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How Design Thinking and Interdisciplinary Education Can Change the World

Why are Net Impact chapters building hydroponics systems, 3D-modeling showerheads, and collaborating with hardware social enterprises? Last fall, we launched the Impact Design initiative in response to member requests for more experience in impact design – a field rooted in the belief that design principles and interdisciplinary collaboration are critical tools to solve challenges around the globe. Our existing chapters are adding creative programming, and new design and STEM schools are launching chapters – with awesome results. We were thrilled that our friends over at Line//Shape//Space wanted to tell our story. Read the story by Matt Alderton below and find out how to get involved in Impact Design here

Changing the World with Design Thinking

A new generation of designers is emerging on college campuses around the world.  It’s not just a new wave of design, but how it’s done and, ultimately, the end product. The problem?  It’s currently an uphill battle to get the resources and networks needed to reach these students’ core goal, especially while still in school.  And that goal is about helping to make the world a better place.

Net Impact, an Oakland, Calif.-based nonprofit with more than 80,000 student and young professional members whose goal is creating social and environmental “impact” on college campuses and in the workplace, surveyed design and STEM students and found that 88 percent are interested in gaining skills and experience in “impact design”—using the power of design to create social and environmental impact—while 77 percent are interested in interdisciplinary collaboration.

“Wherever you work, you probably have people from all different disciplines coming together around a common goal through meetings and projects,” says Linda Gerard, Chief Community and Innovation Officer at Net Impact. “That’s the way the real world is structured, and students should have that same opportunity.”

At some universities they do. Unfortunately, at many they don’t. “We can’t speak for all schools, but our research has shown that at some large research universities, in particular, it can be challenging to work in an interdisciplinary way because of how they’re funded, set up and structured,” Gerard explains.

Because it can be very difficult to change institutions, but easier to change the people inside them, Net Impact and organizations like VentureWell are leveraging students to break down siloes and encourage faculty, student, and business connections.

“We believe that working with students from the bottom-up can be a really powerful way to begin to break down those barriers in ways that can be difficult to do in a top-down fashion,” Gerard continues.

The Emerging Importance of Design in Business

The role of design is a true business demand that presents new job opportunities. Take for instance the growing trend of corporations introducing C-level “Chief Design Officer” positions. “Design with a capital ‘D’ isn’t just for designers anymore,” Gerard states. “Everyone—whether you work for a nonprofit, a social enterprise or a business—needs to understand how to design.”

Indeed, products aren’t the only things that demand design. Like a toothbrush, a skyscraper, a lamp, a Lamborghini, or a blouse, business models, programs, projects and even services must be designed and engineered in order to be successful. “A lot of the principles that come from the world of product design are broadly applicable and used increasingly by people of all walks of life,” Gerard says.

Those principles include concepts like human-centered design, which is design that’s laser-focused on creating processes, products, and experiences that satisfy the unmet needs of human beings. And when designers and non-designers alike practice design thinking—everyone from architects and fashion designers to CEOs and scientists—it has the potential to help humanity solve problems like water scarcity and climate change.

“Every company and every social enterprise faces a design challenge,” Gerard explains. “Whatever business you’re in, on a fundamental level it requires having a deep understanding of the problems people face and coming up with creative solutions to address them.”

The Impact Design Initiative

Net Impact’s Impact Design Initiative promotes impact design by helping students build interdisciplinary networks that facilitate design thinking and business acumen on both sides. Introduced in 2015 through a partnership with Autodesk Foundation, the first year is focused on launching and seed-funding up to 20 new Design/Stem Net Impact chapters on college and graduate campuses nationwide; creating value-added programming that bring together the Design/STEM

chapters with existing Net Impact business chapters; and introducing opportunities and programs for STEM,design, and business students to collaborate at Net Impact’s annual conference.

Net Impact’s University of California, Berkeley Haas Business School chapter’s collaboration with the Net Impact Social Engaged Engineers chapter on campus perfectly illustrated the Impact Design Initiative’s purpose and potential in September 2015 when they  co-hosted the initiative’s inaugural chapter event: a sold-out 24-hour “Design-a-thon” sponsored by the Autodesk Foundation during which teams of business and design students used human-centered design methodologies to brainstorm products, services, and processes that would help solve California’s historic drought. The winning team, team “DripIt,” used Autodesk Fusion 360 to design a product that makes people more cognizant of their impact on the drought by offering them a visual representation of the amount of water required to create their favorite food dishes from start to finish.

