It’s safe to say impact investing is not a fad. Seeking to generate environmental and social impact in addition to financial returns, impact investors are continuing to build momentum around the globe as they find ways to help nonprofit and for-profit ventures address important issues and scale positive impact. The industry is creating new corporate structures, industry metrics, and financing platforms to serve asset holders who want to align their investment portfolios with their values. According to the US SIF Foundation’s 2016 report, sustainable, responsible, and impact investing (SRI) assets expanded 33 percent from 2014-2015—from $6.57 trillion to $8.72 trillion—and one of out every five professionally managed dollars in the United States is now screened for social impact.
Unsurprisingly, this rapid evolution has brought new interest and attention from graduate and undergraduate students asking for training that enables them to enter the impact investing field, and many university programs are working to figure out how to meet that demand. A recent scan from The Beeck Center at Georgetown shows a range of new educational efforts in impact investing for practitioners and students. The tricky part is that few tenured faculty have deep experience in this area of study, which requires blending conventional finance with social entrepreneurship tools and networks. With that in mind, what kind of programming, training, and support can we design—within the constructs of the traditional university model—to prepare students for careers in impact investing? What are the most important roles for universities in developing knowledge for this new strand of finance?
Here we share three lessons from our own work helping build a more robust market and ecosystem of capital support for social and environmental impact.
1. The skillset required is more diverse than you think.
We started the CASE i3: Initiative on Impact Investing in 2011 to establish a rich set of resources and activities for MBA students, entrepreneurs, investors, funders, academics, and policymakers to explore and support the field of impact investing over what we saw as a critical period of development for the next decade. We knew that talent development was important, and began with the notion that we needed to teach students financial and social impact skills to prepare a new set of impact investing professionals. Commonly, then and now, the frame applied to this work is to educate professional managers who know how to identify promising investments in social enterprises. And indeed, we found that many typical MBAs came in planning for a career as a venture capital fund associate or partner who knows how to select investments, lead investment diligence and craft the fund’s equity investments in early-stage, high-growth companies to lead to a positive exit. But our recent Impact Investing 2.0 research project, which studied high-performing impact investing funds around the world, revealed two realities that challenged this trajectory:
It’s not all venture capital out there. Many of the world’s successful impact funds are not plain-vanilla venture capital funds; investors are using a much more diverse set of vehicles for impact, including social impact bonds, loan funds, layer-cake microfinance funds, and green bond instruments. This means that knowing how to do structure an equity deal in a startup is a necessary but insufficient skillset. Students need to be able to parse a large number of fund and deal structures, and understand how to adapt each of them to create impact. CASE i3’s core impact investing class is thus oriented around learning how to develop an investment thesis, and then matching a fund structure (debt, equity, or beyond) to fit that thesis. Form follows function, which is echoed by many professional impact investors as well. Our exercise for teaching students how to structure deals is similar to the University of North Carolina’s Kenan-Flagler school’s Invest for Impact Competition, which has MBA teams competing to suggest the best investment structure for several presenting entrepreneurs, but we also teach our students to consider their deals in the context of larger fund structures and not to assume every fund is an equity fund looking for high-growth, 3-10x returns.
In the fall 2016 class, for example, students explored current investment needs from Organic Transit, a Durham-based producer of the Elf solar-powered bicycle, and Jacaranda Health, a Kenyan-based maternity clinic chain that has high customer satisfaction ratings while serving low- and middle-income women. Students then designed deal terms that would match those companies’ needs and fund structures that could serve multiple entrepreneurs with similar needs. To prepare for these exercises, students study examples from around the world—and good resources are emerging (see a list at the end of this article).
Bringing financial chops to the table isn’t enough; we need tri-sector leaders. Successful teams in successful funds in our study shared a common characteristic: They had what we call tri-sector leadership skills. Each management team had significant experience in finance, nonprofit, and government sectors, allowing them to engage stakeholders from all three sectors in their work, and bring vocabulary, frameworks, and networks across sectors to the table. Goldman Sachs’ acquisition of Imprint Capital, a boutique firm with deep tri-sector leadership skills, shows these skills have concrete market value. Because of this, we make addressing multi-stakeholder management issues part of our social entrepreneurship and impact investing courses so that students can practice tri-sector thinking and understand different stakeholder viewpoints.
