Did you hear that if you yell loud enough in the mountains, you can cause an avalanche? Are you aware that if you drop a penny from a skyscraper, you can kill someone or that you can pick up radio signals through a tooth filling? None of these things are true, and in fact were disproven by the popular television show "Mythbusters." The show's premise is to test and either confirm or disprove popular and persistent myths.
There are tired and woefully old tales repeated as truth about impact investing. It is time to put the old perceptions and uninformed impressions to rest. Here are our top five myths about impact investing.
1. Impact investing is all about philanthropy. There is an inherent bias that if you are achieving environmental or social returns, you are talking about charity or philanthropy and any financial returns are below market and concessionary. Skeptics look at impact investing like a house boat. It is not a good house, and it is not a good boat. We agree with Nancy Pfund, founder and managing partner at DBL Capital, who likens impact investing to brunch: It's better than either breakfast or lunch, providing good nutrition but with added extras. In the 2016 annual investor survey by the Global Impact Investing Network, approximately 90% of investors surveyed had financial returns that satisfied or exceeded their expectations.
2. Impact investing only relates to direct investments. There is a false belief that impact investments are limited to only direct investments and comprise only a small fraction of an investment portfolio. In reality, family offices are taking a portfolio approach, investing across asset classes including public equities, public debt, private equity, private debt and direct investments. In fact, some families like those in the Toniic 100% Impact Network are deploying 100% of their investable assets achieving return and impact.
3. There is a lack of domestic opportunities for U.S. investors interested in impact investing. Many prospective impact investors often think in terms of impactful opportunities as limited to the developing world. While there is certainly great need and opportunity in these regions, there is also an abundance of impact initiatives domestically for U.S. investors – chances for investors to make positive change right in their back yards. Global societal and environmental issues like hunger, inequality and climate change are regional-agnostic, and there is ample opportunity to invest in the U.S. market.
4. Impact investing is difficult. Impact investing is something that anyone can do. It can be simple and executed in stages. An investor can start by moving cash or cash equivalents to an ethical bank, investing in an impact fixed income vehicle and picking a fossil-free mutual fund. There are investment products available online that enable users to invest from their personal computers or even from a mobile devices. The landscape of opportunity is so vast now that there is not a financial sector or corner of the world not touched by impact investing.
5. It's a Democrat vs. Republican issue. We expect to see more deal flow and increased interest in impact investing as the year progresses — in part because this is a proven, growing sector where there's more opportunity every day, but also because there is a general sense of frustration with political leadership among democratic nations. While partisan disagreement isn't new, the last election cycle became particularly divisive. Impact investing is not a liberal answer to conservative governance or a conservative answer to left-leaning philanthropy. One of the beautiful things about impact investing is that it's embraced by both sides of the political aisle.
As impact investing continues to attract numbers of larger institutional investors, it's important that myths get busted to eradicate this handful of persistent misconceptions. Impact investing is for everyone.
Michael Whelchel and Shawn Lesser are co-founders and managing partners at Big Path Capital.