“The students came up with some amazing design solutions to a very big challenge,” says Gerard, who says other Net Impact chapters are organizing similar events, as well as lecture series and campus and community projects intended to teach and illustrate impact design in an interdisciplinary manner. “And in the process they came away with a deeper understanding of how design can be used to solve real-world problems.”


Students use design thinking to find real-world solutions
Students use design thinking to find real-world solutions

SBA Proposes Designation and Additional Requirements for Impact SBICs

The US Small Business Administration (SBA) has proposed new regulations that would provide an additional designation and requirements for impact-oriented Small Business Investment Companies (SBICs). “Impact SBICs”, as designated by the SBA, refers to investment companies that aim to generate positive financial returns alongside measurable social impact. This proposal is part of the SBA’s effort to increase the pool of investment capital devoted to low-to-moderate income (LMI) and underserved communities.

The SBA and the SBIC Program: Facilitating Long-Term Capital to US Small Businesses

The SBA’s mission is to provide aid, counsel, and assistance to American entrepreneurs and small businesses. Through the SBIC Program, the SBA facilitates the flow of long-term capital to American small businesses. However, instead of directly providing capital to small businesses, the SBA partners with and provides low-interest debt leverage to professionally-managed investment funds, or SBICs, that then finance small businesses (See Fig.1)

SBICs are privately-owned and operated investment companies that are licensed and regulated by the SBA. SBICs raise committed capital from their limited partner bases and combine these funds with debt leverage borrowed from the SBA at low interest rates, and invest exclusively in US-based small businesses. Investment firms primarily seek to become licensed as an SBIC in order to access debt financing provided by the SBA. 

The SBIC Impact Fund and the Impact SBICs

As part of the Start-Up America Program and in an effort to support the development of the impact investing industry in the United States, the Impact Fund was launched within the SBIC Program in 2011. The SBIC Program allocates about $200 million in annual SBA-guaranteed leverage commitments to the Impact Fund, which is then available to Impact SBICs. Similar to traditional SBICs, Impact SBICs focus on providing capital exclusively to US small businesses, but also commit to deploy at least 50% of their invested capital through impact investments.

Impact SBICs make impact investments through two tracks: SBA-Identified Impact Investments and Fund-Identified Impact Investments.

SBA Identified Impact Investments are investment opportunities that have been pre-approved and identified by the SBA, usually around federal priority areas. These investments do not typically require additional impact measurement on the part of the Impact SBIC, as the SBA monitors the performance of these investments (See Fig.2).

Fund-Identified Impact Investments are impact investments identified by individual Impact SBICs, in order to fulfill their 50% investment commitment. However, Impact SBICs must assess the impact of their investments through a third party such as the Global Impact Investing Network's Impact Reporting and Investments Standards (IRIS), B-Lab’s Global Impact Investment Rating System (GIIRS), the Sustainability Accounting Standards Board (SASB), or another SBA-approved standard. (See Fig. 3)

Proposed requirements for Impact SBICs
The SBA has proposed amending requirements for Impact SBICs, including:

  • Impact SBICS must be structured as limited partnerships
  • At least 50% of the Impact SBICs capital commitments must be invested in small businesses fitting the SBA’s criteria
  • Impact SBICs must invest within one of the investment tracks – SBA-Identified Impact Investments or Fund-Identified Impact Investments
  • When marketing to potential investors, Impact SBICs must market their fund as an impact investing fund
  • Impact SBIC must measure impact using one of several pre-approved impact measurement standards, completed by a third-party such as the GIIN’s IRIS or the SASB

The SBA and the Impact Investing Industry

The SBIC Impact Fund has the potential to catalyze the growth of impact-focused investments in the United States. With the availability of SBIC leverage, there is increased incentive for impact investors and managers to consider the Impact SBIC structure when pursuing values-based investments. And, by providing guidelines for impact measurement for participating Impact SBICS, the Impact Fund program can facilitate the development of non-financial impact metrics across the industry. The SBIC Impact Fund is another example of how government can play a vital role in the development of the impact investing industry (To learn more about the role of government in the impact investing industry, see: Pay for Success Impact Investments and IRS Ruling Makes Impact Investments More Accessible for Private Foundations).

