Impact investing is defined as investing with the primary objective of achieving both a competitive financial return and positive, measurable economic, social and/or environmental impact. More broadly, Impact investing is an emerging asset class which has captured the attention of some of the sophisticated money managers in the world, who understand the power of mobilizing private capital to help solve some of the world's biggest social and economic challenges. Some of the areas that were the focus of impact investing in the early days were on poverty reduction and environmental causes. Social impact investing was a niche area where some of the investors were seen as settling for slightly lower financial returns and being more concerned about their social impact. This is now changing, and this theme has become mainstream.

 

Cleantech and Clean Energy are areas that have seen significant deployment in recent years, especially regarding solar PV and wind turbines. Large scale deployment has been made possible by significant cost reduction in system costs, enabled by manufacturing at scale, favorable policies to promote implementation and attractive financial business models. Coming out of the COP21 agreement in Paris, it has been recognized that large pools of capital will have to be available to implement the solutions that the major carbon producers across the globe have agreed to. Many large private investors have expressed interest in supporting public institutions to help fill the pools of funds that will be needed to have a significant impact on greenhouse gasses in the years to come to help mitigate the risks of climate change. As such one can imagine clean energy as one of the biggest areas for directed or impact investing in years to come. Associated benefits are regarding local jobs created and the potential for improved health in populations in developing countries by reduction of many of the pollutants which have a much more immediate impact on the health of the local populace.

 

TiE Boston held a Deep Dive event on "Impact Investing in Cleantech" on June 15 at the Massachusetts Clean Energy Center (MassCEC) offices in Boston. The event was sponsored by MassCEC and Trillium Asset Management and was moderated by Vivek Soni, from Boston Cleantech Partners. The objective of the session was to discuss the evolution of impact investing as a category and also get the perspective of cleantech entrepreneurs and investors in building sustainable businesses.

 

Nancy Rosenzweig from Big Path Capital described the different type of impact investors and how the focus has shifted from a niche to a more holistic viewpoint. Nancy introduced the audience to the concept of Total Portfolio Activation (TPA), which she had helped develop while she was on the Board of Trillium Asset Management. Paul Hilton from Trillium Asset Management elaborated on the TPA concept and gave examples. Paul described strategies of directed investment, disinvestments, and shareholder activism in public equity markets. On the bond side, he also talked about green bonds that have emerged with the support of the World Bank.

 

Steph Speirs from Solstice Initiative described her experience in building an early stage business for community solar. The key point is that a vast majority of people do not own their homes and as such are not able to deploy residential solar energy solutions on their rooftops. Solstice is helping create a marketplace for renters and others to help buy solar energy and for community solar project developers to site projects. Steph also has experience as an Impact Investor having worked at Acumen International, one of the leading firms in the early days of social impact investing.

 

Duane Peterson from Sun Common in Vermont talked about his philosophy of building a profitable B Corp for developing solar projects in Vermont and neighboring states. He was influenced by his experience at Ben and Jerry’s to build a socially responsible business. B Corps are a new type of company that uses the power of business to solve social and environmental problems. The shareholders and investors in such corporations have a clear idea of the kind of impact they want to have. These companies are built to operate for a long term, and the promoters are usually not looking for a quick exit. Duane is running a profitable solar development company that he is seeking to expand in the Northeast.

 

Chris Reim, from New York City, came to share his experience with the Community Development Venture Capital Alliance (CDVCA) about creating jobs in communities that needed help. CDVCA is the network for the field of community development venture capital (CDVC) investing. CDVC funds provide equity capital to businesses in underinvested markets, seeking market-rate financial returns, as well as the creation of good jobs, wealth, and entrepreneurial capacity. Chris cautioned entrepreneurs who are looking to impact investors not to sell the notion of lower financial returns because of their social impact. The key to building a sustainable business is that it should be financially sound and capable of attracting additional equity or debt from non-impact investors. Chris also talked about some new funds he is associated with, including one in Puerto Rico.

 

David Miller leads the Clean Energy Venture Group, which is one of the few early stage investing groups nationally that is entirely focused on clean energy companies. He described why they believe Clean Energy will be a huge opportunity for deployment and is currently not attracting significant private innovation capital, unlike many other technology categories. They have been active for the last ten years and have built up an excellent portfolio of companies.

 

Rob Day from Black Coral Capital, which is a family office, did an excellent job of bringing the whole discussion together for Cleantech Impact Investing. He emphasized the need to take risks but not to sacrifice returns. He also talked about the need for investors to have a stakeholder perspective and use the right combination of equity and debt. For many opportunities, the VC model is not appropriate.

 

Throughout the evening, there was much discussion of metrics and types of metrics used by funds. Many of the early and private cleantech investors do not manage their portfolio in terms of specific cleantech metrics. They do choose their targets thematically and tabulate some environmental attributes along the way. The public market investors have a more established track record of using certain metrics such as IRIS developed by GIIN. At the end of the day, the financial returns are a paramount metric, and there can be a concern about the cost of measuring and reporting on a broad range of other parameters. These costs can be high for small companies but are likely to become more common for large public companies because of activist shareholders and other stakeholders.