• Terra Observer

Put your money where your heart is with impact investing

Investing is a tough landscape for young Canadians to navigate. But with impact investing, they don't need to choose between high financial returns and social responsibility, says Co-Editor-In-Chief Vicky Qiao.

Vicky Qiao, Co-Editor-in-Chief

Impact investing: the solution for feeling good about your investments. (Micheile Henderson / Unsplash)

For a long time, Ashley Wang felt like she had to choose between two career paths—becoming a cut-throat businesswoman or supporting communities through non-profit organizations. Then, she found a compromise: social enterprise and impact investing.

A relatively new and rapidly growing sector, impact investing adds a layer of social and environmental impact to traditional investing. It doesn’t just focus on financial return, but also aims to address social challenges, provide sustainable solutions and create positive change in the world.

A graduate from Ivey Business School, Wang is one of the many Gen Zers entering the business world while trying to stay true to their personal values. For many Ivey grads, working as an investment banker, management consultant or any other job that abides by traditional definitions of success is still the ultimate career goal.

“I think I’m kind of a disillusioned Gen Zer, where I was a little bit sick of hearing about maximizing profit in business school,” she says. “It didn’t feel like it was the right model to me.”

Wong currently works in Toronto at SVX, an independent advisory firm that was first founded at MaRS Centre for Impact Investing. A leading force in Canada’s impact investing market, the MaRS centre connects investors with social enterprises that are in need of funds and ready to grow.

Wang says a big part of her job is evaluating and communicating with issuers—social enterprises seeking impact funds—to ensure they’ll be a sound investment for potential investors. She needs to analyze the issuer’s social and environmental impact, as well as how it is measured, before she’ll suggest it as something her clients should add to their portfolio.

“This is what I do every day for 40+ hours a week,” she says. “The reason I got into my current job is because I truly believe in the model and I believe that impact-driven companies will outperform in the long run.”

A new way forward

Many institutions are starting to recognize the potential of impact investing. Big banks and pension funds are carving out a certain portion of their investment portfolio for sustainable and responsible investment.

In a capitalist society, economic growth and social responsibility are often perceived as conflicting forces and values. This binary understanding has made it difficult for businesses to adopt more sustainable practices or make a green transition. But with the emergence of impact investment and social finance, that is slowly starting to change.

“Traditionally, there’s the corporate side, and they’re entirely profit-driven […] on the other side, there’s not-for-profit organizations, where their entire mission is to serve the community,” Wang says. “And now we’re seeing that shift in the middle.”

She says this middle approach represents a more sustainable model for organizations that want to make money and benefit their stakeholders while helping the environment and maintaining a social responsibility.

As businesses experience economic loss and pressure because of a global pandemic and national shut-down, Wang says companies that focus on social impact and sustainable development tend to be more resilient. In Ontario and across Canada, the fossil fuel industry was hit hard by the pandemic and oil prices dropped to unprecedented negative levels. More and more post-secondary institutions are working toward divesting from fossil fuels and rebuilding their endowment portfolio. As society makes the transition to renewable energy and becomes more socially aware, companies that produce and invest in fossil fuels will likely perform worse than those making changes.

“I definitely think that the world is going to wake up pretty soon, and we’re going to realize that we cannot be producing the amount of trash and plastics that we do; we cannot continue to operate our supply chains unethically,” Wang says.

Yet some worry the progress we’re seeing isn’t enough to constitute a fundamental shift.

Emma Hogeterp, who was working at LEAP Pecaut Centre for Social Impact before her move to Ottawa, says the industry still has a long way to go.

“How can we rethink what impact is and maybe change it from a more quantitative focus to a qualitative and community-based focus?” Hogeterp says. “That takes time and that takes real commitment.”

Also an alumna of the Ivey Business School at Western University, Hogeterp pursued a dual-degree with Global Studies and Honors Business Administration (HBA) at school. She recalls feeling lost in her first year of business school, because she didn’t find many resources or opportunities where she felt that she’d be using her business degree for good.

That summer, Hogeterp enrolled in the Ivey Africa Service learning course and worked at a non-profit through Ivey Connects. Though the non-profit experience was rewarding, she says there was something missing.

“I felt like it could’ve been organized better, that they could have been using a lot of principles that we were learning at Ivey in better ways to have a greater impact,” Hogeterp says.

With that mindset, she came back to her second year of HBA with a clearer sense of direction and a mission to introduce more Ivey students to the world of social impact.