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How Big is the Nutrition Problem in America?

Did you know in 2010, diet surpassed smoking as the number one risk factor for disease and death in the United States? By 2018, obesity will cost the U.S. 21% of our total healthcare costs - $344 billion.  (Source: President's Council on Fitness, Sports and Nutrition,  In fact, over half of Americans believe it is easier to figure out their income taxes than to figure out what they should and shouldn't eat to be healthier.

Source: International Food Information Council Foundation

Meeting the challenges of our food systems will require innovative and sustainable solutions.  That’s why Net Impact together with Newman’s Own Foundation has launched the Newman’s Own Foundation Challenge.  Where our goal is to educate and support young leaders to impact nutrition outcomes on campus and in their communities in the short-term, and equip and inspire them to be nutrition advocates over their longer-term careers.  Learn more about the Newman's Own Foundation Challenge.  

Or join us for our Newman's Own Foundation Interview Series: 
 John Austin of the Garden Project
February 22 - 1pm ET/10am PT: Seth Goldman, TeaEO of Honest Tea
February 29 - 1pm ET/10am PT: Oran Hestermann of the Fair Food Network
March 7 - 1pm ET/10am PT: Sabrina Mutukisna of the Town Kitchen

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Finding a New Career Path

So you chose the wrong major, or took the first job offered to you. Maybe you’re bored or too stressed or maybe you joined a Net Impact chapter during your final semester of business school and you realized you want a job with a positive environmental or social impact.  There are a lot reasons you might want to change your career path.  

It can seem scary and impossible, but these days people change careers all the time.  The increased mobility is good for employees and employers.  Diversity of thinking and of experience makes for more productive, creative teams.  If you’ve been thinking that it is time for a change but don’t know how we’re here to help.  We present 5 steps to successfully finding a new career path.

1- Assess the situation: Ask yourself the following questions: Why do I want to do this? Why will this new career make my life better? What are the risks involved?  Find out if it’s just your current job, company or manager that’s bumming you out or if it’s your career.

Then think about what you’ve liked and disliked about past roles.  Consider organizational type and size, the salary and your day to day tasks.  Don’t just think about former jobs, consider things you do in your spare time as well. For example, do you enjoy planning trips for friends or perhaps you're obsessed with social media. We recommend taking a few career assessments; you’ll find plenty online tools that can help guide you towards the right position.  Or check our recent blog post on finding your dream job.

2- Evaluate your strengths: What are you good at?  List your accomplishments and skills.  You can ask friends, family and coworkers for help.  Again, don’t just think about what you’ve been paid to do in the past. Running a program like Up to Us or a Net Impact chapter looks just as good on a resume as an internship at a huge corporation.  Start thinking about how these skills can be transferable between careers.

3- Research: You probably have an idea of what you want to be doing. Before you pour all of your resources into finding this new career, spend some time researching it.  Look at everything from job descriptions to average salaries to the estimated future growth of the field.  Try to find someone with your “dream job” and research them as well.  Figure out how they got there and whether it’s a path you can emulate.  Our careers page is more than just a job board, learn more about the different impact fields here.

4- Network: Connect with people.  Your friends, your parents, your friend’s parents, former teachers and bosses are all a part of your network.  For everyone you talk to, try to meet three more people from their network.  Talk to as many people as you can. Be nice and dress professionally. Join professional organizations and go to conferences.  It’s never a good idea to directly ask for a job, but ask as many other questions that you can think of.  

At Net Impact's 2015 Conference, Jerry Stritzke, the CEO of REI, noted the importance of networking: "I went from an Aggie Econ major at Oklahoma State University to being the co leader of Victoria Secret without ever applying for a job."  Watch the rest of his key note speech below (Skip to 35:07 to see what Jerry had to say about networking).

