOLIO
ACTIVATION

Since
the
report’s
release,
increasing
numbers
of

investors
have
been
grappling
with
the
place
of
public

equity
investments
within
impact
investing.

Given

that
public
equity
investments
continue
to
constitute

a
substantial
allocation
of
most
diversified
investment

portfolios,
the
potential
for
increasing
the
positive

impact
attributes
of
public
equity
investments

presents
a
major
opportunity
for
the
impact
investing

space.

At
the
same
time,
a
growing
group
of
investors
have

committed
to
becoming
active
owners
of
their
assets

and
to
engaging
corporations
on
environmental,

social
and
governance
issues
through
networks
such

as
the
UN-‐backed
Principles
for
Responsible

Investment.

Yet
the
impact
of
these
engagement

activities
remains
poorly
understood.

A
new
multi-‐stakeholder
initiative,
known
as
the

Impact
of
Equity
Engagement
(IE2),
is
exploring
these

issues
and
developing
a
new
more
robust,

standardized
framework
for
tracking
and
reporting

engagement
activities
in
order
to
document
investor’s

impact
through
engaged
listed
equity
investments.

Coordinated
by
Croatan
Institute,
a
new
sustainability

research
center,
IE2
is
being
sponsored
by
the
original

lead
sponsors
of
Total
Portfolio
Activation,
Tides
and

Trillium
Asset
Management,
with
a
wider
group
of

engaged
investors,
including
Calvert
Investments,

Boston
Common
Asset
Management,
NorthStart
Asset

Management,
Inc.,
and
Walden
Asset
Management.

Croatan
Institute
is
also
exploring
other

opportunities
to
deepen
TPA
in
other
asset
classes,

such
as
cash,
fixed
income,
private
equity
and
real

property.

For
more
information,
or
to
get
involved
in
these

initiatives,
please
email
Joshua
Humphreys

josh@croataninstitute.org
.


A
Historical
Look
at
the
SRI
Industry
and
Recent
Industry
Research

At
the
start
of
2012,
$3.74
trillion—more
than
11
percent
of
the
$33.3
trillion
in
total
investments
under

US
professional
management—was
invested
according
to
strategies
of
sustainable
and
responsible

investing
according
to
the
US
SIF
Foundation’s
2012
Report
on
Sustainable
and
Responsible
Investing

Trends
in
the
United
States.

The
2014
edition
of
the
report
is
planned
for
release
at
the
end
of
the
year.

The
US
SIF
Foundation
undertakes
research
on
behalf
of
US
SIF:
The
Forum
for
Sustainable
and

Responsible
Investment,
the
US
membership
association
for
professionals,
firms,
institutions
and

organizations
engaged
in
sustainable
and
responsible
investing
(SRI).

US
SIF
and
its
more
than
300
members
advance
investment
practices
that
consider
environmental,

social
and
corporate
governance
(ESG)
criteria
to
generate
long-‐term
competitive
financial
returns
and

positive
societal
impact.
US
SIF
program
areas
to
support
SRI
practitioners
include
research,
an
annual

conference,
policy
and
advocacy,
online
and
live
courses,
and
specialized
working
groups
and

committees.
Learn
more
at
http://www.ussif.org/.

Historical
Developments
in
SRI

While
investors
in
various
ways
have
long
considered
how
to
manage
their
wealth
for
impact,
we
might

date
the
start
of
the
current
quest
to
the
1970s,
when
a
growing
number
of
universities,
faith-‐based

institutions,
foundations
and
others
began
to
inquire
if
they
had
responsibilities
to
correct
“social
injury”

caused
by
the
companies
in
which
they
invested
as
minority
shareholders.

From
these
philosophical
underpinnings,
and
aided
by
regulatory
changes
by
the
Securities
and

Exchange
Commission,
individual
and
institutional
investors
filed
the
first
dozens
of
shareholder

resolutions
raising
questions
about
environmental
and
social
responsibility
at
US
publicly
traded

companies.
Today,
hundreds
of
shareholder
resolutions
are
filed
each
year
at
US
companies
on

environmental,
social
and
corporate
governance
issues.

Several
developments
in
the
1980s
further
galvanized
responsible
investing
and
broadened
its
range.

The
anti-‐apartheid
campaign
motivated
endowments
and
other
institutions
to
question
whether

companies
doing
business
in
South
Africa
could
be
pushed
to
work
for
democratic
changes
in
that

country.
The
environmental
catastrophes
at
Chernobyl
and
Bhopal
also
drew
investors’
attention
to

whether
their
portfolio
companies
had
adequate
policies
to
reduce
and
manage
environmental
risk.

Early
interest
in
sustainable
and
responsible
investing
was
not
limited
to
publicly
traded
securities
alone.

Religious
investors
and
those
involved
in
the
social
transformations
of
the
1960s
and
1970s
also
sought

to
use
their
investments
to
aid
in
community
development
through
the
United
States
and
abroad.
The

Johnson
Administration’s
“War
on
Poverty”
helped
create
community
development
corporations.
The

community
investing
industry
developed
further
in
the
mid-‐1990s
with
the
formation
of
the
US


Treasury’s
Community
Development
Financial
Institution
(CDFI)
Fund,
revisions
to
the
Community

Reinvestment
Act
of
1977,
and
creation
of
new
tax
incentives
like
the
New
Markets
Tax
Credit
that

helped
to
usher
new
investing
into
low-‐income
communities.

For
30
years,
the
assets
committed
to
this
type
of
investing—alternatively
known
as
socially
responsible,

sustainable
or
responsible
investing-‐-‐grew
rapidly,
extended
across
the
range
of
asset
classes,
and

generated
organizations
such
as
US
SIF,
the
Interfaith
Center
on
Corporate
Responsibility,
Ceres,
the

Council
of
Institutional
Investors,
and
the
Principles
for
Responsible
Investment.

