How a focus on the investor experience is helping CommonGood change the thinking around impact investing.
The JTC Impact Medallion Program recognizes impact fund managers and industry stakeholders who embrace best practices in security, transparency, and compliance. In this series, we’ll showcase Impact Medallion recipients and how they’re leading the way on Impact & ESG.
A frequent discussion in the investing world is the “returns vs. impact” debate. The standard thesis is that investors are only willing to give up so much of their returns in order to make an impact, and that in order to attract investment, you have to sacrifice some of the good you wanted to do. But what if that thinking were backward? What if proven impact inspired people to invest more, and as investors became more aware of the effects these projects have, unfocused investments lost their appeal
Co-founded by brothers Jeff and Jonathan Shafer, CommonGood Capital is a financial services firm aligning capital to facilitate returns, human flourishing, and meaning. With several specific impact areas of focus, the firm’s goal is to provide access and advisory services to impact investments that enhance both the financial goals and values of investors while creating meaningful impact in communities around the world.
We spoke to Co-founder and CEO Jeff Shafer about connecting with investors, the power of incremental change, and fighting against misconceptions around impact investing.
We often talk about impact in terms of the economic effects an influx of capital can have on underserved areas, but you also stress the other half of the equation, which is the effect impact investing has on the investors themselves.
How do you help investors see their investments as more than just numbers on a spreadsheet?
Shafer: This is personal for my family and me, as it was an investment we made into affordable housing in 2014 when the lightbulbs went off for us. It was seeing and hearing from the residents: “I am excited to have people over to my house now,” or the statement, “They’ve given me my dignity back.” Who would have guessed that capital and a heart could have such an amazing impact, especially around investing?
What happens when you recognize that your investment capital is being put to work for something and towards someone is it changes the investment experience. There is a connection, greater meaning, or awareness beyond oneself, which ironically helps mute the normal fear and greed of investing.
Historically, the investment community has said to keep your values and emotions out of investing because it will influence your rational decision-making process. I see two challenges to that logic: first, it assumes that you can’t use your head and heart at the same time. Second, it implies that you actually can keep your emotions out of the equation. So why not flip this idea on its head? Bring your emotions and values into investing while maintaining the rigorous intellectual analysis.
If you could pinpoint a single project or experience you’ve had that exemplifies what CGC is all about, what would it be?
Shafer: This is fun to think about and yet not so simple. At a pure CommonGood level, I think working with our institutional partner and creating a fund that is accessible to accredited investors with a low minimum investment amount of $50k is huge. Not only is it giving more access to institutional managers and fee structures, but in this case, opening the possibility of investing into affordable housing communities across the US.
Historically, investors have mainly had the opportunity to invest in class A communities or “renters-by-choice.” Being part of a fund that is educating and giving investors access to “renters-by-necessity” is meaningful. The investment and impact strategy of preserving affordable housing (light value-add) is needed to help meet the current and ever-growing demand.
On the more personal side, I have a deep passion for those who have been incarcerated. 95% of these men and women get out of jail or prison. The need for a job and meaningful work are so important, and yet the obstacles they face are great. Risking some of our capital by investing in businesses run by or that hire the formerly incarcerated has been a highlight. It’s not without risk, but we view it as a privilege and honor to be a part of the journey. Someday I would love to be able to bring this access to investors across the US.
Our readers may have some experience with impact investments domestically, but CGC also operates abroad, as Jonathan is heavily involved in projects in Rwanda and the Fortis Green Renewables Fund is dedicated to providing access to power in Africa.
Is there an added challenge in demonstrating the benefits of an impact investment project when investors don’t have the opportunity to view progress first-hand?
Shafer: What’s amazing is that almost by default people think investing outside the US is more impactful than inside the US. So, on one hand, demonstrating the impact can be easier, yet on the other hand, it often gets viewed as riskier. It’s normal to feel this way when you are investing into areas or regions you are not familiar with.
I think dealing with managers who have boots on the ground, who regularly communicate, and that leverage different forms of media can help bridge the gap between perception and reality. To see a video of a run-of-the-river project in Kenya, for example, can be eye-opening and often demystify misperceptions. It does take time and diligence to understand the potential returns and impact, but if there is a passion, the journey can be very rewarding and well worth it.
One interesting shift we have seen after the pandemic and the ensuing financial hardship felt around the globe is that many US investors now appreciate the impact that can be made right here in the US. Many of us had taken for granted how critical good, meaningful, and well-paying job are.
CGC has advised impact investment funds and helped them with raising capital. Are there common misconceptions or mistakes in approach that have held impact funds back?
Shafer: The most common misconception is that impact investing is soft on intellectual rigor or return, but big on heart. Posed as a question we often hear, “How can you make money and do good?” My first thought is always this: every time you make money, are you having to do something bad? Obviously not. All investments have an impact whether you think about it or not.
Impact investing is about intentionality, measurement, reporting, and striving for both financial and non-financial outcomes. We often find a broader definition of success requires creativity, innovation, and new ways of thinking. It’s not easy, but its highly meaningful and fun to see the results on all partners involved.
An approach we see holding back Impact investing is wealth advisors who need to get their arms around everything before they take the first step. It’s a natural response and one that can be justified several different ways. A different approach is taking baby steps and growing with your clients. Start to ask questions, listen, and know that you don’t need to have all the answers at your fingertips. But this can produce fear: the fear of not being in control, or of losing credibility because you are not 10 steps ahead of your clients. Those who can take one step forward at a time are the ones meeting the needs of their clients and positioning themselves for the wave of demand that is growing. A great place to start is by making an investment for yourself first.
CGC’s areas of focus include housing, environmental stewardship, small business lending, and employment for the formerly incarcerated, large issues requiring complex solutions that go beyond a single investment.
How do you measure success when you know these problems aren’t going to be solved overnight? And what is the role of government and nonprofits in tackling these issues?
Shafer: There is a phrase that a dear business coach of mine would always say: “Progress and not perfection.” At CommonGood, we specifically think about success from the standpoint of getting 10,000 investors to experience impact investing. That is the side of the metaphoric Impact Coin that people often don’t talk about: just acknowledging the fact that you would like to incorporate impact into your investment mindset is an amazing start.
The magic happens by inserting your values and considering the potential impact on others, which in turn loosens the grip on your capital. It now becomes more that just about “me” to a discussion and experience of “we.”
This is critical because we all know that nonprofits, while needed, have an extremely small percentage of the global wealth. On the other side, governments are not wealth generators and only control so much of the global capital. Most of the world’s wealth is sitting in investments and business. The world is starting to acknowledge this fact, and you can see this being played out across the news in many ways. An interesting area to watch and learn about are public-private partnerships. If structured well, this can be a catalyst for certain investment/impact areas.
JTC is a leader in third-party fund administration for impact investment funds. Our solutions seamlessly track and document impact metrics and can help funds meet current and future reporting requirements, all organized on our scalable, tech-driven private equity fund administration platform.
Learn more about JTC’s Impact services by visiting our Impact Overview Page!
