Impact Investing Is Hot: So Why Am I Worried?


By Susan Hammel

After decades crying in the wilderness, I should be happy now that investing for good has hit the mainstream. Right? Mainly, I’m optimistic about the flood of philanthropically minded investors shifting their resources in pursuit of their mission, beyond the 5 percent customary for most foundations.

Perhaps it’s akin to sending your children off to college to live their independent, adult lives. I’m hopeful, but I worry.

As it moves into the mainstream, impact investing faces four threats:

  • Impact Washing

  • Insufficient Diversity

  • Lack of Transparency

  • Risk Aversion

“McKnight's Strategic Framework calls us to optimize the Foundation's resources to build and strengthen socially, economically and environmentally sustainable communities. Impact investing is a powerful tool we've added to work toward this goal.”

– The McKnight Foundation


Think of all the “natural” products filling the shelves at the grocery store. Unlike USDA Organic, the term natural lacks a regulatory definition. Slapping a buzzword onto a package to convince customers your product is environmentally friendly is called greenwashing.

Similarly, impact washing refers to com­panies marketing a social or environmental impact that doesn't exist. Misleading reporting ranges from glossy brochures without real data to advertisements with no basis in reality.

A legendary example of impact washing is the glowing Corporate Social Respon­sibility (CSR) report Volkswagen released while simultaneously using software to cheat emissions tests with their vehicles. While some companies, such as Target, are creating meaningful CSR reports, others are pub­lishing reports that are nothing more than corporate puff pieces.

Impact investing isn’t immune to ethics violations, either. If we’re not vigilant, impact investing’s Bernie Madoff could step in. How­ever, by insisting on rigorous analysis, impact investors can create real impact.

Working Against Impact Washing

When BP (formerly British Petroleum), a self-proclaimed green company, spilled 4.9 million barrels of oil into the Gulf of Mexico, investors following Environmental Social Governance (ESG) warnings would have dodged the 55 percent loss in stock price.

Today investment analysts are beginning to consider ESG factors as part of their regular analysis. As with all types of investing, paying attention to rigorous, objective, sophisticated investment analysis matters.

A great example is The McKnight Foun­dation’s Carbon Efficiency Strategy, devel­oped by Mellon Capital, which responded to McKnight’s desire to tilt its investments toward companies that are producing fewer carbon emissions compared to peers. After careful analysis, Mellon created a broad US stock fund with about 1,000 holdings, which reduced the carbon intensity of McKnight’s investment by 53 percent.

Impact Measurement and Reporting

The gold standard in impact reporting is the Northwest Area Foundation, which makes “mission investments to further grantees work to build assets wealth and opportunity” across the eight states and 75 Native Nations where it works.

NWAF requires excellent and nuanced re­porting from their investees, but they also sup­port and pay for the reporting as otherwise it could be onerous and costly for investees.

In addition to ESG analysis, investors pursuing affordable housing and small busi­ness development goals can ask if investees adhere to the Community Reinvestment Act (CRA), a 1977 regulation encouraging banks to meet the credit needs of their entire community. The Minnesota Council on Foundation’s Minnesota impact investing col­laborative fund, part of RBC Access Capital, complies with CRA requirements.

MCF members— Bush Foundation, The McKnight Foundation and the Otto Bremer Trust—are the lead anchor institutions partic­ipating in the impact investing collaborative, and there are at least eight other first-mover foundations bringing the opportunity through their internal review processes.

There are efforts underway to create com­monly held definitions for ESG through the Sustainability Accounting Standards Board (SASB). Backed by impact investing pio­neers—F.B. Heron Foundation and the Ford Foundation—SASB aims to bring standard methodology and accountability to impact re­porting, similar to Financial Accounting Stan­dards Board (FASB) for financial reporting.

“We advance good jobs and financial capability not only by making grants, but also through investments that produce both economic and social returns.”

–Northwest Area Foundation

Robust Relationships Matter

Whether investing in a private company or a nonprofit, much of the decision comes down to trust in leadership, and having a robust ecosystem matters, so investors get to know investees, intermediaries and field builders.

Here in Minnesota, we’re fortunate to have well-established mission-driven organizations led by trusted leaders. Think of MEDA, led by Gary Cunningham and Yvonne Cheung Ho before him, the Nonprofits Assistance Fund led by Kate Barr, and the Greater Minne­sota Housing Fund led by Warren Hanson. Supported by MCF members, these organi­zations have a track record of success and integrity, espoused by leadership and boards.


The second specter that keeps me up at night is the secrecy practiced by too many impact investors. While a surreptitious approach may be appropriate in the cutthroat world of traditional investing, in a newly emerging field, it’s helpful for newer partici­pants to learn from experienced practitioners and for those established players to share best practices.

Investor opacity also creates challenges for entrepreneurs since it’s difficult to know who is making impact investments, the kinds of investments made and how to apply. Too many impact investors prefer to remain anon­ymous or bury their guidelines in obscure corners of their websites for fear of getting a lot of junk submissions, a legitimate concern given the many requests that don’t match stated guidelines.