In
the
last
decade,
a
new
wave
of
investors
has
emerged.
They
have
sought
out
innovative
alternative

investment
vehicles
such
as
private
equity
and
loan
funds
that
have
explicit
missions
to
support
such

goals
as
economic
development,
sustainable
agriculture,
clean
energy,
transit-‐oriented
development,

quality
education,
fair
trade
or
access
to
health
care.
This
approach
represents
billions
of
dollars
of

capital
and
has
forged
networks
such
as
the
Global
Impact
Investing
Network,
organizations
catering
to

foundations
interested
in
mission
investing
and
the
100%
Network
focused
on
managing
total
portfolios

(from
philanthropy
to
near
market
and
market
rate
capital)
for
impact.

The
Impact
of
Sustainable
and
Responsible
Investment

Over
the
decades,
sustainable
and
responsible
investment
professionals
have
changed
the
investment

industry
by
challenging
and
shifting
traditional
notions
of
investment
practices.
In
so
doing,
they
have

brought
to
market
new
investment
options
and
services
across
a
wide
range
of
asset
classes
that
appeal

to
both
individual
and
institutional
investors
and
help
address
serious
social
and
environmental

challenges.

The
US
SIF
Foundation’s
2013
report,
The
Impact
of
Sustainable
and
Responsible
Investment,
presents

examples
of
how
sustainable
and
responsible
investors
have:

• changed
the
investment
industry
and
added
options
for
investors
in
public
equities,
depository

institutions,
loan
funds,
and
private
equity
and
other
alternative
investments,

• improved
companies
through
active
ownership
and
engagement,

• helped
communities
and
individuals,
and

• influenced
public
policy
and
developed
global
standard-‐setting
organizations

The
ideas
and
practices
advanced
through
sustainable
and
responsible
investment
have
captured
global

attention
and
are
increasingly
being
integrated
into
investment
decisions.
Some
of
the
most

sophisticated
investors
around
the
world
now
understand
that
sustainable
and
responsible

investment
provides
important
insights
and
mitigates
risks
while
also
benefiting
society.

The
report
can
be
found
on
the
US
SIF
website
at
http://www.ussif.org/pubs.

Foundations
and
Impact
Investing

A
segment
of
institutional
investors
that
has
grown
more
interested
in
various
aspects
of
sustainable

and
responsible
investing
is
the
foundation
world.

In
Unleashing
the
Potential
of
US
Foundation

Endowments:
Using
Responsible
Investment
to
Strengthen
Endowment
Oversight
and
Enhance

Impact,
the
US
SIF
Foundation
presents
extensive
data
from
primary
and
secondary
sources
to
assess


the
current
range
and
state
of
foundation
involvement
in
sustainable
and
responsible
investing.
It

suggests
that
the
number
of
foundations
engaged
in
SRI,
often
employing
such
terms
as
mission-‐related

investing
and
impact
investing,
has
been
growing
in
the
last
few
years.

The
guide
encourages
foundations
to
adopt
SRI
strategies
in
order
to
have
tools,
in
addition
to

grantmaking,
with
which
to
generate
positive
impact
and
to
fulfill
their
fiduciary
duties.
It
profiles
a

number
of
foundations
whose
approaches
to
SRI—including
shareholder
advocacy
at
publicly
traded

companies
and
investments
in
vehicles
supporting
community
development,
land
conservation
and

other
sectors—
have
resulted
in
meaningful
environmental,
social
or
corporate
governance
outcomes.

Another
strategy
foundations
employ
is
to
consider
ESG
criteria
in
addition
to
traditional
financial

indicators
when
selecting
companies
for
their
portfolios.
Many
of
the
foundations
profiled
in
the
guide

provide
background
on
the
process
they
followed—with
staff,
trustees
and
consultants—to
develop
or

update
their
responsible
investing
policies
and
procedures.

The
report
concludes
with
a
list
of
practical
steps
that
foundation
staff
and
trustees
can
take
to
help

their
institutions
align
a
broader
portion
of
their
assets
with
their
programmatic
or
broader
institutional

goals.
To
assist
these
first
steps,
an
extensive
appendix
of
resources
provides
links
to:

• organizations
offering
assistance
in
sustainable
and
responsible

investing,
including
such
specialties

as
impact
investing,
community
investing
and
shareholder
engagement,

• research
papers
on
SRI
and
financial
performance
and
on
fiduciary
duty
for
foundations,
and

• investment
policies,
proxy
voting
guidelines
and
case
studies
of
several
foundations
that
are
active

sustainable
and
responsible
investors.

The
report
can
be
accessed
at
http://www.ussif.org/pubs.


