When giving is made to measure

BY ALLOWING DONORS TO TAKE CONTROL, IMPACT INVESTING IS CHALLENGING OLD IDEAS ABOUT CHARITY.  TEXT BY JUDITH JUNTILLA.

THE FUTURE of giving is looking more and more like business.

It didn’t use to be this way. In the good old days, charitable souls simply wrote a check and forgot about it until the receipt came or a plaque was unveiled acknowledging their generosity.

While giving is still on the rise among high-net worth individuals, the manner in which they approach it seems to be changing. Making a positive impact now means more than just donating money or spending time doing charity work; the enlightened giver wants to make it sustainable, targeted and e- ective. They are looking at giving as they would their own investments: with defined targets and measurable results. In two words, it is called impact investing.

Impact investing is di- erent from socially responsible investing. The former has been a buzzword among investors for several years now, and at its heart is negative screening of potentially harmful activities in the course of doing business. A socially responsible investor, for example, will refuse to invest in stocks that support gambling if this goes against his principles.

Impact investing is intentional investing specifi cally in organizations that have defi ned goals, aiming for a desired positive outcome on the environment, society or government. Impact investing intentionally tries to make a positive social impact, rather than bringing about impact passively through indirect action. More importantly, impact investors expect a fi nancial return on their investments, although it is common for them to accept that these returns may be below what they would get if they were to, say, put their money in an interest-earning account.

In their paper, “Deconstructing Impact Investing”, Stanford professor Paul Brest and Kelly Born defi ne it as  such: “socially neutral investors unintentionally contribute to impact — whether in terms of their own values or someone else’s.” Someone who has invested his money in a telecommunications fi rm, for example, has contributed both to helping a mother earn more money by selling pre-paid load and to helping the business of an importer of premium wines; indirectly, the investment helped a small entrepreneur. An impact investor puts his money in a company that directly provides capital to small-scale retail entrepreneurs.

In impact investing, results can be measured and impact assessed with respect to particular goals. These concepts are not alien to businessmen and corporate executives. When sales targets are defi ned in terms of numbers, marketing e- orts can be objectively ruled as either a success or a failure.

An impact investor expects real metrics for his social investment but accepts that these may come in the form of social returns. Real metrics enables him to measure a charity’s performance and sustainability, much as he would look at a stock in terms of its earnings ratio.

Beyond that, impact investing enables him to become more involved in the process. He becomes more informed of the risks involved, enabling him to manage his expectations and decide how and where he can better help.

In addition to impact investing, there is also venture philanthropy, which, according to Brest, takes its concept from venture capital. Although similar in its approach to looking at philanthropy through the lens of business, unlike impact investing, however, venture philanthropy expects no fi nancial return and the investment may come in the form of time or expertise.

The venture philanthropist funds long-term solutions that build the structure that supports the cause. Unlike direct