Clear Communication

When we started the Twin Cities Impact Investing mapping project, only one foun­dation—the Otto Bremer Trust— included impact investing application instructions on their website. Recently they unveiled an in­novative website that clearly articulates their view of the three kinds of impact investments they make: social, hybrid and financial.

Many foundations are adding information to their impact investing pages. The McK­night Foundation, Mortenson Family Founda­tion, Northwest Area Foundation, Sundance Family Foundation and the Women’s Founda­tion of Minnesota all now include guidelines, Investment Policy Statements and even asset allocation.


There is a widespread lack of diversity among impact investing practitioners. The problem stems from the asset manage­ment industry overall in which women- and minority-owned firms comprise just 3 to 9 percent of the total and assets under their management range from 1 to 5 percent (per the Knight Foundation).

While women have a stronger presence in impact investing than in traditional investing, we still represent less than 50 percent of impact investing practitioners. We need to improve representation from communities of color, LGBTQ, socio-economically disadvan­taged and rural individuals. Progress will begin with better representation, but it can’t end there. We need a diversity of people at the table co-creating this movement together.

As Henry McKoy faculty member at the North Carolina Central University School of Business and past assistant secretary of commerce for North Carolina says, “If all impact investing does is to simply replicate current power structures, we will have failed miserably.”

In addition to making impact investments, the Headwaters Foundation supports diversity in the field by having an asset manager of color.

On April 18, 2017, the Minnesota Council on Foundations (MCF) and several Minnesota foundations announced a first-of-its-kind in the nation impact in­vesting collaborative. Continuing a legacy of philanthropic leader­ship that exceeds their always-generous charitable grantmak­ing, Minnesota founda­tions are aligning even more of their assets with mission.


Silicon Valley has a culture of “just trying stuff.” That attitude leads to failure, but it also leads to spectacular success. Yet when it comes to impact investing, most investors are overly cautious.

Even foundations using their 5 percent grant budgets (meaning 100 percent financial loss tolerance) make program-related invest­ments (PRIs) with 100 percent chance of full repayment (such as PRIs to established CDFIs). Few make high-risk equity type investments into social businesses.

Taking risks doesn’t mean throwing money into bad investments. No one wins when an investment fails. Rather, impact investors must be willing to make the same kind of risk-return trade-offs they make with tradition­al investments and consider the social return as part of the compensation.

Prudent Risk Can Achieve Great Impact

One of the key findings of last year’s Twin Cities Impact Investing Ecosystem map and analysis was the need for more early stage high-risk equity capital. Innovative bankers understand that while debt works for some companies, most need patient capital.

In response, the Otto Bremer Trust worked with MEDA to create an equity-like, lon­ger-term fund for patient investors. It’s this kind of smart risk taking that will achieve the greatest impact.

Otto Bremer Trust recently deepened their commitment by announcing funding for two additional years of MCF’s Executive in Resi­dence program

Growing Shrimp in Southwest Minnesota

Another great example of taking risk for real impact is the Southwest Initiative Foundation’s investment in a shrimp farm. SWIF helped fund a University of Minnesota economic impact study of a potential shrimp harbor facility in southwest Minnesota. The study articulated the direct effect of both harbor construction (estimated $37.7 million spent in the region with 250 people employed and paid $11.3 million in wages, salaries and benefits) and harbor operations (estimated 74 full-time equivalent employees and paying $2.8 million in labor income).

In conclusion, just as I did when I sent my two children to college this fall, I feel optimis­tic about impact investing’s future. A smart and disciplined approach matters, and I hope philanthropy will lead the way.

I would love to hear from you and hear your stories of impact washing, worrying and hopes for the future--tweet me @susan_ham­mel or

As a philosophy major who went to Wall Street, Susan Hammel translates between passionate social change makers and expert accountants. In her role as president and founder of Cogent Consulting Inc., for a second year, Susan is serving as MCF executive in residence for impact investing and leading the charge to map and engage the Twin Cities impact investing ecosystem, both thanks to support from the Bush Foundation and Otto Bremer Trust. In this unique position, Susan is connecting the many disparate initiatives happening both in the philanthropic and financial sectors.



1. Do your homework, as you would with any investment. Don’t let the mission carry you away.

2. Give women and asset managers of color an opportu­nity to secure your business.

3. Encourage your program and finance staff to learn about impact investing.

4. Request and invest in quantified impact reporting

5. Work with trusted financial professionals. Beware of conflicts of interest. Ask.

6. Share what you learn: mistakes and successes, tools, templates, policies.

7. Continue to give grants for social impact that can’t generate a financial return but are critical.

8. Take some risks. Try stuff, but be smart.

9. Learn by doing. Don’t study it forever or throw too much money at consultants.

10. Pay for talent. If you need input from women- and POC-led enterprises, pay them.