Leading to more impactful Israeli investments
First coined by The Rockefeller Foundation’s Bellagio Center in 2007, the term “impact investing” refers to investments made with the intention of generating both financial return and positive social or environmental impact.
While still in its early days, the trend of aligning investments with impact is enjoying a slow but growing embrace from asset managers, foundations, financial institutions and family offices.
The Global Impact Investing Network (GIIN), the world’s leading authority on impact investments, estimated this week that over 1,340 organizations worldwide currently manage $502 billion in impact investing assets.
In Israel, impact investing has enjoyed rapid growth in recent years, doubling from an estimated $130 million in 2016 to $260m. in 2018, but large sections of the private sector still remain hesitant to change their traditional investment practices.
Aiming to build the Israeli impact investment ecosystem, the Edmond de Rothschild Foundation – in partnership with the Jewish Funders Network – launched last year the “Matching Grant,” a one million dollar matching grant initiative. The whole grant is expected to be deployed during 2019.
“Who’s in charge of putting the money into a campaign to raise awareness, guiding academia how to teach for accounting for this new hybrid animal of impact innovation and training government officials how to think about cost-benefit analysis for social interventions?” said the foundation’s impact entrepreneurship program officer Alina Shkolnikov. “That has to happen through philanthropy.”
Although much of the work surrounding education, awareness and demand is being led by philanthropic foundations, major changes are starting to occur in the private sector as investors increasingly request that their ventures are in tune with environmental, social and governance (ESG) investment criteria.
“It’s a big shift to move from only financial return to financial return with social impact, but it’s a market that keeps growing and is at least starting to ask the necessary questions,” said Shkolnikov, highlighting asset management giant BlackRock’s early leadership in the impact investment field.
Under the “Matching Grant” initiative, the Edmond de Rothschild Foundation decided to match impact-related investments of 11 organizations dollar-for-dollar, with grants ranging from $25,000 to $150,000.
Beneficiaries include assistive technology innovation laboratory ALYNovation, the Dualis Social Investment Fund’s “Food for Employment” program and humanitarian technology pilots managed by the Pears Program for Global Innovation and IsraAID.
“It’s great to see how impact is an industry on the rise, and we’re donating to different organizations. To create meaningful changes, you need to think long-term but act short-term,” said Shkolnikov.
“Some changes will come to fruition very quickly like impact start-ups and social impact bonds. Some changes will be new models of impact taking two or three years to be implemented.”
The foundation ultimately expects that the grants will lead to at least 50 new startups developing novel technologies or adapting existing technologies to the field of impact innovation, the establishment of new research tools, ideation programs and pilot funds.
“Once we put out a call for applications saying the Edmond de Rothschild Foundation is willing to donate one million dollars to organizations specifically seeking to grow the impact ecosystem, we saw the industry really wake up,” said Shkolnikov. “Once you offer a supply of capital to an industry, it takes notice.”
Driving the new approach to investment, Shkolnikov believes, are two key trends. First, as increasing numbers of millennials seek financial opportunities, they demand that their investments do not profit from harming future lives.
Second, as more women enter positions of financial influence, their investments tend to be more risk-averse and aligned with social and environmental values.
To date, four leading Israeli financial investors, three banks and a major pension fund manager, have made their first impact investments. A further five charitable foundations have established dedicated impact investment strategies or building mandates.
On Wednesday, early-growth venture fund New Era Capital Partners, led by Gideon Argov and Ran Simha, announced the closure of a new $60m. fund, assessing companies according to ESG and responsible investment criteria to invest in start-ups that create a measurable, positive impact on the environment, society or humanity.
Last month, OurCrowd launched a $30m. impact fund in partnership with Social Finance Israel to advance businesses solving global challenges.
“The old model of giving endlessly to a company that is not being sustainable is coming to an end, but businesses often don’t have the money to make the leap forward into impact investing,” said Shkolnikov.
“Our hope is that a lot of our organizations will be making money down the line from the model that we’re helping them grow. We’re giving them a grant so that five years down the line they’ll be able to make money and not need us.”