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San Francisco 415-814-0580
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Women, Wealth and Impact: Investing with a Gender Lens
The New Investing Paradigm: Female Positive and Carbon Neutral!
Impact investing is fundamentally changing the world for the better, but there is much more we can do. One
of the most exciting, emerging areas of opportunity is Gender Lens Investing. With its goal of directing capital
to investments that benefit women and girls, it is empowering them to address society’s most pressing social
challenges. While complementing impact investing’s long-standing focus on poverty alleviation, climate change and
sustainable technologies, Gender Lens Investing may ultimately produce a greater collective benefit.
Imagine the possibilities if 100% of the world’s population were fully engaged in creating positive change.
Gender Lens Investing Spots Opportunities Hiding in Plain Sight
Gender Lens Investing evaluates investments for their positive impact for girls and women. The underlying premise
is that women are powerful change agents, particularly when capital and opportunity flow to them. Gender Lens
Investing supports the financial, educational and political development of women and girls, accelerating economic
and social change. The opposite is also true: when women and girls are deprived of opportunity and capital,
innovation and economic activity are stifled. The well-being of companies, communities and entire countries is
also slowed or put at risk. Gender Lens Investing challenges capital markets to continually assess and support the
contributions of women and girls. By incorporating gender in capital allocation decisions, investors can demand
systemic change that actively values the contribution of women and girls. In the broadest context, investing in
women is critically important for men, business and society, not just women.
The Business Case for Gender Inclusiveness
The business case for gender equality is compelling, whether it’s advancing diversity on corporate boards
and executive suites, or channeling capital to under-funded entrepreneurs worldwide. Research repeatedly
demonstrates observable, positive impact when capital and opportunities flow to women. Findings include:
• Catalyst: Companies with three or more women corporate directors outperformed those with no women on
the board by 84% on return on sales, 60% on return on invested capital and 46% on return on equity. And
yet, women hold only 17% of board seats in the United States.
• Journal of Business Ethics: The quality of companies’ reported earnings positively correlates with greater
gender diversity in senior management.
• “Women and Repayment in Microfinance” (B. D’Espallier, et al): Microfinance institutions (MFIs) with more
women clients have lower write-offs and lower credit-loss provisions, supporting the common belief that
women are a better credit risk for MFIs.
• Illuminate Ventures White Paper: In Silicon Valley, a 2009 study found that venture-backed companies run by
a woman had annual revenues that were 12% higher and used an average of one-third less committed capital
with lower failure rates than those led by men.
• “Women in Agriculture” report of the UN’s Food and Agriculture Organization (FAO): While women are the
backbone of the rural economy in developing countries, they receive only a fraction of the credit, land,
training and inputs that men get. The FAO estimates that if women received resources on par with men, the
additional yield could reduce the number of undernourished people by 100 - 150 million (12 - 17%).

New York Portsmouth San Francisco
Page 2
From Lenses to Portfolios: The How-To
At Veris, we have been an early champion of Gender Lens Investing. We understand that tools for analyzing gender
inclusiveness in portfolios are just being developed and that few investment vehicles are currently specifically
constructed with a Gender Lens. Nevertheless, we have identified a wide range of investment opportunities that
support gender equality. Ranging from promissory notes and private investments to public securities and funds,
these investment vehicles promote: (a) increased access to capital and resources for women, (b) gender equity in
the workplace and on corporate boards, (c) products and services that benefit women and girls, (d) access to firms
that are led and/or are majority-owned by women, and (e) access to women portfolio managers and advisors.
The impact of these investments might be direct (e.g. investments in women-led enterprises) or indirect
(e.g. shareholder advocacy around board diversity). These opportunities often provide financial performance
comparable to traditional market returns. Others may return slightly below-market rates on a risk-adjusted basis.
Our Process
In designing investment strategies that address both financial and impact goals, we work with investors to consider
the following:
Step 1: Be Intentional: Decide to demand more than a financial return from your wealth. Identify the social,
environmental and impact concerns that matter most and seek investments aligned with those values.
Step 2: Formalize an Investment Strategy: Crystallize your financial and impact goals in an Investment Mission
Statement or Investment Policy Statement.
Step 3: Select a Knowledgeable Advisor: Share your goals with your investment advisor. Ask about the range and
quality of investment opportunities they offer to meet your multiple objectives. Talk to other advisors and explore
their investment philosophy.
Step 4: Assess Where You Are Now: Do you know what you currently own and the impact you are having? Are
your holdings addressing issues such as board diversity? Are your managers focused on investments empowering
women, thereby driving innovation and performance? Do your managers/funds have criteria for screening out
industries or companies with products or practices that are counter to workplace equity or the wellbeing of
women?
Step 5: Apply a Gender Lens: Assess the many facets of an investment opportunity, such as ownership and
management structure, look at how well gender issues are integrated into security selection, and consider the
services and products flowing to consumers. To maximize impact:
Evaluate investment vehicles that specifically target women:
◊ Publicly available options include: The Calvert Foundation’s Women Investing in Women (WIN-WIN)
promissory notes; Pax World’s Global Women’s Equality fund; and the CDs, promissory notes and loan
funds of community development financial institutions (CDFIs) and microfinance organizations that
channel many of their loans to women.
◊ Impact Alternatives include: Private debt that supports microfinance institutions serving women; angel
and venture capital targeted to women-led enterprises; impact investments such as Root Capital’s Women
In Agriculture Initiative; and loan guarantees, such as those used by MicroCredit Enterprises empowering
rural women in developing countries.
◊ For foundations and endowments: Consider lines of credit, loan guarantees and Program Related
Investments (PRIs).

