A peek at the growing trend of impact investing
Plus, why impact investors are looking at the creative economy
Money is a powerful tool for influencing decisions, for enabling innovation and even for enacting social change. For this reason, alongside a few others, impact investing has become an important catalyst for consumers and businesses alike to enact change.
According to Phil Kirshman, founding chief investment officer and impact investing specialist at Cornerstone Capital, the modern movement of impact investing began during the South Africa divestment movement during the apartheid in the eighties. “That’s when people started to understand that their investment capital was a tool that they could use in their toolbox to affect positive social change in the world,” Kirshman says.
From there, the field of impact investing expanded as people attempted to change corporate behavior through divestment — divestment from tobacco, alcohol, gambling, firearms, military, weapons, producers and more. Then, it grew toward individuals using their positions as shareholders of a company to affect corporate change through proxy votes. Now, Kirshman says there’s a new iteration.
“The 3.0 of the field is finding companies that are disruptive and innovative and looking to change the game, and also be highly successful corporates themselves, rather than change existing corporate behavior,” Kirshman says. “If you look now, impact investing or sustainable investing is the fastest-growing part of the financial services industry.”
Today, investors are investing in companies that align with their views on a number of social and political issues including climate change, political alignment based on the donations corporations make, gender equality, racial equality, ocean pollution and more.
“I think impact investors are just people who are thoughtful about their capital and have an opportunity to affect positive change in the world,” Kirshman says.
Denver- and New York City-based impact investing advisory firm Cornerstone Capital helps its clients invest in companies that align with their opinions and in economies that support the future they see. Through his role at the company, Kirshman has seen a number of investment themes arise — such as cryptocurrency and automation — but one in particular has stood out, the creative economy.
Investing in the creative economy
The creative economy has many definitions, often encompassing everything from visual art to video games to new inventions or developments and innovations to products or services. An early definition of the term from John Howkins refers to it as a “new way of thinking and doing that revitalizes manufacturing, services, retailing and entertainment industries with a focus on individual talent or skill, and art, culture, design and innovation.”
The creative economy represents over 10 million jobs and $763 billion of economic activity in the U.S. This, according to Kirshman, equates to a rich opportunity for impact investors to make meaningful and profitable investments that empower entire communities within this burgeoning economy.
“As you look at the 3.0 of impact investing, if it’s going to be [led by] disruptive, innovative companies, what is going to drive that disruption and innovation other than creative thinking and bringing a different perspective?” Kirshman says. “When you think about all the things that are challenging in society today, I feel like we're going to need a lot of creative approaches across many different economic factors.”
The goal of investing in the creative economy is multi-faceted — it can mean supporting the creatives to live and work; it can mean inspiring others to be more creative (by proving they can make money at it; and it can mean making both creatives and non-creatives think more deliberately about the outcome of their work.
Using the UN Sustainable Development Goals as a framework
Outside of the creative economy, impact investing has gained a lot of traction as consumers (and investors) are putting pressure on businesses to be better and do better for the world and the communities they serve and sell to.
In order to help its clients engage in this type of investing, Cornerstone realized it needed to identify metrics by which to identify the companies engaging in socially impactful work, from climate change to equality. So, the investment advisory firm built a framework around the UN’s Sustainable Development Goals.
While these 17 development goals — which include goals like no poverty, zero hunger, responsible consumption and production, decent work and economic growth and more — were designed for municipalities and sovereigns to achieve societal goals, Cornerstone saw a way to align their investments around them.
“Even though [the Sustainable Development Goals] weren't designed for financial institutions or investment managers, they did provide a handy framework for people to identify issue areas that were important to them and then identify how their investments line up relative to those goals,” Kirshman says.
However, these goals needed a translation, according to Kirshman, into the data points that you can get from companies’ financial reports. The result was Cornerstone’s Access Impact Framework, which defines metrics by which to connect a company’s impact to the development goals.
Kirshman believes that this is the way corporations are inevitably heading, with corporate social responsibility and impact at the center of their business, and smart investors will get ahead and onboard with this movement. “Either through not investing in dead-end industries and investing in industries that have real promise to succeed given the way that the world is likely to change — that's what investing is really all about,” he says.