As a founding member of the Ivey Social Impact club, Hogeterp worked with career management to create more opportunities and connections for students interested in sectors like impact investing and social enterprise. It was an endeavour that introduced her to different opportunities and ideas of where she could take her career.

Hogeterp’s journey with social finance started with a summer internship at LEAP, which eventually led to a full-time position. LEAP is a registered charity that seeks funding for social ventures that can transform communities. She was introduced to the world of venture philanthropy, an approach that uses investing and venture capital to achieve philanthropic goals and maximize social impact.

Based in Toronto, LEAP acts as a connector between social enterprises with corporate resources. It uses the venture philanthropy approach to support social innovators in the health, education and employment sectors.

“We do really rigorous dual-diligence on social organizations across Canada, they could be non-profit or for-profit,” Hogeterp says. “Once we’ve chosen them, we then connect them with the capitals they need to grow.”

With a background in Global Studies and a strong interest in Indigenous ways of knowing and building community, Hogeterp has identified the qualitative, community-based values still largely absent in the current social financing models.

“How can we do it in a more culturally appropriate and sensitive way? How can we change our dual diligence focus to consider the fact, for example [that] some indigenous communities don’t want to be researched and measured,” she says. “Because there are a lot of colonial ties to that.”

Hogeterp says it’s important to go into communities and listen to people on the receiving end of the social initiatives, rather than measure the impact only through return on investment or dollar value.

“I think social finance as a space also has very privileged people who have been trained in business. It has a long way to go to be more inclusive, and I’m no better,” Hogeterp says. “We need to be more patient, and I think we need to focus just as much on the qualitative as the quantitative, which is sometimes hard to do as business people.”

Hogeterp’s advice for those interested in social finance is to start by gaining a basic understanding of the concept on a systemic level, then going to the grassroots initiatives and communities to really understand the issues in order to truly make an impact.

Impact investing for Canadian youth

The world of investing can seem foreign and intimidating particularly to young people new to managing their money. Luckily for young Canadians who want to learn more about social finance and impact investment, some have offered to share their professional expertise and personal experiences.

Jory Cohen is the director of Social Finance and Investment at Inspirit Foundation. Cohen has been documenting his personal journey in building his impact portfolio. With his wife Jill, Cohen made a five-year plan to dedicate 100 per cent of their investable assets to support companies that generate positive social and environmental impact.

It’s an ambitious target, but Cohen has been interested in impact investing for a long time. After spending three years working for an impact investing fund that supports young entrepreneurs, he landed a job at Inspirit Foundation to implement a 100 per cent impact portfolio for the organization—and eventually started his own impact investing journey.

“While I was doing all this work at Inspirit, I thought to myself: well, I should be doing this with my own portfolio,” Cohen says. “And it’s been really fun to document the journey and to share it with others, so folks can use it as an example of an impact investment process that is actually tangible to them.”

Cohen has written a four-part blog documenting their five-year journey, where he breaks down the process of building an impact portfolio in a detailed and digestible manner.

In addition to fostering social change, Cohen says impact investment can lead to stronger financial performance.

“[It’s] my opinion that in the short term and the long term, impact investing as a whole will outperform traditional investing as a whole,” he says.

Cohen’s blog is a great resource for Gen Zers and young millennials looking to build their own impact investment portfolio. Wang, for one, finds it inspiring and helpful.

As someone who has just recently entered the workforce, Wang says she still has student debt to pay off, but is looking forward to creating her personal impact portfolio one day. Gen Zers and young millennials who are building a portfolio for the first time have an advantage when it comes to impact investing. They aren’t burdened with having to re-allocate their traditional investments.

“I think I have a really great opportunity to build a 100 per cent impact portfolio from the start,” she says. “A lot of people right now have to go through the motion of moving their traditional investment into responsible investment, and I don’t have that problem because I don’t have any traditional investment.”

For now, Wang is enjoying her work on the institutional side of impact investing, “The more of us that demand a world like this and want to work at jobs like this, I think the more that we’ll shift toward the type of world that we want to see,” Wang says.

Hogeterp also feels that same sense of fulfillment by working in social impact. She says young people have more questions about what their jobs and their firms are doing to make a difference, especially as concern for the climate increases.

“Are we going to act fast enough before it’s too late, for the lack of a better word? I don’t know,” Hogeterp says. “But I mean, we can try, right?”