Amy Bell is an Executive Director and Head of Principal Investments for J.P. Morgan’s Social Finance business unit.
Impact investing is a frequently featured topic of conversation at forums or conferences on philanthropy today. Its popularity is linked to the potential for impact investing to cause a paradigm shift in the way we approach philanthropy—targeting investment capital as a complementary resource for achieving the social and environmental changes typically pursued by philanthropic organizations. The momentum behind this movement pushed impact investing to the world stage at the G8 Social Impact Investing Conference in London last month, where UK Prime Minister David Cameron delivered a compelling keynote address about the power of impact investing to “tackle the most difficult social problems.”
Attached to all this fervor is a fair amount of confusion about what impact investing actually represents. Is it investment, philanthropy or both? Simply put, impact investing is the deployment of capital with an expectation of financial return, where the success of the investment is also contingent upon achieving a stated social or environmental goal. For example, at JPMorgan Chase we are committing capital—more than $50 million to date—to private equity funds that will deliver us an appropriate financial return while simultaneously improving livelihoods for underserved populations around the world. If we are not successful in both ambitions, then we do not consider it a successful investment. Impact investing, therefore, represents an innovative way for socially and environmentally-conscious individuals and organizations to invest their capital to improve their communities while earning a return that meets their financial objectives.
There is a central theme underpinning the potential of impact investing: the creation of economic value and social value are not necessarily mutually exclusive. Market-based approaches to critical social and environmental challenges do exist or can be developed, and those interventions can attract private sector capital. This provides a significantly larger, complementary source of capital alongside of philanthropic budgets and increasingly limited public sector resources. Financeable interventions can satisfy a range of objectives—from mitigating climate change to creating jobs in agricultural communities to providing health care for underserved people—attracting a broad population of investors interested in creating change.
Through our own research on the market, we have noted the increasing interest of private, individual investors and their advisors, as well as more institutional investors like foundations, companies, development banks, asset managers and pension funds. In 2012, we collaborated with the Global Impact Investing Network to survey 99 self-identified impact investors, who noted they had committed $8 billion to impact investments in 2012, with plans to commit another $9 billion in 2013. As the feasibility of generating risk-adjusted financial returns comes up frequently in discussion on impact investing, it is important to also note that more than half of the surveyed impact investors indicated that they target market-rate financial returns from their investments. Those who accept below-market rate of returns do so intentionally in order to achieve a desired impact, where the nature of the intervention limits the financial upside available.
At JPMorgan Chase, our involvement in impact investing has evolved from our strategy around community engagement. We have historically used philanthropy as the primary tool by which to promote social and environmental changes important to our firm and to the communities in which we operate. Although we have been pleased with this philanthropic approach, we have increasingly sought to bring the full resources of the firm to bear on these issues over the last several years. As with many other large corporations, we believe we have a responsibility to a wide scope of stakeholders—to invigorate the economy and address significant social and environmental problems in the communities where we live and work. And as one of the largest financial services companies in the world, we feel uniquely positioned to deliver on this responsibility: to use our strength, global reach, expertise and access to capital to support our clients and communities and invest in them.
We established our Social Finance business in 2007 as a direct result of this strategy. Through Social Finance, we seek to catalyze the market for impact investments, furthering both the firm’s impact on its communities as well as our clients’. We leverage the expertise within our own lines of business to invest the firm’s capital in emerging fund managers that demonstrate the efficacy of the impact investing model, provide analytical research to help educate our clients and stakeholders on impact investing, and advise clients that may issue or invest in impact investments. We actively partner with other organizations in the philanthropic, public and private sectors, recognizing that collaboration is essential in realizing the full potential of impact investing.
Nowhere is this potential more evident than in our own investments. For example, we recently deployed capital to support Wilmar Flowers, a Kenyan exporter of smallholder-supplied flowers, through our commitment to the African Agricultural Capital Fund (AACF). Today, Wilmar purchases flowers from 3,000 smallholder farmers across Kenya. The fund’s investment will enable Wilmar to engage up to an additional 5,000 farmers by 2016. Overall, our investment in AACF will seek to make substantial, long-term improvements in the lives of at least 250,000 smallholder farm households across the agricultural value chain of East Africa. AACF also represents the kind of partnership that is critical to success in this field; we collaborated with USAID, the Bill & Melinda Gates Foundation, the Gatsby Charitable Foundation, and the Rockefeller Foundation to capitalize and support the fund.
Our investment in IGNIA, a pioneer in the impact investing market, provides another tangible example of the business models we seek to support through Social Finance. Our commitment to IGNIA supported the expansion of Barared, a low-cost telecommunications and correspondent banking company in Mexico. Barared provides its services to Mexico’s low income populations through public telephone booths located in neighborhood retail outlets such as convenience stores and pharmacies. In addition to providing historically excluded populations access to the banking system, the booths themselves are often the single most important revenue stream available to micro-business owners. With the help of our investment, Barared will be able to expand its services and develop additional products and services to meet the needs of Mexico’s low-income populations.
In establishing our own track record as an impact investor and working with other leaders in this space we will further encourage the development of this investment model, increasing the pools of capital available for businesses with financial as well as social and environmental goals. And our Social Finance business represents only one way in which JPMorgan Chase is innovating to drive change in our communities. By marrying the expertise within our traditional banking businesses with the financial and philanthropic tools we have available, we are excited about the potential to increase our positive impact and to redefine how we all think about returns.
