Impact Investing is the New Philanthropy

Impact investing is having a big effect on Hawaii by changing the way some for-profit businesses and nonprofit agencies operate. In fact, you don’t have to be multibillionaires like Pierre and Pam Omidyar to make investments that have a social impact and pay you back.

April, 2014

There’s an old saying about the early missionaries to Hawaii: “They came to do good, and they did quite well indeed.”

The implication, of course, is that those dour Congregationalists took advantage of their spiritual status among the Hawaiian royalty to secure wealth and power for themselves and their children. It’s certainly true that many of the wealthiest and most influential kamaaina families trace their roots back to missionary ancestors. It’s a little less clear whether those original, hardscrabble missionaries “did well” themselves; that distinction may belong to their more mercenary offspring. Nevertheless, the description stuck.

Today, a new class of secular evangelists has come to Hawaii preaching a different gospel: a profit-oriented philanthropy known as “impact investing.” Traditionally, “profit” hasn’t been part of the conversation when people talked about philanthropy. These new missionaries, though, speak the language of business – many come from the worlds of equity capital and high finance – so “profit” isn’t a dirty word to them. In fact, one of the keys to impact investing is the notion that a positive return on investment can be a powerful tool for social change. But impact investment also expects to measurably improve people’s quality of life – the second part of the so-called double bottom line. In this way, this alternative to traditional philanthropy turns the cynical description of Hawaii’s missionaries on its head: The evangels of impact investing come to do well, but they expect to do good in the process.

What Impact Investing Is (and Isn’t)

The most prominent of the impact-investment organizations in Hawaii is the Ulupono Initiative. Founded in 2009 by eBay billionaire Pierre Omidyar and his wife, Pam, Ulupono is a fascinating hybrid – half private-equity firm, half philanthropic foundation. This structure, typical for impact-investment organizations, allows Ulupono to dabble in both the for-profit and nonprofit realms. As a for-profit corporation, Ulupono invests in startups such as Kapalua Farms, Volta Industries and Honolulu Seawater Air Conditioning – companies whose basic operations will address at least one of the three areas on which Ulupono focuses: increasing local food production, expanding the state’s renewable energy and reducing the waste entering Hawaii’s landfills.

At the same time, through the Ulupono Fund, a $50-million donor-advised fund administered by the Hawaii Community Foundation, Ulupono issues grants and loans to innovative organizations such as the Kohala Center, the Hawaii School Garden Network and MAO Organic Farms, nonprofits with innovative solutions to some of the same issues addressed by their for-profit cousins. This interest in both for-profit companies that do good and nonprofit organizations that operate with an eye on the bottom line represents the spectrum of impact investing.

“Pierre has this nomenclature he likes to use,” says Murray Clay, a managing partner at the Ulupono Initiative. “He starts with the idea of ‘charitable giving,’ which he defines as ‘meeting people’s immediate needs.’ So, Meals on Wheels, Habitat for Humanity – people providing food, shelter, cloths, medical care – that’s charitable giving. The next step is ‘philanthropic giving,’ which, unlike charitable giving, is not about meeting immediate physical needs; it’s about solving long-term problems. If you think people aren’t getting good jobs, for example, it might be that better education will help solve that problem over the long term. So, philanthropic giving is about solving those kinds of long-term problems. The next step is either ‘philanthropic investing’ or ‘impact investing.’ Those terms are used interchangeably. The idea is that you’re bringing the for-profit model into play. But, instead of just making money, you’re making money and having impact at the same time to try to solve some of those problems. So, you’re not just measuring returns; you’re measuring returns and impact.”

This is one of the biggest differences between impact investing and old-fashioned philanthropy: the insistence on measurable results. One of the charms of profits, after all, is that they’re a good way to measure both the popularity of a service or a product, and the efficiency of the company that produces them. Still, Clay acknowledges that socially responsible investors often have problems measuring impact. Ulupono obviates some of those issues by focusing on concrete problems, like energy, food and waste.