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Page 3
◊ In assessing funds and portfolio managers, look for investment criteria that address gender equity and
inclusiveness. Reference the UN Women’s Empowerment Principles and Calvert Women’s Principles® in
evaluating a corporation’s impact on women in the areas of (a) employment and compensation, (b) work-
life balance and career development, (c) health, safety and freedom from violence, (d) management and
governance, (e) civic and community engagement, and (f) transparency and accountability.
Seek out women-owned and managed investment firms: Ask advisors about the ownership and management
structure of their firms. When evaluating new investment professionals include women in your search.
Support shareholder initiatives and advocacy:
◊ Evaluate managers and funds on the quality of their shareholder advocacy.
◊ Participate in Pax World’s Just Say No To All-Male Boards campaign.
Support the movement: Many organizations are raising investors’ and the business community’s awareness
about the goals of Gender Lens Investing. These include:
◊ Networks active in empowering women such as the Criterion Institute, 85 Broads, Women Moving
Millions, Women Donors Network, and Women’s Funding Network.
◊ Organizations working to increase the number of women on boards such as 20/20 Women on Boards,
Catalyst and the 30% Coalition.
◊ Non-profits increasing women entrepreneurs’ access to venture capital such as the Pipeline Fund and
Astia.
◊ Angel investing networks such as Golden Seeds Network and 37 Angels.
Concluding Thoughts
Smart investors are rapidly pivoting toward impact investments that deliver both financial performance and social
change. The data unequivocally shows we can create better companies and communities by shifting the flow of
wealth and power to women to lift them out of poverty, bolster their leadership and support their entrepreneurial
pursuits. Investments with strategic impact empower all the world’ people to solve today’s complex challenges. The
opportunity is clear. The benefit for all is compelling.
The Authors
Luisamaria Ruiz Carlile, CFP ® with Lori Choi, CFA ®, Patricia Farrar-Rivas, CIMA ®, and Alison Pyott, CFP ®
About Veris Wealth Partners
Veris Wealth Partners, LLC is an independent, partner-owned wealth management firm that aligns investors’ wealth
with their financial and social objectives. Veris believes that superior investment performance and positive impact
are complementary parts of a holistic investment strategy. Veris is based in San Francisco, with offices in New York
City and Portsmouth.
Disclaimer
This material is for informational purposes only and does not constitute a solicitation in any jurisdiction. Any
reference to individual asset manages or securities does not constitute a recommendation or endorsement. It does
not constitute investment research. Opinions are current as of the date of appearing in this material.

3From the Margins to the Mainstream
Contents Preface
3 Preface
4 1. Introduction to the Mainstreaming
Impact Investing Initiative
4 1.1 Executive Summary
4 1.2 Motivation
6 1.3 Focus and Scope
7 2. Definitional Alignment
7 2.1 Clarifying the Taxonomy
8 2.2 Areas of Definitional Confusion
10 3. Impact Investment Sector
Assessment
10 3.1 Harnessing the Hype
12 3.2 Impact Investment Ecosystem:
The Landscape Today
18 3.3 Case Studies: Examples of
Mainstream Investors in Impact
Investing
18 3.4 Impact Investing Across Asset
Classes
21 3.5 Voice of the Mainstream
Institutional Investor
23 4. Challenges that Institutional
Investors Face
23 4.1 Early-stage Ecosystem
24 4.2 Small Average Deal Size
25 4.3 Fit within Asset Allocation
Framework
26 4.4. Double Bottom Line
27 5. Recommendations
27 5.1 Role of Impact Investment Funds
28 5.2 Role of Impact Enterprises
28 5.3 Role of Philanthropists and
Foundations
29 5.4 Role of Governments
30 5.5 Role of Intermediaries
31 6. Conclusion
32 Appendix: Institutional Investors
Interested in Getting Started
33 References and Further Reading
34 Acknowledgements
Investors have significant influence over the social, environmental and
economic challenges of societies, yet continue to operate within a
market infrastructure and investment ecosystem where the incentives
do not generally balance social, environmental and economic impact.
Impact investing – an investment approach intentionally seeking to
create both financial return and positive social impact that is actively
measured – has been lauded as an emerging investment approach
with the potential to reconcile key shortcomings in traditional financial
markets. Yet with less than US$ 40 billion of capital committed
cumulatively to impact investments out of the tens of trillions in global
capital, it is no surprise that many have labelled impact investing “a
hype”.
At its Annual Meeting in Davos in January 2012, the World Economic
Forum brought together mainstream investors, impact investors and
social entrepreneurs to discuss how to harness the potential of impact
investing. What emerged was a list of constraints the sector faces,
such as the perception that a social impact responsibility conflicts with
a fiduciary duty, the fragmentation of the impact investing universe
with small intermediaries and small deal sizes, and the lack of an
established track record of exits for investors in double bottom line
companies. While the list of reasons why impact investing would
remain niche seemed overwhelming, bringing it into the mainstream
was too important an opportunity not to pursue.
Impact Investing is a multistakeholder issue. It engages governments
as impact investments offer opportunities for more efficient delivery
of public services. It engages civil society, from the non-profits that
design and implement projects to individual recipients of social
programmes. And it involves businesses, ranging from entrepreneurs
and lawyers to consultants and investors. Clearly, for impact investing
to reach its potential, it must be considered from the perspective of all
stakeholders. The focus of this report is the mainstream investor angle,
which offers the biggest opportunity to scale the sector at this stage.
With this context in mind, the World Economic Forum launched the
Mainstreaming Impact Investing initiative in 2012. This initiative builds
on the Forum’s 2011 report Accelerating the Transition towards
Sustainable Investing, which sought to stimulate the integration of
environmental, social and governance (ESG) factors into mainstream
investment analysis, as well as the 2011 Schwab Foundation for Social
Entrepreneurship report, The Social Investment Manual, which sought
to build absorptive capacity among prospective impact investees.
Undoubtedly, a number of leading global publications on impact
investing have graciously laid the foundation for this. What makes this
report different is the World Economic Forum’s access to the senior
most decision-makers and portfolio managers of the largest and most
innovative investors in the world; this uniquely helped facilitate a more
realistic vantage point on the challenges in scaling the sector. Working
with this group will also be instrumental in raising awareness and
knowledge among key stakeholders for taking impact investing from
the margins into the mainstream.
We recognize there remain many sceptics of impact investing. But,
we believe that the best way to develop and mature this promising
sector is through constructive criticism. So whether you believe impact
investing will inevitably be mainstreamed or believe it to be merely a
bellwether for what is not working in the economy, we look forward
to hearing from you. It is in this spirit that we offer this report not to be
filed in the archives of a library, but to start the journey to transform our
financial paradigms for the better.
For more information on the Impacting Investing initiatives of the World
Economic Forum, please contact us by e-mail at impactinvesting@
weforum.org.
Michael Drexler
Senior Director,
Head of Investors
Industries
World Economic
Forum USA
Abigail Noble
Associate Director,
Head of Impact
Investing Initiatives
World Economic
Forum USA
The World Economic Forum is an independent international organization
committed to improving the state of the world by engaging business, political,
academic and other leaders of society to shape global, regional and industry
agendas. Incorporated as a not-for-profit foundation in 1971 and
headquartered in Geneva, Switzerland, the Forum is tied to no political,
partisan or national interests.

