The industry is abuzz with talk about ESG, or Environmental, Social, and Governance solutions, as investors demand more from fund managers when it comes to providing investments and practices intended to do good. While environmental initiatives and corporate diversity policies are becoming standard, not everyone has waded into the world of social impact investments, projects aimed at creating jobs and bringing prosperity to underserved areas.
Social impact can be a tricky topic because investors have high expectations for both financial returns and meaningful impact, and success can be difficult to quantify. That’s why JTC Americas and Akerman are hosting a free virtual forum where experts from all corners of the industry will be discussing their experiences with fundraising and deployment of social impact capital and how the industry can be more effective.
In preparation for the webinar, we spoke to Michael Bailkin, Of Counsel, Real Estate, Akerman LLP, about why coming together on social impact is so crucial at this juncture. With investors, fund managers, developers, non-profit activists, and government officials all wanting to help underserved communities, there must be a way for them to work together, and Bailkin’s answers shed light on how these types of discussions can help get us there.
Why did you feel now was an important time to talk about social impact capital? Are there factors that make this a particularly exciting time for these types of projects?
Bailkin: Social Impact capital is expanding at a significant rate, both at firms set up specifically for Social Impact purposes and as divisions of “mainstream” banking and other financial services firms. Given the difficulty of raising capital for projects in impacted areas, Social Impact sources can make the difference between worthy projects obtaining funding or not.
One major area of discussion is that the criteria used for evaluating these investments is not always clear, and is evolving. This webinar will provide some clarity as to existing criteria and discussion as to adopting criteria acceptable to both investors and recipients.
Have certain categories of social impact investments, such as real estate, been easier to fundraise for than others? What are some of the obstacles to attracting capital for other types of social impact investments?
Bailkin: Most capital sources, including Social Impact as well as public sector programs, are easier to access for real estate projects than for operating businesses. This is in part because real estate developers and their financial intermediaries are more experienced at raising capital than most operating businesses, and even “startup” real estate projects often have “hard” assets (like land) to provide some security, while many (particularly startup or early) operating businesses do not have comparable “hard” assets.
However, from a community and economic development standpoint, operating businesses are even more important, as they more directly produce jobs and amenities. Hopefully this webinar and others down the road will explore how to develop practices and procedures to make Social Impact capital more available for community-based operating businesses.
Private investment is just one part of taking on inequality, working alongside nonprofit ventures and public infrastructure projects. Are there ways these different tactics can better work together to encourage action in underserved communities?
Bailkin: The key issue in addressing community problems is maximizing and integrating a range of financial and implementation resources. In particular, it requires packaging the right mix of private sector and public sector programs and resources – a process often referred to as public-private-partnerships, or P3.
While Social Impact projects do have to generate a return and reasonable security for investments, their focus is on the upgrading of impacted communities, and they will likely have greater expertise in evaluating their projects and the implementation approaches that can best achieve those upgrades.
One specific issue to be discussed at the webinar is the degree to which community-based not-for-profit developers (“CDEs”) can generate the levels of returns that most Social Impact investors will require. This is both a business/implementation issue (for example, does a typical CDE have the expertise and cash resources – by itself or in partnership with a well-capitalized private developer – needed to plan and implement the project) that is probably best addressed by maximizing the ratio of public sector assistance in the P3 model, and a series of legal issues (for example, the need to structure the role of a CDE in a project to enable it to obtain revenues and appreciation without jeopardizing its tax exempt status).
When we talk about ESG, environmental initiatives often take center stage. Why has social impact proven trickier for investment firms and other companies to act on when compared to the other components of ESG?
Bailkin: It is easier to clarify the specific issues for environmental problems and measure remediation. Identifying the specific likely impact of capital to remediate community problems (such as jobs, amenities, security) is much more nuanced and subjective. However, there are now firms like Akerman that have developed expertise in structuring the use of capital and implementation approaches to better address specific community problems, and firms like JTC Americas that have developed expertise and data bases that can measure the actual impacts.
JTC Americas is proud to be working with Akerman to present this free virtual forum:
Leadership in Social Impact Investing: Attracting Capital and Growing the Industry
A virtual forum with Akerman and JTC Americas