“Impact investing” may be a relatively new term, describing a philosophy of generating positive financial returns and driving positive social and environmental outcomes, but the concept of investing to drive social change has a long history.
For that, we can thank the endowment model, a vehicle started in the U.S. before the Declaration of Independence was signed and long associated with universities, museums, and other civic institutions. More recently, “double bottom line investing” was popularized by development institutions starting in the 1940s, responding to the need to sustainably rebuild nations after the devastation of wars, as well as to address colonialism’s exclusionary economic structures.
Today’s impact investing sector relies heavily on endowments, which invest into public and private companies and funds that support social change, while granting returns to worthy causes and organizations.
But just as the concept of impact investing is now being refined and better defined, thanks to greater interest from investors across the spectrum, we are hearing more calls to rethink how we structure and manage endowments to be agents of change.
The endowment as an agent of change
In our case, at Women of the World Endowment (WoWE), we are building our endowment so that it does two things simultaneously: First, it invests all its capital in social and environmental solutions with a gender lens; and second, it will grant to organizations that are orchestrating gender parity through large-scale solutions.
In the first part of a two-part blog, we will focus on Investing to advance social issues.
Many prestigious endowments (think Harvard University, which is worth about $40 billion) strive to invest in socially conscious entities in order to generate income for the endowment. But we know that these portfolios do not ensure that all investments fund activities that result in positive social impact.
At WoWE, we strive to ensure that each endowment dollar is invested into solutions and strategies that benefit women and girls and the businesses and communities they empower (commonly referred to as “gender-lens investing”). Our 100 percent aligned investment strategy is a model for other endowments to replicate – investing entire fund corpuses to advance issues they care most about. Without such bold action, investors who seek impact will not accelerate the change they hope to achieve.
Structuring a portfolio to accelerate investing in women and girls
To drive WoWE’s investment strategy, we are, broadly speaking, often interrogating and screening out investments with negative social impacts (such as bad environmental actors, as climate change has a disproportionate negative effect on women, poor and minority communities), while also seeking investment opportunities in areas that are proven to address gender imbalances (such as healthTech, which provides access to healthcare for people in underserved communities).
To put it another way, WoWE invests at the intersection of gender and today’s most pressing social and environmental issues, so that we can impact more people’s lives.
Focusing on positive financial returns
A major part of our investment strategy is proving that investors can make money by investing with a gender lens. We know from extensive research and from our financial returns so far that a gender lens investing strategy is profitable. Consider that our public markets portfolio performance is more than 5 percent above its benchmark (MSCI World) as of Sept. 30, demonstrating that a GLI strategy can deliver investment-grade returns.
Paving the way
We believe that our work – to ensure that investments, across asset class and sector, positively affect women and girls as well as businesses and communities they empower – is a roadmap that other investors can follow. And this strategy is necessary, as current efforts miss the opportunity to drive profitability through women as economic actors are woefully insufficient to address the negative impact of today’s social and environmental challenges.
To be truly a value and values investor, we must be able to demonstrate that we can make money by investing in areas that drive positive social and environmental change. At WoWE, this is the thesis that drives everything we do.
For more information on WoWE’s progress, please check the WoWE website for updates and follow me on LinkedIn.