4 From the Margins to the Mainstream
1.1 Executive Summary
Over the last few years, much excitement has been generated
around the term “impact investing” – an investment approach that
intentionally seeks to create both financial return and measurable
positive social or environmental impact. Despite the buzz, there is
limited consensus among mainstream investors1
and specialized
niche players on what impact investing is, what asset classes
are most relevant, how the ecosystem is structured and what
constraints the sector faces. As a result, there is widespread
confusion regarding what impact investing promises and ultimately
delivers.
This report is a result of engaging over 150 mainstream investors,
business executives, philanthropic leaders and policy-makers
through interviews, workshops and conference calls. The overall
objective of the Mainstreaming Impact Investing initiative is to
provide an initial assessment of the sector and identify the factors
constraining the acceleration of capital into the field of impact
investing. The report is divided into five key sections.
Section 1 outlines the motivation, focus and scope of the initiative.
It concludes that the primary asset owners that are allocating
capital to impact investments today include development finance
institutions, family offices and high-net-worth individuals,2
but
that the sector can only realize its potential if other types of asset
owners will allocate additional capital towards impact investments.
Section 2 defines impact investing, and most importantly, identifies
areas of confusion in an effort to clarify how impact investing is
different from traditional investing. It cites two examples of large-
scale asset owners that are allocating capital towards investments
that intentionally seek to create social or environmental value in
addition to generating financial return.
Section 3 provides a snapshot of the state of the sector. It
identifies the participants that are most actively involved in
the impact investing ecosystem, and describes how these
organizations are making investments across the various asset
classes. It concludes with the observation that although the growth
in impact investing has been driven largely by niche players,
leading mainstream investors have now begun to allocate relatively
small pools of capital to impact investments.
1. Introduction to the
Mainstreaming Impact
Investing Initiative
Section 4 describes the constraints that asset owners face when
considering allocation of capital to impact investments. Most
of these constraints can be attributed to one of the four broad
overarching challenges: early-stage ecosystem, small average
deal size, fit within asset allocation framework and double bottom
line. The objective of this section is to identify and isolate the most
prevalent challenges so that they can begin to be addressed and
overcome by leading investors in the impact investing ecosystem.
Section 5 outlines key recommendations that various participants
should take to advance impact investing out of the margins
and into the mainstream. It concludes that mainstreaming
impact investing will require a concerted effort and collaborative
coordination among many participants, including impact
investment funds, impact enterprises (investment targets),
philanthropists and foundations, governments and financial
intermediaries. The appendix recognizes that mainstream investors
have a potential role to play as well, and outlines ideas for how
investors that are interested in becoming more active in the impact
investing sector could get started.
1.2 Motivation
The intended audience of this report will be investors interested
in clarifying what impact investing is and what it is not, what the
current sector landscape looks like and what is required for the
sector to progress into the mainstream. The impetus for the World
Economic Forum’s Mainstreaming Impact Investing initiative and
publishing of this report is four-fold:
First, private investment to address social challenges can create
tremendous societal change. Social issues continually present
significant fiscal challenges for governments of developed,
emerging and frontier economies; these challenges are particularly
difficult when government budgets are declining as a result of
burgeoning debt and fiscal austerity.3
Philanthropic organizations
– while noble and needed – will not be able to solve the most
pressing social problems alone due to their limited resources.
Given the nature of how resources are distributed in the world,
private investors have a potential role to play in addressing social
challenges, including development of impact enterprises, economic
development more broadly, and adjustment to major challenges
such as climate change, urbanization and wealth inequality. Impact
investing offers an opportunity to creatively fund projects that may
otherwise go unfunded, while also helping to scale organizations
with viable business models that meet pressing social or
environmental challenges.
1
Mainstream investors include asset owners (e.g. pension funds, insurance firms, etc.) and asset managers (e.g. private equity firms, mutual funds) that are not actively investing
in impact investments nor are informed about this emerging approach to investing.
2
Statement refers to global markets, more broadly; this may not be true for all individual markets or geographies.
3
Accenture and Oxford Economics projected total government spending on public services through 2025 and found an expenditure gap ranging from 1.3% to 5.4% of GDP for
the 10 countries included in the assessment (expenditure gap occurs when demand for public services outpaces expected delivery). (Source: Delivering Public Service for the
Future: Navigating the Shifts (2012), Accenture)