“For some things it’s easy,” Clay says. “If you produce a solar photovoltaic system, you can estimate the amount of kilowatt hours that it’s going to produce and calculate the percentage of the state total. If you’re working on a biofuels project, you know how many gallons that system is designed to produce and you can compare that to the total gallons the state uses. But, for other things that are a little more soft, it can be more difficult. For example, if you care about local food and you want people to be more interested in buying local food and growing local food, then maybe you’d support School Gardens, as we do. But, with School Gardens, it’s a lot harder to measure the impact because you’re not really sure how much each of those kids is going to go home and press their parents to buy local food or press their parents to grow a garden and someday produce their own food.” Nevertheless, impact investors like Ulupono try to measure their effectiveness as scrupulously as they measure profits.

“We keep using this word ‘impact,’ ” Clay says. “Everyone would like to think that all the things they invest in or support with philanthropic dollars has impact. But, if you really want to have large-scale impact, then you want to make sure that the way you measure it is large-scale. We measure everything at a statewide level: What percentage of energy in the state is renewable? What percentage of food is local? What percentage of waste is diverted from landfill? Measuring that at a statewide level imposes a lot of discipline on us because we can’t just do small, local projects. There are a lot of projects with really good people that you could very enthusiastically support, but they won’t move those numbers at all.”

There’s another, more subtle area where for-profit investors and nonprofit grant-makers face similar challenges: balancing risk and reward.

“No matter how you’re investing, you’re always thinking about risk and reward,” says Kyle Datta, also a managing partner for Ulupono. “If you’re going to take more risk, you’d like to see more reward; if you take less risk, you can live with less reward. That’s  straight-out investing, and it’s very clear on the for-profit side. On the nonprofit side, it’s the same concept; it’s just that you approach the application of it a little differently. Are you helping a new group build its capacity? That might be high risk. Is it a more programmatic investment to a group that already exists and is very strong and is just adding a program? That’s obviously lower risk. But you still want to see metrics. Did you achieve not only the goals that we gave you, but also have an impact on your own mission?”

Still another important factor for an impact investor like Ulupono is whether it sees an exit strategy. The exit strategy for for-profits is usually clear; eventually they’ll start to make money, or attract capital from traditional investors, and Ulupono can recoup its money, plus interest, to invest again. That’s the beauty of impact investing: giving begets more giving. And it applies, in a slightly different form, to nonprofit grants as well.

Datta again uses the example of School Gardens, a program in which Ulupono has invested nearly $1 million over the last four years. “Even School Gardens has an end game,” he says. “One day, the Department of Education will adopt the School Gardens approach and say, ‘This is how we teach our kids in Hawaii.’ When that happens, it will simply become part of what we all pay taxes for. We will have demonstrated that this curriculum approach benefits students and teachers in measurable, definable ways, whether it’s STEM scores, whether it’s behavioral effects or whether it’s other things that are important in education. If the Department of Education says, ‘That’s a good program, we’re bringing that in-house,’ we can move on to other investments.”

Impact investing also favors nonprofits that behave as if they were regular businesses. If their normal operations can generate enough revenue to be at least partially self-sustaining, they may not even need an exit strategy. Perhaps the best example is ReUse Hawaii, a nonprofit that deconstructs old buildings, rather than demolishing them, and sells the used building material in its Kakaako warehouse. The do-it-yourselfer, stalking the warehouse in search of cheap lumber or gently used cabinetry, probably can’t tell ReUse Hawaii is a nonprofit. Over the last four years, though, Ulupono has supported ReUse Hawaii with $152,500 in grants and a line of credit, allowing it to divert more than 2,000 tons of construction material from the landfill. It’s easy to envision a time when ReUse Hawaii will be completely self-funding.

