A Practical Guide To Impact Investing

A Practical Guide To Impact Investing by [email protected]

Julia Balandina Jaquier on ‘Catalyzing Wealth for Change’

Socially responsible investing, corporate social responsibility and the various permutations of “doing well by doing good” are relatively recent arrivals to the modern business milieu. As such, early iterations of this ideology were often an afterthought, with investors putting just a little money into social impact funds. Companies did add social responsibilities to their practice, but kept oversight of such initiatives in divisions with limited power or stature.

That’s changing. As the idea takes hold, there also arose a recognition that executing these initiatives well is neither easy nor straightforward. To educate new do-gooders, veteran impact investor Julia Balandina Jaquier has written the book, Catalyzing Wealth for Change: Guide to Impact Investing, to offer perspectives on how to tackle social responsibility endeavors. She recently spoke with Sherryl Kuhlman, managing director of the Wharton Social Impact Initiative, about her recommendations.

 An edited transcript of the conversation follows.    

Sherryl Kuhlman: Before we talk a little bit about the book and its contents, tell me about your background. What catalyzed your interest in this kind of work?

Julia Balandina Jaquier: I started in traditional companies, and traditional investing. About 23 years ago, I started with McKinsey & Co., but shifted to financial services pretty soon, working with ABB Financial Services, and then AIG. By 2001, I was managing the direct private equity business of AIG. It was in 2003 when I got to know the type of an investment approach that targeted a dual set of returns: financial returns and social returns.

Kuhlman: Which is not what you had been doing earlier.

Jaquier: Exactly. At that time, it wasn’t cool to impact invest, but it very quickly attracted my attention because I was searching for something that would be a purposeful career, and not just a traditionally successful career. Then I started an impact investment fund with AIG. I managed it for five years, and then moved on to start an independent advisory [firm], and worked with a broad range of ultra-high-net worth families around the world. I advised financial institutions, international banks and the Swiss and U.K. governments, on setting and implementing impact investment strategies.

Kuhlman: So you have a great background in the finance area then, and you’ve been part of the development of this field. How has that affected the content in your book?

“The interest in impact investing is very, very strong, and it continues to grow, particularly among the high-net-worth individuals.”

Jaquier: It has greatly impacted the content. What I have seen in the field is that the interest in impact investing is very, very strong, and it continues to grow, particularly among the high-net-worth individuals, wealthy families.

Kuhlman: Are you also seeing this kind of interest among millennials and the younger generations?

Jaquier: For younger generations, for millennials, it is absolutely normal; it’s a new normal for them. They talk about impact investing as something that is firmly part of their lives. But the interest in impact investing is not limited to millennials. We see a lot of wealth-holders, both from entrepreneurial backgrounds, and inheritors, who are drawn more and more to this innovative approach, which uses market forces and innovative entrepreneurial solutions to tackle very, very serious social, environmental challenges.

And the interest is there because people understand that we need private capital to address them. Government capital and philanthropy is no longer enough, and there is an excitement to go beyond grant-based philanthropy, where it can complement the grants by working with new actors of social change, which are the businesses and enterprises that pursue both societal objectives and financial objectives.

Kuhlman: That sounds just as inspiring. But how do you move from that inspiration to action? Because that’s the hard part.

Jaquier: It’s absolutely the hard part, and that is the reason for the book. A lot of research has been done that shows that wealth-holders absolutely adore this theme, and wholeheartedly want to invest their capital with values, with impact. The problem is that acting on this intention to generate impact with their investments has been very difficult. It is a much more complex area.

Families need to really find out what is the kind of impact they want to have, what kind of themes they want to tackle, what rate of return is appropriate. Is it too high? Too low? They don’t get a lot of help from their advisors, and as a result, there is a huge gap between the intention to do impact investing, and the actual action, and successful involvement in the field.

Kuhlman: One of the nice things about your guide is that it is a sophisticated blend of a toolkit and inspirational stories. Is there a specific story that you found really compelling that you like to talk about when you are talking to these families or giving lectures?

Jaquier: Well, I can’t think of one because this guide incorporates the findings from discussions and in-depth interviews with 190 families around the world. We actually profiled, in detailed case studies, 45 families from 21 countries. So they are very diverse. You learn a lot of things from all of them.

“Families need to really find out what is the kind of impact they want to have, what kind of themes they want to tackle, what rate of return is appropriate.”

Kuhlman: How does your book, your guide, your toolkit, differentiate itself from some other research and books that are out there?

Jaquier: What differentiates this guide is that it is really focused on triggering action, and not just providing inspiration. When I read the research and I get inspired, I say, “I want to know how! Yes! I want to do it, but how do I do it?” A lot of investors are at this stage, where they are convinced intellectually, but they don’t know how to start, and whom to trust.

This guide is set up in a way that will help those who are already convinced that they want to try to be meaningfully involved. It provides a lot of peer examples, and case studies, 45 of them, which were selected from 167 in-depth, face-to-face interviews with families around the world. It has practical step-by-step guidance in all of the stages of involvement in impact investing, from understanding what it is, understanding how peers have used this approach, be it a foundation, a family business or a next-gener, and then, developing a strategy, getting your family on board with it, and then actually starting doing investing.

It’s a really hands-on approach, peer-learning, and adaptive style. No jargon and no financial language, which will help people with different levels of financial sophistication and experience in investing to get the benefit of it and start doing it.

Kuhlman: You talk about the people using this right now being the wealth-holders themselves. I’m trying to understand how they might approach this. What role do advisers play in these sorts of decisions?

Jaquier: One of the learnings from all of those interviews is that advisers play an absolutely critical role in this area. Like philanthropy, which a lot of families like to do by themselves, many families want to work with their traditional financial advisers in helping them align their wealth with their values. Because it is a