5From the Margins to the Mainstream
To the extent that there is
demand from my investors,
we would participate in
this market.
Colin Teichholtz, Senior Portfolio Manager,
Pine River Capital Management, USA
Impact investing is part of our
multifaceted commitment to responsible
investment; it serves as a brand
distinction as well as fulfils our
participants’ demand for both financial
and social outcomes.
Amy O’Brien, Managing Director, Teachers Insurance and Annuity
Association College Retirement Equities Fund (TIAA-CREF), USA
4
John J. Havens and Paul G. Schervish (2003): Why the $41 Trillion Wealth Transfer Estimate is Still Valid: A Review of Challenges and Questions, Boston College Social Welfare
Research Institute. Note: The US$ 41 trillion is the researchers’ low-growth scenario estimate and assumes 2% real secular growth in assets. It will result in an approximately
US$ 5 to 10 billion transfer per annum. (Source: Arthur Wood (May 2013): Impact Investing: Potential Tool for Development, Total Impact Advisors)
5
“Millennials” are born after January 1982; those included in the study were Millennials from 18 countries who have a degree and are in full-time employment. Survey conducted
by Deloitte in 2012. To learn more, visit: http://www.deloitte.com/view/en_GX/global/about/global-initiatives/world-economic-forum/annual-meeting-at-davos/8182b8e049b3c3
10VgnVCM3000003456f70aRCRD.htm#.UeRCrvlOSSo
6
Nick O’Donohoe, Christina Leijonhufvud, Yasemin Saltuk, Antony Bugg-Levine, and Margot Brandenburg (2010): Impact Investments: An Emerging Asset Class, JP Morgan,
Rockefeller Foundation, and the Global Impact Investing Network.
7
The Economist (19 May 2012): Spreading Gospels of Wealth: America’s Billionaire Giving Pledgers Are Forming a Movement; Bloomberg BusinessWeek (6 June 2013): G8
Leaders Embrace Impact Investing with New Funds.
8
First Affirmative Financial Network, LLC (September 2012): 2013 To Be the Year of “Impact Investing”.
9
Usman Hayat (11 July 2013): Do Investment Professionals Know About Impact Investing? , CFA Institute.
Second, asset management is in a state of flux. Over the next 40
years, Generation X and the Millennial Generation will potentially
inherit an estimated US$ 41 trillion from the Baby Boomer
Generation.4
These generations have grown up in a culture that
calls on business to play a more active role in society. In fact, in a
recent study of 5,000 Millennials5
across 18 countries, respondents
ranked “to improve society” as the number one priority of business
(see Figure 1). This does not imply that the next generation of
investors will not seek market returns. Indeed, the investment
industry thrives as a result of the pursuit of investment returns, and
businesses are not sustained without a profitable revenue model.
However, the emerging generation of investors is also likely to seek
achievement of social objectives in addition to financial returns.
Figure 1: Primary Purpose of Business According to the Millennial Generation, % of Survey Respondents
Source: Deloitte
36% 35%
33%
29%
27%
25% 25%
20%
15%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Improve
society
Generate
profit
Drive
innovation
Produce
goods &
services
Enhance
livilihoods
Enable
progress
Drive
efficiency
Exchange
goods and
services
Create
wealth
a result of their knowledge of the organization’s investment
approach. Although more work needs to be done to understand
the direct and indirect benefits that impact investing achieves for
the investor, mainstream investors agree that impact investing has
the potential to drive a distinct competitive advantage.
Fourth, there is widespread confusion regarding what impact
investing is. Since JP Morgan and Rockefeller Foundation
collaborated on the seminal report in 2010 which claimed that
the impact investment sector could reach US$ 1 trillion by 2020,6
a tremendous amount of buzz has been generated around the
term “impact investing”. It was a topic on the public panel for the
first time at the World Economic Forum Annual Meeting 2013 in
Davos, Switzerland, was a key area of focus by David Cameron,
Prime Minister of the United Kingdom, at the G8 meetings in
June 2013, and was a leading topic among the Giving Pledge’s
2012 convening.7
Furthermore, according to a survey by First
Affirmative Financial Network, impact investing was cited as the
aspect of responsible investing that will grow the fastest over the
next 12 months.8
Yet despite this buzz, the term “impact investing”
elicits mixed, and often inconsistent, responses from different
participants. In fact, in a survey conducted by the CFA institute,
66% of financial advisers claimed to be unaware of impact
investing.9
There is an obvious need for defined clarity about the
term itself.
Third, impact investing offers an opportunity to carve out a distinct
competitive advantage. As part of this initiative, the research
team interviewed a number of different institutional investors who
explained that their active participation in the impact investing
sector has helped to engage and motivate investment teams,
signal to shareholders an emphasis on long-term value creation,
and most importantly, drive higher investor commitments as

The World Economic Forum
is an independent international
organization committed to
improving the state of the world
by engaging business, political,
academic and other leaders of
society to shape global, regional
and industry agendas.
Incorporated as a not-for-profit
foundation in 1971 and
headquartered in Geneva,
Switzerland, the Forum is
tied to no political, partisan
or national interests.
World Economic Forum
91–93 route de la Capite
CH-1223 Cologny/Geneva
Switzerland
Tel.: +41 (0) 22 869 1212
Fax: +41 (0) 22 786 2744
contact@weforum.org
www.weforum.org