That’s certainly what Ulupono envisions. “If you were just a philanthropic organization,” Clay says, “you would be very happy to say, ‘ReUse Hawaii is doing a good job deconstructing homes so all that material isn’t going into the landfill; so, ReUse Hawaii, you do what you want and I’ll support you with $100,000 a year.’ And, as long as they continued to do good work, you would continue to give them $100,000 a year, year after year, because they’re doing a good thing and you support them. Now, if you’re a cold, hard-eyed private-equity guy, you want to make sure all their plans make sense, that they’re actually selling products for enough, or are getting paid enough for the deconstruction, for the business to work and sustain itself. So, you’ll spend time with them, as we did, going over their finances, making sure they can keep operating in the future without an endless supply of grant money. If you set it up that way, maybe they can at least break even.”

It’s Complicated

In this way, impact investors have as much in common with a venture-capital accelerator as they do with a private equity firm or a philanthropic foundation. Investors spend a lot of time not only selecting the right organizations to support, but figuring out what those organizations really need.

“Most people think the thing they need the most is money,” Clay says, “whether for a for-profit or a nonprofit project. Half the time, it’s not, though. It can be training, it can be resources, it can be studies, it can be a number of things. But they think if they have money, it will solve all their problems, but oftentimes it won’t.”

He points out that, at Ulupono, the same people analyze both for-profit and not-for-profit investments. “It’s the same people doing the homework and the research and the modeling. The reason that’s important is, if you’ve got business experience and financial expertise, you’re able to identify what’s missing from something that will make it more successful. It’s not just a matter of writing someone a check.”

Number Crunchers and Analysts

This highlights another difference between impact investors and philanthropic foundations. Foundations are typically staffed with experts in the fields related to their mission: social workers, environmentalists, human rights lawyers, etc. Impact-investment organizations, on the other hand, are filled with number crunchers and analysts. Datta, for example, was once a VP at Booz Allen Hamilton in charge of the firm’s energy practice. Clay was an investment officer and analyst for a private-equity firm. This focus on numbers makes sense when you remember that, while impact investment is definitely about changing the world, it’s still about making a profit.

“If you think about it,” Datta says, “you still have to do all the math. And trust me, there’s lots of math to do. There’s lots of due diligence. These are serious investments. At Ulupono, we have what you’d see in other private-equity shops, which are young MBAs and some senior MBAs. But you also have to have this ability to understand the community, to work with them, to communicate, to have mutual respect – all those other pieces that make us richer in every sense of the word.”

One big difference between regular investing and impact investing is there are no trade secrets in impact investing. As Murray Clay points out, if you want to improve your double bottom line, you want imitators.

“We try to share some of our approach with a lot of the partners we work with,” Clay says. “One of the things that we’re starting to share more and more is the ‘systems thinking’ piece. The old philanthropic model was: you got some money, you set some of it aside for a certain mission – maybe it’s early childhood education or local food or local energy like it is for us – then you sit there and have a series of beauty contests where people come in and give you a proposal and you decide which one looks the best and that’s the one you fund.

“That’s okay. You can have some impact that way. But we feel the more robust way of achieving impact is to try to figure out why things aren’t the way you want them to be. Systems thinking, which comes out of the engineering world, is one way to do that. It’s not just looking for a proposal to come across your desk, but figuring out why the system – for us, the system would be energy or local food or waste – why it doesn’t work the way you want it to. Find out what’s missing, what’s broken, what you need more of, what you need less of, to make it work. That’s kind of a brief description of what systems thinking is. You can see, it’s not a straight line where A leads to B leads to C. There are all kinds of different variables.”

Clay gives the example of Hawaii’s dairy industry.

“A few decades ago, Hawaii produced 100 percent of its own milk. Now, we produce about 10 percent. So, in systems thinking, you do the work and look at what’s broken in the dairy business in Hawaii, and you realize that the cost of importing feed, or the spread between the imported feed price and the local milk price, put the Hawaii dairies out of business. Based on this work, you might realize you need to have a dairy that’s grass-fed so you don’t need to import all that feed. Just because you know that doesn’t mean, as Ulupono, you’re going to go out on your own and create a dairy. But, once you figure out what the problem is, then you can partner with folks who know the industry better than you do.”

