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Impact InvestingTerm Paper

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Capitalism is a function of confidence and ingenuity. Capital often flows to the most production and profitable industries. Emerging technologies such as 3-D printing, database management, and other internet-based solutions have garnered extensive capital from investors. Impact investing is no different in this regard. Much in the same manner as traditional capitalism, society must benefit in order for a product to be successful. Microsoft is profitable because it provides a product that makes society more productive. Coca-Cola is profitable because it can satisfy the basic need for thirst in any human being. The same concepts apply to impact investing. By creating value for both society and the company, all stakeholders involved can benefit. This briefing note has been constructed to first illuminate many of the more positive attributes of impact investing. The note will then discuss the Investor Rangers Fund position within the impact investing space, with particular emphasis of past performance. Finally, the note will offer practical procedures and suggestion to better improve collaboration within an impact investing context.

To begin, The Investor Rangers Fund aims to connect investor capital with both emerging social enterprises in the agriculture sector in Asia and for-profit startups working to develop technologies that will improve the way the world grows food. In addition, the Investor Rangers Fund offers an accelerator program to all of its investees to foster impact, inspiration, growth and networking among entrepreneurs from all parts of the world. Assessing the overall past performance is difficult giving the nature of impact investing. In many instances it is difficult to quantify returns as socially beneficial aspect such as "farming sustainability," or "alleviating poverty." It is therefore product to evaluate the Investor Rangers Funds on three metrics. These metrics were derived primarily form Impact Assets and their framework for evaluation. These metrics are:

1. Firm intent

2. Firm Practices

3. Overall impact

This framework of evaluation is designed to provide potential investors with an overall assessment of how the firm is furthering the overall goal of impacting society.

Firm intent is critical as it relates to the overall performance of the Investor Rangers Fund. Any impact investing fund must have a fundamental commitment to sustainability. The fund and its managers must be relentless in the pursuit of a sustainable solution to many of the problems currently plaguing the world. This involves membership is socially oriented networks and active participation in the networks overall interests. The firm must also support transparency and principles of responsible investing (Domini, 2011). As it relates to the Investor Rangers Fund, the commitment of the fund is well documented. The firm has promoted environmentally sustainable farming practices for many years. The fund has also leveraged technology to help provide innovative, and productive agricultural solutions to the world. Support for such companies as the Tian Leh Eco Farm and the Milk Mantra business have generated substantial returns for both society and the managers of the business.

Firm practices are also vital as it relates to impact investing. Firm practices should reflect the core values of the firm as it relates to impact investing. These values can come in many forms with many pertaining to social equality, positive environmental impact, fair employment practices, fair working conditions, and so forth. Values are important as they often provide the framework to implement impact investing initiatives. The Investor Ranger Fund exhibits strong values related to sustainability and the economic security of farmers. These values are reflected in the funds activities to help foster productive and technology solutions that will impact farmers financially. This is particularly true as the world's population continues to grow at an exponential rate. Due to this massive population both, the world will now depend more heavily on farmers to generate substantial gains in productivity sustainability and innovation.

Finally, the third metric used to evaluated performance are the metrics used by the fund itself. Impact from a quantitative standpoint is measured by the return on invested capital within the business. As it relates to social returns from impact investing, standards such as the IRIS and the GIIRS are gaining momentum. These standards offer investors specific definitions for impact indicators. Aspects such "job creation" will have varying results if the jobs created are full-time jobs or simply low-wage part time jobs. These standards allow for comparison between, funds, individual projects and even companies. Management systems must also be in place to help tract the impact a firm is making on a particular area of the world (Jessica, 2009).

As it relates to the overall education of mainstream investors, social investing needs to exhibit strong returns on capital. Investors generally seek investments, and therefore provide capital to, enterprises with strong return potential. To educate these mainstream investors, socially conscious companies must exhibit strong return potentially. As investors realize the financial and societal benefits of impact investing, they would be more inclined to invest their limited capital.

A practical method in which to accomplish this is through publications. Investors generally seek an information edge over their other counterparts. A return in excess of the market is a zero-sum game. For every percentage point return above the market one investor achieves, another investor will lose. Therefore, the council can capitalize on the investors desire to want to achieve excess returns by indicating how impact investing can generate returns in excess of the market. If the council can ethical prove the results of impact investing, companies will be inclined to adopt social impact metrics in their decision making process

Another practical solution could be to publicize the negative impacts of not implementing social impact metrics within the decision making framework. These negative impacts, particularly on firms operating in a socially conscious environment, could have serious financial consequence for firms. Nike, years ago experienced this concept as it related to the work environment in which its Asian employees were working within. The negative impact of provided substandard working conditions impacted Nike, through reduced sales, reputation, and overall displeasure with the brand. McDonalds, another corporate behemoth, currently has concerns regarding the quality of its products and its health concerns. Consumers are now voting with their feet, by purchasing healthier alternatives to fast casual dining. Both firms, due to the negative impact of not implementing these metrics in their investing decisions, must now content with a tarnished brand. Emphasis must therefore be placed on the overall financial setbacks that could occur by not implementing social impact metrics in investment decisions.

The economic and political system is also important in regards to investment decisions. The alignment of incentives and rewards from an economic and political standpoint is critical. Economically, many managers have incentive to look for investments that boost short-term earnings at the expense of long-term sustainable growth. Management may engage in questionable practices that undermine many of the impact investing principles discussed above. Impacting investing is generally long-term oriented. It focuses on the future as oppose the present. It looks to innovate and be disruptive to the status quo. These aspects from an economic and political stand point may not warrant investment. Management is looking short-term primarily because the compensation and rewards are skewed towards short-term results. Stock options bonuses are worth more, if the stock price is inflated, even it's only for a quarter or two. Management also must impress Wall-Street as it relates to earning guidance and forecasts, which only exacerbates the short-term mentality. Investments therefore, are generally short-term in nature and look to expand profitability to impress Wall-Street, who then rewards the manager with a higher stock price, who then exercises his options to obtain more money. This system is by no means illegal; however, as it relates to impact investing, it is very detrimental

A solution would be to therefore align management incentives, awards and bonuses for long-term value creation rather than short-term stock price movements. Investments in social initiatives are long-term in nature. These initiatives often create new and innovative product offerings that can be monetized in the future for economic gain. Social impact investing also creates long-term loyal customers that will become brand loyal to the company. As such it will easier to market and advertise to these consumers in the long-term. All these benefit can be derived through an emphasis on long-term value rather than short-term value. If the council can educated both mainstream investors and large companies about the long-term merits of social investing, more financial professionals will be inclined to incorporate those metrics into their decisions (Sherwood, 2011).

With an emphasis on long-term value creation, a discussion on the long-term financial impact, and the negative impacts of not using the metrics, both governments and businesses alike, can begin to impact the poorest individual within the nation.

Collaboration is a vital component within any effective private-public partnership. The goal is to reach many of the nation's poorest as quickly as possible. Collaboration with the government is essential in this regard. One of the most effective methods in which to have an immediate impact on the poor is through… [END OF PREVIEW]

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