3From Ideas to Practice, Pilots to Strategy
Table of Contents 1. Preface
3 1. Preface
4 2. Introduction to the Mainstreaming
Impact Investing Initiative
7 3. More than an Idea: Creating the Case
for Impact Investing
7 3.1 Enhancing Financial Returns by
Targeting Social Impact
9 3.2 Making Impact Investing an
Institutional Priority for Achieving
Superior Investment Performance
11 3.3 Evaluating Past “Impactful”
Investments to Create a Future
Impact Investing Strategy
15 3.4 The Current Limits and Potential
Role of Institutional Investment
Culture and Fiduciary Responsibility
18 4. Building a Strategy: Integrating Impact
Investing in the Mainstream Investor’s
Portfolio
18 4.1 A Portfolio Approach to Impact
Investment: A Framework for
Balancing Impact, Return and Risk
22 4.2 Leveraging Expertise across
Asset Classes for an Institutional
Impact Investment Mandate
26 4.3 Incorporating Impact Criteria in
Portfolio Construction: From Policy to
Implementation
29 4.4 How to Evaluate Impact Investing
Fund Managers
32 4.5 Best Practices of
High-Performing Impact Investing
Fund Managers
36 4.6 Achieving Portfolio Diversification
and Double Bottom Line through
Investing in Underserved Markets
40 4.7 Impact Investing through Advisers
and Managers who Understand
Institutional Client Needs
43 5. Innovations for Unlocking Mainstream
Capital
43 5.1 Social Stock Exchanges:
Democratizing Impact Investing
47 5.2 Commingling Funds: Scaling
Impact while Protecting the Interests
of Diverse Capital Providers
50 5.3 The Social Impact Bond Market:
Three Scenarios for the Future
53 6. Road Map: Next Steps for
Mainstreaming Impact Investing
55 7. Acknowledgments and About
the Authors
From Ideas to Practice, Pilots to Strategy is both an attempt
– and an opportunity – to disseminate the best practices
and lessons learned from the first movers, early adopters
and bold innovators in the field of impact investing, with the
goal of further advancing the sector.
When we published From the Margins to the Mainstream:
Assessment of the Impact Investment Sector and
Opportunities to Engage Mainstream Investors in September
2013, we sought to add clarity to the field through a realistic,
current assessment. With over 10,000 people accessing
the report in the first two weeks, it became evident that we
touched on a strong need. However, given the relatively
small scale of impact investing, we realized that more than
clarification was needed. For active investors in the field,
to shift impact investing from a small part of their portfolios
to a full-fledged strategy requires operational and practical
knowledge. New players in the impact investing space,
looking to take it from a compelling idea to a real investment
approach, need to know how to get started in this nascent
and potentially rewarding sector. This codified know-how
and repository of best practice is currently as embryonic as
the sector itself.
Readers of the Margins to Mainstream report reached
out from far and wide to ask for advice on how to start
(or do even more) with impact investing. While we could
hypothesize and make suggestions, it is only experienced
impact investors who can speak with authority about what
does and doesn’t work, and why. With that in mind, we
curated this collection of short, action-oriented and insightful
thought pieces on how to put impact investing to work.
Because the sector is in a nascent stage and engages
diverse individuals, organizations and societies, no one
solution will apply to every situation. Rather, this publication
can serve as a trailhead and as a semi-trodden path for new
practitioners; but much more trail-blazing will be necessary
before the sector can call itself mature.
We advocate learning by doing, failing fast, synthesizing
feedback and quickly re-engineering shortcomings into
a more informed approach. Above all, we believe that
intentions (and certainly good ones) matter with every
action and step towards building a new sector. With these
principles in mind, we can collaboratively and proactively
ensure that the impact investing sector is on the best path
forward.
For the many key players whose wisdom and expertise
could not be represented here, we look forward to hearing
from you and, where possible, including your perspective
in future efforts to help bring the impact investing sector to
maturity.
Contact us at impactinvesting@weforum.org
Michael Drexler
Senior Director,
Head of Investors
Industries
World Economic
Forum USA
Abigail Noble
Associate Director,
Head of Impact
Investing Initiatives
World Economic
Forum USA

4 From Ideas to Practice, Pilots to Strategy
2. Introduction to the
Mainstreaming Impact
Investing Initiative
Target Audience for Ideas to Practice, Pilots to
Strategy
This publication’s target audience includes three key groups:
(1) investors looking to start impact investing; 2) active
impact investors looking to expand impact investing from
a limited part of their work to a full-fledged strategy; and
(3) intermediaries, policy-makers and development finance
institutions whose support is vital for the sector’s growth.
Since large investors often have a proportionally large
influence on a sector, a key focus is on highlighting best
practices or frameworks from large asset owners and asset
managers.
Motivation and Scope of Ideas to Practice, Pilots
to Strategy
The report’s goals are to show how mainstream investors
and intermediaries have overcome the challenges in the
impact investment sector, and to democratize the insights
and expertise for anyone and everyone interested in the
field. Divided into four main sections, the report contains
lessons learned from practitioner’s experience, and
showcases best practices, organizational structures and
innovative instruments that asset owners, asset managers,
financial institutions and impact investors have successfully
implemented.
The strategic case for impact investing from the mainstream
investor’s perspective is the focus of “More than an Idea:
Creating the Case for Impact Investing”. This section
includes the following key messages:
– Reflecting environmental, social and governance (ESG)
standards in the investment process, across asset
classes and alongside traditional financial metrics and
competent risk management practices, can generate
superior risk-adjusted, long-term investment returns.
Moreover, inadequate ESG capability can lead to poor
financial performance.
– Institutional investors can shape markets and encourage
managers to design products with social impact. Recent
data indicates that many institutional investors look
to incorporate ESG standards into their investment
decision-making. However, so that impact investment
strategy becomes an institutional priority, decisions
Nearly two years ago, at its Annual Meeting in Davos in
January 2012, the World Economic Forum convened
a discussion among mainstream investors and social
entrepreneurs on how to harness the hype of Impact
Investing. While the list of reasons why impact investing
would remain niche seemed overwhelming, bringing it into
the mainstream was too important an opportunity not to
pursue.
With this in mind, the Forum launched the Mainstreaming
Impact Investing Initiative. The first milestone – From the
Margins to the Mainstream: Assessment of the Impact
Investment Sector and Opportunities to Engage Mainstream
Investors– was released in September 2013 and provided
an overview of the sector, identified challenges constraining
the flow of capital, and laid the groundwork for mainstream
investors to begin a meaningful discussion on impact
investment. Most of the constraints identified fit into one
of four broad, overarching challenges: an early-stage
ecosystem; small average deal size; the fit within an asset
allocation framework; and double bottom line.
From Ideas to Practice, Pilots to Strategy is the second
publication in the Forum’s Mainstreaming Impact Investing
Initiative. The report takes a deeper look at why and how
asset owners began to include impact investing in their
portfolios and continue to do so today, and how they
overcame operational and cultural constraints affecting
capital flow. Given that impact investing expertise is
spread among dozens if not hundreds of practitioners and
academics, the report is a curation of some –but certainly
not all –of those leading voices. The 15 articles are meant
to provide investors, intermediaries and policy-makers with
actionable insights on how to incorporate impact investing
into their work.
The World Economic Forum is an independent international organization
committed to improving the state of the world by engaging business, political,
academic and other leaders of society to shape global, regional and industry
agendas. Incorporated as a not-for-profit foundation in 1971 and
headquartered in Geneva, Switzerland, the Forum is tied to no political,
partisan or national interests.