2. The career options aren’t just in managing the money.
We’ve also learned a lot about the career paths available to MBAs in the field. Students come in asking, “How can I become an impact investor if I don’t have a finance background?” In this growing field, there are many roles that don’t require directly managing a debt or equity fund. We orient students to the careers in impact investing with a model of three concentric circles:
- Inner circle: investors. People raising money and investing it for agreed-on purposes.
- Middle circle: advisors and consultants. People guiding investors, asset holders, wealth managers, and others to achieve the greatest impact/return with their resources, and people helping entrepreneurs access the best capital for their growing enterprises.
- Outer circle: infrastructure development. Organizations and institutions that provide guidelines and standards for the field, train and certify talent, and support the work of people in the two inner circles.
The CASE i3 Impact Investing Career Map.
When impact investing started its rapid growth a few years ago, most of the jobs were in the inner circle, though there were few of them. As the field has grown, the number of total jobs has increased, but the number of jobs in the outer two circles has increased most. There are now many opportunities to work in wealth advising; with state and local governments to develop pay for success policies and products; strengthen the important infrastructure organizations in the field; and even run accelerator programs for entrepreneurs raising capital. These jobs require all the core business skills that MBA programs teach, and newly minted MBAs can apply those skills in a variety of environments that build the field of impact investing. And we now have alumni working to build the field in all of these areas.
3. Universities can and should “lean into” impact investing research priorities.
The field is evolving, fast, but it is still very young in terms of the research and evidence base underlying it. This is an ongoing challenge for faculty trying to teach new courses or integrate impact investing into existing curricula. Recent Wharton and GIIN/Cambridge reports on the returns of private equity funds were hugely important in terms of showing that some impact investing funds can return market rate financial returns, but in terms of unpacking the risk, return, and impact profiles of investments across all asset classes, they marked just the beginning. The landscape scan that Oxford’s Saïd Business School released last year made clear that academic research has a distinctive contribution to make to the development of social impact investment, but it is currently lagging considerably behind practice. We want to change this; rigorous, peer-driven studies will give the field credibility as it grows.
In 2011, we undertook a five-year project to help more than 25 researchers from 13 universities utilize data from B Lab and GIIRS on social enterprise data, impact investing funds and their investees. Last year, we launched the CASE Impact Investing Research Group on LinkedIn for researchers and practitioners interested in impact investing research, currently at 297 members. And we have received some early funding from Blue Haven Initiative and the Case Foundation to explore the prospect of a global academic network organized around research priorities, starting with a new research database we are developing this academic year. We also think it’s important that, as academic inquiry expands, many different parties don’t bombard impact funds with requests for data, so we’re working with B Lab, ImpactAlpha, USAID, the Case Foundation, and others on creating standard, shareable industry datasets for ongoing academic use.
Academic institutions can help build the impact investing field by teaching students a fuller suite of skills, clarifying the range of career paths open to them, and developing a better theoretical and practical knowledge base. This will help ensure our impact investing work is based on the highest standards of evidence, and is respectful of multi-sector stakeholder views of how to create impact and value.
Resources on Understanding Fund Structures
Kellogg-Morgan Stanley Sustainable Investing Challenge (Northwestern University Kellogg School of Management)
Invest for Impact competition (UNC Kenan Flagler Business School)
Innovative Finance case studies (Bertha Centre, Graduate School of Business University of Cape Town)
The Impact Investor and Impact Investing 2.0 case studies (CASE at Duke University)
CASE Smart Impact Capital (CASE at Duke University)
Resources for Understanding Deal Pipeline and Evaluation
MBA Impact Investing Network and Training (MIINT) program (Wharton)
Frontier Market Scouts program (Middlebury Institute of International Studies at Monterey)
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Read more stories by Carrie Gonnella & Cathy Clark.