That, more or less, is the origin of Hawaii Dairy Farms, a partnership of Ulupono, Grove Farm and Dairy Solutionz of New Zealand that’s expected to more than double the state’s milk production. Interestingly, though, Ulupono appears to be the sole investor. This scale of impact investing is clearly beyond the means of most people. How can the rest of us get involved?

One reason regular markets work smoothly most of the time is because a complex infrastructure has evolved to support them. A lot of that support involves the creation, analysis and dissemination of information. For example, tens of thousands of researchers and analysts cover the stock exchanges and bond markets, trading ceaselessly in information about the performance of everything from individual companies, to the broad industries, to entire economies. In the digital age, an individual can know the market capitalization or debt load or recent insider stock trades of any public company – all with the click of the mouse. Access to this information gives the public the confidence to invest in companies and instruments they may never actually see.

Similarly, the basic units of investment – stocks and bonds, but also more arcane assets, like derivatives, commercial paper and credit debt swaps – provide a kind of standardization so that investors can gauge the value of what they’re buying or selling. And then there are the institutions that make all this trading possible: the exchanges, brokerages, regulatory and licensing agencies, and the legal system that underwrites the activities of all these other institutions. The modern economy wouldn’t exist without this vast infrastructure.

New Tools Now Available

But most of these tools and systems evolved to serve investments based on profit. What happens when you want to know about the impact an investment has on the environment? Where can you discover if an investment creates better educational opportunities in the community? How can you find out whether an investment improves poor people’s access to healthy food? In short, what kind of infrastructure is there to support the average investor who wants a return and an impact?

That infrastructure is becoming increasingly accessible to the small investor, says Michael Kramer, a partner with the Hawaii Island firm Natural Investments.

Kramer serves on the policy committee of the U.S. Social Investment Forum, the national trade association for the industry. He’s also deeply involved in Hawaii’s sustainable investing community. For more than 20 years, he’s worked exclusively on providing financial advice for people seeking socially responsible investments. Until recently, the only people you could turn to for this counsel were Kramer and a handful of similar advisors around the country. Now, Kramer points out, this information is more mainstream. Even some of the largest financial services companies in the country have products aimed at the sustainability investor.

“You’re probably familiar with Bloomberg,” Kramer says. “All analysts use it for financial data. Within the last two years, they’ve added a database for sustainability. Now, even conventional analysts can access the kind of data we’ve been providing our clients for years. That really helps them identify the rifts in a company’s operations that might affect their bottom line. The maturation of this kind of research, and its widespread dissemination, will make for much easier decision-making.

“The other thing Bloomberg recently released was something called the Carbon Risk Valuation Tool, which is specifically related to climate change and carbon cap and trade.” This service, Kramer explains, helps financial institutions analyze the risk associated with so-called ‘stranded assets,’ enormous investments in fossil-fuel reserves that, because of climate change, may never be extracted. Bloomberg calls this $6 trillion concentration of assets a “carbon bubble” that may trigger another worldwide economic crisis.

“There’s serious business risk to investing in those sectors,” Kramer says, “because those assets will likely become ‘stranded.’ And the fact that this is already being tracked by Bloomberg is a sign that the issues of sustainable investing have become mainstreamed.”

These databases are part of what Bloomberg calls its Environmental, Social & Governance products or ESG. Clients have access to more than 120 of these indices covering more than 5,000 publicly traded companies around the world. Bloomberg also provides clients with research, news and portfolio optimization tools – all focused on the burgeoning market for socially and environmentally responsible investment. In other words, it’s an information bonanza for impact investing.

And it’s not just Bloomberg. Kramer points out that most of the big financial-services companies have jumped on the bandwagon. “Firms like UBS and Morgan Stanley have impact-investing platforms now. Even Goldman Sachs has an impact-investing fund. Of course, just like the term ‘sustainability,’ ‘impact investing’ has widely differing interpretations. Nevertheless, when these big institutions begin using this terminology, we know we’re beginning to move in the right direction.”

All of these developments make it easier for individuals to make conscientious financial decisions. Information, after all, is the key to good investment.