5From Ideas to Practice, Pilots to Strategy
must come from top leadership. Institutions that have a
commitment from top leadership for impact investing (or
a similar mission) find it easier to implement the strategy
as well as collaborate for shared successes.
– Reviewing past successes, those intended or not, can
help investors evaluate potential strategy within their
institutions. Large investors can conduct a rigorous
review and retroactively tag their investments as
“impactful” (i.e. those with a measurable social and
financial return, but without clear intent). By sharing
this knowledge, such investors help to set a reassuring
climate for future impact investment strategy that would
include explicit intention to generate measurable social
and financial returns.
– Traditional investors are seeing the benefits of diversifying
portfolios by working with socially minded investment
managers who generate reasonable returns that are
somewhat uncorrelated.
– Conventional interpretations of fiduciary duty can lead to
herding, which while providing safety of numbers, can
produce investment decisions that are not in investors’
long-term interests. For impact investing to engage
pension funds, there must be a clear account of how
impact investing is congruent with fiduciary duty, and
active engagement with asset owners on why impact
investments may require funds to reassess their own
attitudes towards what constitutes “conventional”
investment.
The section on “Building a Strategy” provides examples
of organizational structures, processes and strategies
employed by large asset owners and asset managers to
implement impact investing, while generating risk-adjusted
financial returns and meeting the fiduciary responsibilities
of institutional investors. Depending on the organizational
structure, the frameworks may include impact investing as
an investment approach across various asset classes; or,
focusing and developing expertise in a particular sector. This
section’s key messages include the following:
– Impact Investing can be done within a large institution
through a variety of operational approaches: a stand-
alone team, a hub-and-spoke structure, an outsourced
adviser or an institution-wide commitment and strategy.
Whatever the approach, the impact investment thesis
and criteria for selecting and evaluating impact should be
clear from the outset. In addition to diversifying across
asset classes, impact investors can increasingly diversify
across impact sectors as markets deepen

– Investors need to ensure that impact investing is
well-integrated into an organization’s decision-
making processes and has buy-in from major internal
stakeholders. If impact investing has received support
from top leadership, integration of it throughout
the organization is a matter of communication and
coordination. In other circumstances, it is up to the
teams to open communication channels laterally and
collaborate across teams for shared objectives such
as diversified portfolios and reduced costs of entering
new markets. Impact investors can diversify not only
across asset classes, but also and increasingly across
impact sectors, as markets deepen and the choice of
investment opportunities grows.

– Given impact investing is a nascent sector, focusing
due diligence on fund managers’ track records may
hold the industry back. Investors should rather seek to
understand the factors determining a fund manager’s
decision-making process.

– Partnership is critical for success. Successful impact
investing fund managers share four qualities: partnering
effectively with the public sector, using catalytic capital,
providing “multilingual” (i.e. cross-sector) leadership,
and placing financial and social objectives on equal
standing. Moreover, treating investors (LPs) as partners
from the outset on governance structures, financial
and development goals, as well as including impact
objectives early in the investment process, is important
to ensuring mission alignment among key players.

– Impact investing does not have to be “finance-first”
or “impact-first”, but can be “professional-first”. Asset
managers can apply the same degree of professionalism
to investment decision-making as to traditional investing,
and so comply with the fiduciary responsibility of
institutional investors. Investors can use a methodical
approach to building an impact investment portfolio
based on the risk, return and impact profile of individual
investments and the portfolio as a whole.
“Innovations for Unlocking Mainstream Capital” looks at
innovative impact investing solutions that can meet the
needs of multiple stakeholders, including commercial
investors, philanthropic organizations, governments and
retail investors. The section’s key messages include the
following:
– Commingling funds serve as innovative forms of
partnership among previously isolated capital providers.
Set up correctly, they can multiply the impact of capital
while preserving their contributors’ interests.
– The Social Stock Exchange is a mechanism for opening
up impact investing to retail investors, as well as making
it more attractive to mainstream investment. A conducive
environment for issuers and investors, along with an
ecosystem within which they can interact, are important
requirements for creating a vibrant public impact
investing market.
– Social impact bonds (SIBs) are a novel way of finding
economic solutions to social problems and, as such,
have tremendous potential for channelling resources
to programmes that work. Development of a mature,
well-organized SIB market based on solid infrastructure
is still very much a work in progress; a robust pipeline of
SIB-ready projects, an ecosystem and a blended-value
investor pool are and will be key factors for success

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