Have Your Cake and Eat it Too?
Impact Investing attracts HKS students.For a lot of Harvard students, balancing their goals of doing good and doing well poses a professional dilemma. Many graduates wrestle with the choice of working in the public or private sector. How can they conceivably do both? Impact investing might just be the way.
Broadly speaking, impact investing involves using traditional, profit-oriented investment that seeks to achieve a social and/or environmental impact. Examples include investments in microfinance, clean technology and global health. Caroline Hoffman, MBA ’12, worked at IGNIA capital this past summer and described impact investing as an opportunity to bridge the gap between social goals and financial returns.
A fast-growing industry, impact investment is attracting diverse talent and capital. From the financial world, players such as venture capitalists, bankers and investors view this as an economic opportunity with attractive returns. Traditional non-profits are considering new revenue models and legal structures in order to attract capital and become more sustainable.
“The challenge now is to prove the business model on a large scale and establish this investment category lastingly as an effective economic development tool,” she explained.
At the Kennedy School, several students started an Impact Investing club this fall, reflecting the growing interest in the field. The club now has about 60 members, and provides a forum for its members to learn more about opportunities in impact investment. Since it’s a relatively new field, members of the club also have a chance to discuss its pros and cons and hear from people working in the industry.
“I’ve been really impressed by the range of speakers I have met - from the CEO of IGNIA to Willy Foote of Root Capital,” Linda Zou, a member of the club and a first year MPA/ID student said. “However, while I appreciate learning about the good work that is being done, I also hope to see more discussion on the controversial issues surrounding impact investing. For example, should it target the same rate of return as traditional venture capital investments?”
Is it a fad or is it here to stay?
The HKS Impact Investing club recently organized a talk by Michael McCreless, an Impact Investment Officer at a Cambridge-based social investment fund called Root Capital. McCreless, an HKS and HBS alumnus, spoke about ways to effectively measure social impact. At the same time, he raised questions about the industry’s sustainability and how he hoped to address these concerns.
“In twenty years, I don’t want this to be another idea that made sense at the time but didn’t deliver on the outsized promises that it made early on,” he said.
Given the nascent nature of the industry and the relatively small number of impact investment firms, the way in which the industry grows in the next few years and the kind of talent it attracts will be critical. Several HKS students said that their awareness of impact investing was limited before joining the club, despite their exposure to the field of development, banking or consulting. Not surprising, since the term impact investing didn’t exist until two years ago.
“Given the relatively new nature of the area, the Impact Investing club is doing a good job of initiating people’s thinking towards this field,” Prateek Singhal, MPA/ID ’12 says. “I envisage the club to take a stronger role in awareness and skill building of its members and potentially act as an informal channel of employment by connecting employers with aspirants.”
What is clear is that impact investing should not replace traditional philanthropy or government aid, but rather serve as a good complement to traditional philanthropy enabling proven business models to operate at scale while addressing some of the world’s most pressing social and environmental challenges.
Katharine Wolf and Atisha Kumar are first-year MPA/ID students. Wolf founded the Impact Investing Club.
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