Impact investing, a growing niche in finance, seeks to marry strong financial returns with positive social impacts. That can mean investing in companies whose products improve the environment, or it can mean helping a startup find ways to positively contribute to the neighborhood where it’s based. Nancy Pfund ’82, founder and managing partner of DBL Investors, talks about the growth of the sector.
Impact investing seeks two outcomes: strong returns and a positive social outcome. The category, also known as double bottom line investing, is small, but growing, with a recent report putting the amount of private equity money going toward impact investing at about $4 billion in the United States. Last year, Morgan Stanley created a group within its wealth management business to work with clients interested in impact investing, which it describes as “a range of investment vehicles, all of which have been evaluated for their financial integrity and return potential as well as societal impact.”
In some ways, impact investing is the flip side of the trend in the nonprofit world toward bringing a more business-oriented mindset to solving social problems. Impact investors see their role not just as maximizing returns, but as improving environmental performance or helping to close the education gap in inner cities. These two goals need not be mutually exclusive. DBL Investors, a San Francisco-based venture capital firm, worked with the online music service Pandora to create a music program for schools in its inner city Oakland neighborhood, an initiative that helped children and created crucial political allies for the startup.
Nancy Pfund ’82, managing partner of DBL Investors, has been in impact investing for more than ten years. She said that while the sector is still very young, she no longer has to explain what “double bottom line” means. “There’s a whole industry being created around impact investing and looking at both social and financial returns,” she said. “We still need to have more success stories. More positive stories like a Tesla or a Pandora, the more to show we can do both and that the two goals reinforce each other.”