Historically, organizations that want to make positive change in the world have focused on internal diversity practices, charitable giving and sustainable sourcing. However, as the desire (and customer demand) to make a deeper impact grows, new ways to achieve that goal emerge. Consequently, the imperative to do more good has reached institutional investors through the growing practice of impact investing. That means investment committees are increasingly selecting asset management firms using an impact investing RFP.
In this blog, we’ll offer an overview of impact investing and how to incorporate it into your asset management RFP process. To begin, we’ll share the definition, background and examples of the practice. Next, we’ll offer tips for including social responsibility in your next asset management request for proposal (RFP) as well as some sample RFP questions to consider. Finally, we’ll provide some real-life examples of impact investing RFPs.
- What is impact investing?
- Impact investing background
- Areas of focus for impact investors
- Impact investing RFP guide
- Examples of impact investing
What is impact investing?
Impact investing is a practice that invests capital in organizations that create positive social or environmental change and also generates a financial return. In impact investing, success is measured by traditional return on investment as well as social impact.
Impact investing background
While the basic idea behind impact investing (using organizational assets for good) is perhaps centuries old, the current focus is relatively new — but growing. As of 2020, the Global Impact Investing Network (GIIN) estimates that the impact investing market is around $715 billion.
Many organizations start their social responsibility journey focused on internal policies. However, as time goes on and these programs mature, consumers and employees alike express the desire to see the mission expanded into other facets of business. In this way, social responsibility becomes a core, guiding value. In organizations where the desire to do good is viewed as foundational, it’s natural to begin adopting this approach when it comes to investing as well.
It’s important to note that impact investing doesn’t mean sacrificing returns. In fact, there is significant moral and monetary value in impact investing. According to the 2020 GIIN study, returns from 99 percent of impact investors meet or outperform expectations.
Areas of focus for impact investors
Currently, most impact investing is done by institutional investors like retirement and pension funds, banks, foundations, non-profit organizations or hedge funds. Typically, these organizations focus their impact investment efforts on causes that align with their values and goals. Fortunately, there is no shortage of great opportunities for impact investing. For instance, you may find asset management firms that focus on investments in:
- Sustainable farming and agriculture
- Renewable or clean energy
- Land conservation
- Microfinance campaigns
- Affordable housing and healthcare
- Diversity and inclusion
Impact investing RFP guide
For investment committees and plan sponsors with a fiduciary duty, the prospect of impact investing may seem risky. However, it’s no different from traditional investing. You still need to do your due diligence, document and manage risk as you search for the right asset manager. Indeed, for the most part, you can follow your standard investment management RFP process — with just a few adjustments.
Make an impact investment allocation
Despite its growing popularity, impact investing is still only a portion of overall investments for most organizations. The first step in issuing your impact investing RFP is to decide what subset of your assets will be dedicated to social action. For highly risk-averse organizations, consider starting with a fraction of your overall assets with a provision to increase the allocation following success.
Select your impact focus areas
To make the most of your impact investment, you’ll need to select a financial services firm that has some experience in your focus area. So, decide what that is. For instance, you may be most interested in funding diverse or minority-owned projects. Or, you may be interested in providing capital to an organization developing clean energy solutions. Alternatively, you may be looking for a firm that has an inclusive leadership team themselves. To narrow your focus, consider your organization’s values and then identify the areas, characteristics and causes to include or exclude.
As with all investments, it’s important to track and monitor returns. For impact investments, there’s a dual measurement of success — financial return and social impact. Finding an asset management firm that understands how to manage and balance these two goals is crucial. To establish your own expectations, explore some impact investment case studies and research current market trends. Then, include your definition of success in the background section of your impact investing RFP.
Write your impact investing RFP
When you’re ready to write an RFP, it should follow the standard format to include organization background, asset information, project goals, an RFP timeline, minimum requirements and scoring criteria.
In addition, your impact investing RFP should include a clear investment mandate and questions about the firm’s people, philosophy, process, performance and price. This investment management RFP template offers a helpful format to give you a head start. Download the template, then add questions of your own that focus on the firm’s impact experience.
Sample impact investing RFP questions
- What percentage of your AUM is dedicated to impact investments?
- Describe your approach to ESG investments and impact strategy.
- Please provide at least three examples of previous successful impact investments that align with our focus areas.
- How will you measure and report social performance and impact?
- What is your approach to managing risk in impact investments?
- Does your firm hold any ESG or diversity certifications?
- Please provide your corporate responsibility statement.
Examples of impact investing
The Gates Foundation
With more than $2.5 billion under management, the Bill & Melinda Gates Foundation is one of the most well-known impact investment funds. Their website describes their efforts saying,
“Effecting the change needed to dramatically improve lives means looking beyond traditional approaches to philanthropy. Our team sees strategic investments, a form of impact investing, as a critical piece of the puzzle—especially when paired with the work of our foundation colleagues and partners to support projects in the United States and around the world.”
Bank of America, Capital One and Wells Fargo
These three banking giants practice impact investing through their work with Craft3, a nonprofit lender. According to their reporting, the organization has invested more than $705 million in loans to entrepreneurs of color, indigenous-, women-, immigrant- and veteran-owned businesses.
Impact investing RFP example – ABT Associates & Australian Government
Focused on gender equity, this sample impact investment RFP seeks to identify a local fund to manage $2 million AUD. The group details their needs specifically. They’re looking for a partner to help them invest in small women-owned or women-led SME businesses in Indonesia, the Philippines and Vietnam. In addition to their clear investment mandate, they provide extensive background about their purpose, project and goals.
Ultimately, impact investing is a win for everyone involved. Investors realize returns, asset managers enhance their portfolios and organizations making a real difference can secure capital to pursue their mission. What’s not to like? If you’re interested in starting your own impact investing initiative but need help getting started, let us know.