Impact Investing Gets A Boost From JPMorgan Chase

Whoa, wait a minute: Am I dreaming? Is this Christmas Future still dusting my eyes with what a wonderful life it could be?

No, I'm awake and the dream-like fantasies are hard facts, well, maybe not hard facts but publicized statements of the socially responsible world to come.

JPMorgan Chase has deemed impact investing – investing for social good, not just profit – an "emerging asset class." Yup. That's what they said in a recently released report in which Chase speaks out for social impact investment designed to help those at the bottom of the economic pyramid. Check this out: 

Increasingly, entrants to the impact investment market believe they need not sacrifice financial return in exchange for social impact.

... By convention, capital has traditionally been allocated either to investments designed to optimize risk-adjusted financial return (with no deliberate consideration of social outcomes), or to donations designed to optimize social impact (with no expectation of financial return). 

Recognizing that charitable donations will never reach the scale needed to address the world's problems, and that business principles and practices can unleash creativity and scale in delivering basic services and addressing environmental challenges, impact investment introduces a new type of capital merging the motivations of traditional investments and donations.

Gee, that sounds familiar! Oh, yes, I think I said something similar myself about a month before the Chase report came out.

Included in the projects that qualify for Chase's new asset class are those that bring clean water to rural communities as well as housing, micro-loans and maternal health: all social problems with which nonprofits and governments have been struggling for decades, now the target of investors from retirement funds to private wealth managers, according to Chase.

Chase also acknowledged that much remains to be done, from ways to measure impact to setting up an exchange on which social impact investments can be traded.

I'm not naive. JPMorgan Chase is entranced by social impact investing in part because it opens up a huge, profitable market. That's clear from the report. This isn't about altruism. But then, social entrepreneurship isn't about altruism either.

What we, as social entrepreneurs, must monitor is whether "people" and "planet" are given equal weight with "profit" when impact investment gains Wall Street recognition. That won't be easy as we've already experienced with such things as for-profit micro-finance and charter schools. Management fees, decision algorithms, measuring success, measuring impact ... all these are enormous challenges that we'll have to address.

But for now, I'm celebrating the fact that the big financial guns are seriously looking at social impact investment. We need them. Big social problems require big investments. But we also need to regulate those investment products, monitor them, and hold to very high standards of transparency, accountability, and social impact.

What possibilities do you see from JPMorgan Chase's recognition of impact investing? Is it a good thing? What are the pitfalls? How should we make sure the "triple" stays in bottom-line?

Photo is in the public domain via WikiMedia Commons.