5- Develop new skills and gain experience: If you’re in the last semester of business school, you probably don’t want to hear that you need more education.  While formal education helps, it’s not the only way you learn.  Volunteer in your new field or try to get a part-time job.  Take one-off classes or certificate courses.  While you learn, get to know the people in your classes.  They will become part of your network and will be invaluable when you’re looking. 

Bonus- Act: Don’t just sit around thinking about how much you hate your job.  Expand your network by trying to meet a new person every week.  Or sign up for a night class in your desired field.  Shadow a friend in a potential new field. Or join a group of like-minded individuals.  Start small until you're ready to make the big change.

Make an impact
Make an impact

4 Tips for Effective Corporate/NGO Partnerships

At the 2015 Net Impact Conference, we participated in a panel discussion on behalf of General Mills and the Nature Conservancy about developing NGO/Corporate collaborations.  We were excited about the opportunity to share our experience, as our two organizations have been partners for more than 40 years. We’ve learned a few things along the way and are happy to share some more thoughts on the topic. 

Background on our Partnership

The Nature Conservancy and General Mills have worked together to protect lands and waters in Minnesota since 1974.  In recent years, we started working together to better understand and reduce General Mills’ water footprint and develop a global water strategy for General Mills. Our aim is to reduce the water risk by improving the health of key watersheds in places that are important to the Conservancy and General Mills’ business.

Where does one start when the task at hand is seemingly so large? Our first step was to understand where the company had the biggest challenges. To do this, we assessed the risk of all the watersheds in General Mills’ purview and prioritized eight of them. (Picture below). Conservation activities have already begun in five of the watersheds, including collaboration with local communities and other large water users.

For both The Nature Conservancy and General Mills, prioritization means focus, leadership and engaged watershed stewardship with other vested stakeholders. Making things happen requires a strong partnership between our two organizations and – perhaps even more importantly – relationships between the individuals who drive the work forward. These factors combined have been essential to the longevity of our relationship as well as to the positive impact of our work. 

In our years of partnership, we’ve learned a few things that might be of interest to folks who are thinking about, embarking on or engaged in a like partnership. 

1. Like dating, understand what you’re looking for a in a partner.

Do opposites attract or are you looking for someone just like you? Companies and NGOs work with different kinds of organizations for different purposes.  Be clear about the expertise you are seeking. Do you need science expertise? Are you seeking an organization that can help you convene disparate stakeholders? Or, do you need a corporate partner that can help you develop the business case for integrating sustainability into operations? 

The best collaborations bring complementary skillsets and experience to the table. In our work together, The Nature Conservancy is able to bring our scientific expertise and community relationships to the table, while General Mills brings financial resources and key relationships with suppliers and other companies operating in a prioritized watershed. For example, in California, this has resulted in the creation of a group of food and beverage companies and environmental non-profits sharing information and investing in projects that improve water security in California.

2. Organizational culture matters.

Think about how your organization’s culture matches up with that of your proposed partner. The Nature Conservancy and General Mills work well together because we are purpose-driven organizations, operate in highly collaborative workplace cultures and value science-based, pragmatic approaches to problem-solving.

At the core, the mission and values for both our organizations are very complementary. The Nature Conservancy’s mission is to conserve the lands and waters on which all life depends. Similarly, General Mills’ company purpose is to serve the world by making food people love and a part of living this purpose is to treat the world with care.

When you have similar values and cultures, it is easier to build trust and create shared goals for your partnership. 

3. Consider those shared goals.

While NGOs and businesses will always have individual self-interests, the success of your partnership will be a result of shared goals and clearly defined objectives.

Be intentional about your vision for the overall partnership and your end goals for individual programs and initiatives.  Take the time up front to identify shared goals and those that are not shared.  You do not have to have 100% overlap, but you need to have shared interests at the core of both organizations.

For General Mills and The Nature Conservancy, we’ve outlined long- and short-term goals to effectively address challenges and opportunities within General Mills’ most material watersheds at the manufacturing plant and grower level. This exercise has allowed our teams to develop strategies for improvement in these areas.

4. Leverage each other’s strengths.

Finally, it’s important to have a clear understanding of what you each brings to the table in terms of strengths and opportunity areas.

General Mills is a 150-year-old global food company with some of the most iconic food brands in history and a presence in over 100 countries worldwide. Meanwhile, The Nature Conservancy brings a team of hundreds of scientists who have conserved over 120 million acres and pioneered countless conservation solutions around the world.