“There are two types of conversations we have with our clients,” Kramer says. “One is the basic financial conversation: What are their own goals? What kind of risk do they want to take? Where are they in their lives? We definitely have that conversation. Then, we have the values conversation where we try to understand the social, moral and environmental priorities of our investors. That way, we can filter the investment opportunities we offer them, and stay clear of the things they don’t want to support. We can also be proactive in finding the right investments for them.”

In practice, that mostly means avoiding investments in things like tobacco companies, nuclear power, arms manufacturers and oil companies. “We have access to a tremendous amount of information,” Kramer says. “So, at least people can own what’s palatable to them.”

But is that impact investing? Ulupono’s Murray Clay doesn’t think so. “Socially responsible investing isn’t impact investing,” he says. “The reason I say that is because socially responsible investing is just investing by exclusion. Maybe to me that means, no tobacco and no firearms. But you’re not achieving impact; you’re just excluding those from your portfolio. Now, you could say that, by excluding those industries from your portfolio, maybe you’re hurting those industries, but that’s not creating real impact.”

Kramer disagrees and says his team uses the terms socially responsible investment and impact investment interchangeably. “The term ‘socially responsible investment’ has been around for more than 30 years; impact investing has only been around for a few years. The folks who champion that term are generally equity people who invest in startups. That certainly creates impact. The issue is: What kind of impact do you want to make?” He points out that, if you want to have an impact on publicly traded corporations, one way to go about it is as a shareholder. But he acknowledges that regular investors typically can’t play in the risky world of venture capital. Those investments are usually restricted by securities law to institutions or accredited investors, which, in the U.S., means a net worth of at least $1 million, not counting their primary residence.

But that doesn’t mean small investors can’t play. In fact, Clay points out, modest lending opportunities make up one of the most dynamic parts of the impact-investing universe.

“At the furthest, small-scale end of the impact-investing spectrum you basically have the crowdfunding sites out there – the Indiegogos, the Kivas, the Kickstarters of the world. That’s the level at which the average Joe can be involved in impact investing. You can look at the site, find the area that you care about – maybe a geographic part of the world, or a certain industry or a certain demographic you want to help – and make an investment. For some of these projects, you’re just giving them money; some of them, you’re buying their product in advance, basically prepaying for the product, so they can start up the company. Others, like Kiva, which the Omidyar Network funded, are a way for people to give zero-interest loans to people they want to help support. So, crowdfunding is the easiest way for people to do impact investing if they don’t have enough money to invest in a fund.”

RSF Social Finance

There are other ways small investors can participate. “There are impact-investing funds that are starting to take off,” Clay says. “We’re not a fund, so people can’t invest in Ulupono, per se, but there are models where you can put your money in an equity fund that does impact investing like we do.” He gives the example of RSF Social Finance. “They’ll invest in some of the things we might invest in – renewable energy, local food type stuff – and, like us, their investors want to make a return, but they also want to make sure they’re impacting those areas.”

But RSF operates with a very different model than Ulupono. Part of its operations include a fund that accepts donations and makes grants – not too dissimilar from the Ulupono Fund – but, for the most part, it functions more like a bank. It funds impact investments largely with interest-bearing deposits – which RSF calls loans – that it accepts from socially conscious individuals. These “deposits” are a simple way for the average investor to participate in impact investing.

At an impact-investing conference in Honolulu in 2012, RSF senior director Ted Levinson described how it works. “We have about 1,200 individuals who lend money to RSF. The mean loan is only about $1,000, but there’s no maximum; you can lend as much money as you want to RSF. This deposit is like a 90-day CD that you get from a bank.” In its 2012 financial statement, RSF reported nearly $90 million of these deposits as notes payable. Altogether, it earned $19.5 million on $152 million in total assets.

The bulk of those assets – nearly $76 million – are in the form of secured loans, ranging from $2,000 to $3 million, mostly to nonprofits working on food and agriculture, education and the arts, or ecological stewardship. It’s a model that works for the fund’s nearly 90 borrowers, who often have no other source of capital. It also works for depositors, who earn a modest return while knowing their money is doing good.

