Impact investing as a way to support underserved communities
The social justice movement sparked by the killings of George Floyd, Breonna Taylor and others has deeply impacted America. Among the effects of these incidents are many corporations seeking ways to define their identity and purpose in the context of changing societal values.
One way we have seen companies doing this is through impact investing, or using their investable funds to earn a financial return alongside a specific and measurable social return. Impact investing is a subset of socially responsible investing, but rather than trying to avoid investments that cause harm, it seeks to make a positive impact on society, the environment or both. These investments can be in agriculture, education, energy efficiency, health care, housing, community development or any other area deemed to be in need of advancement.
A number of corporations have announced plans to support their communities with impact investments. For example, six months before COVID-19 hit, San Francisco-based Airbnb announced plans for a $25 million impact investment to support affordable housing and small business in California. Google, Microsoft and others have made similar commitments.
Over the past year, communities made up of Black, Indigenous and people of color (BIPOC) have been disproportionately impacted by the devastating financial and health effects of COVID-19, according to the Pew Research Center. And numerous research studies show the extent to which racial inequality remains an enduring issue in America.
Corporations – including financial services providers – have stepped in to help address the issue of racial inequality, particularly in income and wealth. Late last year, JP Morgan Chase announced a commitment of $30 billion to advance racial equity, and a few month later, Starbucks announced plans to invest $100 million to create the Starbucks Community Resilience Fund focused on supporting small business and community development projects in BIPOC neighborhoods.
At RBC GAM, we have noticed more clients are interested in doing the same. A record number of institutional investors said they were turning to these types of investments, according to RBC Global Asset Management’s fifth annual Responsible Investment Survey.
According to the survey, 40 percent of investors plan to allocate more money to impact investing products in the next one to five years, an increase from the 28 percent who said the same a year earlier. In addition, the number of investors who report holding impact products in their portfolio increased in 2020 to 31 percent, compared with roughly a quarter in the previous two years.
For example, in November, Micron Technology invested $50 million in one of our strategies with the goal of reducing wealth gaps in predominantly Black neighborhoods by increasing access to homeownership, affordable rental housing, community facilities and small business loans. Micron’s strategy will center on investing in U.S. government-backed securities that aim to deliver a competitive financial return while supporting lending in historically underserved communities.
More recently, we worked with software giant ServiceNow on a similar initiative. The California-based tech company created a $100 million separately managed account that they have dubbed the ServiceNow Racial Equity Fund. The fund aims to increase access to homeownership, entrepreneurship and neighborhood revitalization within Black communities in Boston, Chicago, Dallas, Houston, New York, Orlando, San Diego, the San Francisco Bay Area, Seattle and Washington, D.C.
As asset managers, we have observed an increase in interest from investors looking to lift up their local communities through impact investing, and driving dollars into people and place-based investing initiatives. It is critical to understand and address the intersectional links between access to quality affordable housing, education, job creation and improved public health, and we look forward to continuing our work with organizations that target their dollars towards these needs within the communities they seek to serve.
We hope and believe that more corporations will take into account the welfare of the multiple stakeholders that are impacted by their business and operations. Companies should include the welfare of employees, customers and their communities, along with the environment, in their definitions of success.
More corporations investing their money to positively impact both their financial returns and these other stakeholders will be a win-win for America. Corporations will thrive and the communities where their employees and clients live and work will prosper.