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Impact Investments Managing Director Debra Schwartz and Director John Balbach reflect on how the impact investing field responded with urgency to crises in 2020 and emphasize the need for long-term resolve to make progress.
As we turn the corner on 2021, multiple crises continue to call us to action: the COVID-19 pandemic, racial injustice, climate change, widening inequality, and persistent poverty. The fast-growing global community of impact investors has been responding in important ways. Looking ahead, our community must continue to respond with urgency and resolve.
By any measure, impact investing activity has accelerated since the start of the global pandemic and racial reckoning in 2020. Individuals are investing in impact funds offered by leading Wall Street firms. Corporations are stepping up, too. For example, Twitter invested $100 million to launch the $1 billion Finance Justice Fund so Community Development Financial Institutions across the United States can expand access to capital and economic opportunity for people of color and historically marginalized communities. In the climate arena, seven leading corporations anchored the Breakthrough Energy Catalyst fund, including Citi, which invested $100 million. Family offices are meeting the moment by making impact investments to support climate- and racial equity-focused efforts like Azolla Ventures, Founders First Capital Partners, and many others.
Foundations also are taking action in new and substantial ways. Over the summer, the Packard Foundation announced its first set of impact investments to advance diversity, equity, and inclusion. In October, the McKnight Foundation announced that it would aim for net-zero greenhouse emissions from investments in its endowment by 2050, if not before.
At MacArthur, John Palfrey shared how we are strengthening the alignment between our investments and our mission, values, and programs. We are beginning to divest from fossil fuels, ramping up investments in companies and funds that seek to address climate change, and diversifying the managers who invest our endowment assets.
Greater ambition at our institution and throughout the impact investing field signals new momentum. But at least three major challenges could keep us from fully realizing our collective potential for impact in the defining decade ahead.
First, we must address the serious risk of "impact washing," or “...attributing impact to investments when it isn't warranted,” as Yasemin Saltuk Lamy, Nick O’Donohoe, and Christina Leijonhufvud discuss in their recent article on the future of impact investing. This means finding ways to verify impact investments with authentic intention and true social and environmental benefits. It is encouraging to see growing collaboration to build impact standards and verification tools and to shape policies and regulations. All of us need to contribute to this important field-building work.
Strengthening the use of catalytic capital poses a second critical challenge for our field. To be sure, mobilizing private capital at a much greater scale through market-rate, liquid investments is essential. But expanding the flow of catalytic capital is vital too. Because catalytic capital is more patient, flexible, and risk-tolerant, it helps impact-driven ventures and funds build the track records, scale, and financial profile needed to unlock additional investment. In this way, we can fuel innovation, inclusion, and impact that would not otherwise be possible.
While we are optimistic that the impact investing field will tackle these two key challenges, we also must confront a third and fundamental challenge: will impact investors of all kinds act with the boldness and the resolve that our future demands?
We worry that impact investing's promising momentum may falter or wane as the memory of anti-racist movements and protests of 2020 recedes, as the pandemic wears on, and as the extreme weather events fueled by climate change become all too familiar. We know many others share this concern. Moreover, dismantling systemic racism and reversing the tide of global climate change will not happen quickly. To make transformational progress, impact investors and changemakers of every kind must maintain both intense purpose and fierce resolve—for the long haul.
At this critical juncture for our field and our world, we are grateful for the opportunity to continue partnering with dedicated and talented colleagues throughout the global impact investing community. And we are honored and humbled to know and learn from the amazing entrepreneurs, nonprofit leaders, field-builders, and fund managers that we and others have the chance to support. You inspire us and strengthen our resolve to keep investing toward a more inclusive, resilient world.
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