“Unlike with a bank,” Levinson says, “with us, you know exactly where your money is, exactly how it’s doing. Also, we’ve always returned principal with interest, although we’re not insured by the government like your checking account at your bank is.”

That makes RSF a great example of the self-sufficient social entrepreneurialism it supports in others. “Today,” Levinson says, “we pay our investors 1 percent a year to deposit their money with us, and we charge borrowers between 5 percent and 11 percent, depending on the level of risk involved. That covers 90 percent of our budget, plus a reserve for losses.” Since 1984, this business model has allowed RSF to lend more than $275 million to social enterprises, with only a 2.07 percent provision for loan losses. That indicates nonprofits, which often have a hard time qualifying for bank loans, can be good investments. It’s also a sign that RSF, like any successful impact investor, is scrupulously businesslike in its operations.

“My background is in conventional finance,” Levinson says. “We don’t consult crystals when we decide who to approve for a loan at RSF. We’re similar to conventional lenders in that we ask many of the same questions: What are you going to do with our money? How are you going to pay us back? What are you going to do if you don’t pay us back? We evaluate historical cash flow. We look at who’s running the organization. How long have they been there? What’s the competition like? Who are the customers? Are they going to be loyal? Is your business spread generally through the year, or is it seasonal or cyclical? Do you get lots of small donations from a wide variety of people, or are you living and dying on one auction or event that you have one time a year?” In other words, borrowers face many of the same hurdles they would at the bank, with one addition: They have to have a social mission that RSF supports.

If they qualify, RSF’s banklike structure provides a variety of financial tools to help, including grants, mortgages, mezzanine funding and lines of credit. For depositors and donors, they offer shared gifting, donor-advised funds and a program-related investment fund, or PRI – all of which allow socially responsible investors to magnify the impact of their investments. The PRI fund, for example, pools the resources of small foundations that are interested in impact investing, but lack the resources to do it themselves.

In 2012, RSF used its PRI fund to give a low-interest loan to Hana Health on Maui, to help fund the expansion of its innovative Hana Fresh Farm and Hana Fresh Nutrition Center programs. These programs aim to improve the health of local residents by providing better access to healthier food. But, by using its existing land to create a farm and a market for its produce, Hana Health also expands local agriculture, provides local jobs and increases food security for Hana. Plus, Hana Health also gets a new revenue stream.

“That’s what’s so appealing about what’s happening at the Hana Health Clinic,” Levinson says. “Businesses growing out of nonprofits oftentimes have no connection with the mission of the organization itself: The SPCA may own a car wash, or something along those lines. That doesn’t interest us. But we like it when a nonprofit uses a business to further its central mission. We saw that in spades with Hana Health.”

Levinson also points out that the Hana Health loan is another example of an innovative approach to impact investing. The $150,000 RSF loan was guaranteed by local foundations. “It was another way (RSF) could have impact on the community without actually spending cash dollars,” says Hana Health executive director Cheryl Vasconcellos. The idea, as always, in impact investing, is to make your money go further.

Locally Grown Impact

RSF and Ulupono – and, to a large extent, Natural Investing – are great examples of missionaries touting the mainland gospel of impact investing. That doesn’t mean there aren’t local people trying to create our own, Hawaii-centric congregation. The best example is HI-Impact, a loose-knit coalition of nonprofits, investors, institutions and individuals interested in growing the community of social entrepreneurs in Hawaii.

In 2012, HI-Impact organized two well-attended impact-investing conferences in Honolulu. The first was a daylong survey of what impact investing means – both for the investor and for the social entrepreneurs who hope to benefit from it. In addition to Ulupono and Kamehameha Schools (which, in terms of local impact investing, dwarfs even Ulupono), the crowd heard from several major impact-investment organizations from the mainland. Local nonprofits that had already benefited from impact investing gave presentations, including Re-Use Hawaii, MAO Organic Farms and the Hana Health Clinic. A few months later, HI-Impact organized a second conference that emphasized the nuts and bolts of impact investing. Ted Levinson, among others, walked people through the different models of impact investing and social entrepreneurship.

