What is intentionality in impact investing?
Consider the example of Global Endowment Management (GEM), whose work supporting entrepreneurs of color was recently highlighted by Mission Investors Exchange. In 2018, GEM observed the minuscule levels of venture capital (VC) investments in startups led by women and entrepreneurs of color and sought to broaden its investment universe. Reasoning that these early-stage companies were more likely to be supported by VC firms run by people of color and women, GEM purposefully altered its sourcing efforts to tap a new, diverse group of money managers.
Within two years, GEM’s efforts resulted in a 10-fold increase in diverse VC firms in its pipeline. By intentionally casting a broader net, it expanded its investors’ impact not only within the fund management industry but also among the companies funded by the firms and in the communities served by those companies.
Intentionality: A Core Characteristic of Impact Investing
The Global Impact Investing Network (GIIN) identifies intentionality as the first of four core characteristics of impact investing, noting that impact investing entails an “intentional desire” to contribute to measurable social or environmental outcomes. According to the GIIN, the aim to solve problems and address opportunities is “at the heart” of what differentiates true impact investing from other investments that may happen to incorporate impact considerations.
Adding nuance to these distinctions, the Impact Management Project puts impact intention on a spectrum, from acting to avoid harm or manage risk to benefiting society to promoting solutions to specific problems.
In practice, the impact investing collective Toniic Institute sees intentionality as a key to investors fulfilling their ambition to generate positive change. For some, that translates into direct investments in mission-oriented companies. Those who prefer investing through investment managers can seek out impact investment fund managers that marry their intent with tracking, monitoring, and third-party validation.
In the public equity realm, proxy voting records provide insight into money managers’ responses to shareholder resolutions on various impact themes. Research firm Morningstar assesses intentionality based on how fund companies describe themselves, how funds vote on issues, and what stocks they own.
Intentionality represents a line of defense against impact washing.
The Positive Impact of Setting Intentions
Intentionality represents a line of defense against impact washing, the sometimes deceptive use of labels like “impact” or “sustainable” without meaningful follow-through on actions, measurement, or outcomes.
For example, without intentionality, GEM’s push to improve the funding rate for historically underfunded startup communities likely would have fallen short in the GIIN’s other three core characteristics of impact investing: evidence-based investment design, impact measurement and management, and contribution to the industry’s growth. Namely, GEM would not have assessed the baseline data on which its investment design was founded. It would have lacked clarity around the measures on which it established and improved upon the initiative. Finally, it would not have identified which successes could be replicated elsewhere to drive further growth in the industry.
The CFA Institute considers sustainability and a company’s intentionality toward sustainable practices as a key measure of corporate success. “The right intentionality helps the sustainability of a company’s longer-term business model,” according to one article published in the CFA Institute Magazine.
A desire to do good and willingness to put money behind that sentiment are commendable qualities, but for a true measure of how funding makes a difference, stating, measuring, and reporting on intentionality can provide invaluable accountability.
[cf]skyword_tracking_tag[/cf]