Both conferences demonstrated interest and enthusiasm in Hawaii for impact investing. They also highlighted challenges, the gravest of which is leadership. Hawaii is lucky to have strong institutions such as Ulupono and Kamehameha Schools that support impact investing; but these movements are always driven as much by individuals as by institutions. Most individuals behind the impact-investing movement are already nearly overwhelmed by their day jobs. Michael Kramer, for example, has been a long-time advocate of social entrepreneurship in Hawaii, but, between his work as a financial advisor, writing books and participating in other organizations, he only has so much time to grow the local impact-investing community. Yet, the local movement relies on these volunteers.

The dynamo behind the HI-Impact programs in 2012 was its founder, Chenoa Farnsworth. As a member of the Hawaii Angels, the former director of the Women’s Fund and a partner in the local venture-capital firm Kolohala Ventures, Farnsworth seemed to be the right leader. She was also the closest thing HI-Impact had to a full-time employee. After the 2012 conferences, she began planning and organizing for a similar conference in 2013 or 2014. She also began laying the groundwork for a Hawaii chapter of Impact Hub, the San Francisco-based co-working, space-sharing, social entrepreneur-nurturing organization that is ground zero for small-scale impact investing. Hawaii’s impact-investment community almost certainly needs an incubator like the Impact Hub in order to thrive.

In 2013, though, Farnsworth became the managing director of Blue Startups, the venture accelerator founded by Henk Rogers to help jump start Hawaii’s tech sector. In a sense, Blue Startups is impact investing, Farnsworth points out. “Henk says that, along the way, he had some amazing mentors, and he wants to give people in Hawaii the same chances he had, to invest in their futures and give them opportunities. That’s really the whole impetus behind the program. … It wouldn’t be impact investing in Silicon Valley, but here in Hawaii it is.”

But Farnsworth, while still deeply involved in the impact-investing community, no longer has the time to run HI-Impact, which is now led by Shanah Trevenna, president of Smart Sustainability Consulting, and co-founder of the still-to-come Honolulu Impact Hub. It remains to be seen, though, what Farnsworth’s diminished role means for other impact-investment initiatives in Hawaii.

Farnsworth herself is optimistic. She points to developments since the 2012 conferences: the creation of HI Growth Initiative, a state agency aimed at creating “an innovation ecosystem in Hawaii”; the Hawaii Targeted Investment Program, a venture investment partnership between Kamehameha Schools and the state Employee Retirement System; and the imminent announcement of a Kakaako location for the Honolulu Impact Hub, which is also supported by Kamehameha Schools. And there’s still that followup impact-investment conference, which Farnsworth expects to happen this summer.

“That’s a lot of progress since our last conference,” she says.

But there’s still a long way to go before Hawaii has a vibrant, meaningful impact-investing community of its own. Kyle Datta speaks of Ulupono’s primary advantage as an impact investor – not the wealth, but the patience of its founders, Pierre and Pam Omidyar.

“A lot of groups that crash upon the shores of Hawaii flat out fail,” Datta says. “They see no change in three or four years and say, ‘Oh, God! This isn’t working.’ But you have to think very long term to make real change. This change may take five or six years to see. Some changes may take decades. To make that kind of change takes perseverance.”

That’s a sentiment Hawaii’s missionaries would have understood.

Ulupono Initiative’s Investments

Since 2009, Ulupono has invested roughly $40 million, through both investments and grants, in organizations that are working to produce more locally grown food, more renewable energy and reduce waste.


 

Impact Investing By The Numbers

RSF Financial, one of the leaders in impact investing, looks a lot like a regular bank when you get into its ledger book. That includes a reasonable 2.4 percent return on equity and 3.4 percent loan-to-loss ratio.

RSF Financial’s 2012 Performance (in millions of $):

Revenues: $19.5
Expenses: $15.9
Profits: $3.6

Total Assets: $151.6
Liabilities: $90.9
Net Assets: $60.7

Source: RSF Financial annual report.

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