The combination of our organizations’ breadth and depth in food and the environment is what will propel us to drive results within General Mills’ supply chain and across the broader food industry.

Bear in mind that the power of corporate/NGO collaborations does not begin or end with these four tips. It’s a commitment and a relationship that requires attention, communication and nurturing.

And to this end, both parties must be willing and able to adapt, evolve, and scale – in short order – to make the fundamental and systemic change they collectively seek.  

About the Authors

Ben Packard, Managing Director of Corporate Engagement, The Nature Conservancy

As managing director of corporate Engagement at The Nature Conservancy, Ben shapes the Conservancy's overall corporate engagement strategy as well as cultivates new and ongoing relationships with companies to incorporate sustainable business practices into the core of their business plans.

Catherine Gunsbury, Director Sustainability & Transparency, General Mills

As Director of Sustainability & Transparency, Catherine oversees General Mills’ company-wide transparency strategy, Global Responsibility reporting, sustainability communications and Creating Shared Value efforts.


Photo courtesy of General Mills
Photo courtesy of General Mills

Net Impact Updates for January 2016

Happy 2016!  The first few weeks of 2016 have been marked by extremes: Extreme winter weather; extreme presidential candidates; extremely white Oscar nominations. The start of the year makes me think that we’re in for a year that will be extremely interesting. Let’s hope with good results for all the issues our community cares about.
It’s anything but boring here at Net Impact as well. We’re committed to doing more for our members and chapters than ever before, whether that’s bringing our annual conference on the road through our NIx initiative, bringing new people into the mix with our Impact Design expansion, and redoing our website. (Again).  Read more below, and let me know your thoughts (email: or Twitter: @lizmaw).

To 2016!  The year of extremes.   

Impact Design
You’ve heard the buzz words – Design thinking.  Innovation. Prototype.  Net Impact is bringing these skills to our network in two important ways.  First, we are launching new chapters at design programs, such as the Rhode Island School of Design, Pratt, Olin Engineering, Savannah College of Art and Design, and the Art Center College of Design. Our 8 new design programs are off to a strong start – last fall, three chapters at UC Berkeley held a full day design hackathon where members dug into water scarcity issues and prototyped solutions to implement on campus, like an interactive sink monitor and a 3D modeled sprinkler head.

Second, we are bringing new design programming to our existing MBA, undergrad, and pro chapters. 10 chapters have joined the Impact Design Initiative. The New York Professionals chapter has been exploring ways for its members to engage in design thinking.  Presidio, the University of San Francisco, and California College of the Arts are collaborating on a regional 3-day design thinking sprint for a local nonprofit. To support our other MBA chapters in bringing the initiative to their members, we're developing a design challenge event toolkit, job portal content on impact design, and presentations on the practice and context of the impact design field.  Learn more about our Impact Design program here.

Act Local with NIx
This spring, we’re bringing Net Impact to a city near you. Through our new NIx initiative, in partnership with our chapters, we’ll be holding 3-5 regional events to bring the spirit of Net Impact across the globe.  Chapters are vying now to take part in our inaugural class of NIx events, and we plan to hold dozens more in late 2016 and early 2017.  Visit the NIx page to learn about our upcoming events and find out when NIx is coming to a community near you. Gets a Facelift
As we develop more and more ways for our members to act locally, Net Impact is also enhancing the ways our members can connect with each other globally.  First up, we’re excited to announce a new and improved website is on its way.  Our team is working hard behind the scenes to design and build this brand new website.  It’ll be faster, easy-to-use and include a lot of new, engaging content.  Make sure to keep an eye out for the new this spring.

Join us this November in Philadelphia for #NI16
Join us this November in Philadelphia for #NI16

Change for Good in 2016

It’s that time of year.  New Year’s Resolutions are everywhere: in your inbox, on your favorite website, in texts from your friends. You may have even made one yourself.  Here at Net Impact we know you can do well and do good. We say forget about your New Year’s Resolution and try a New Year’s Revolution!  Here’s how:

Resolution: Get Fit

Revolution: You can sign up to run a 5K for a cause you care about.  We recommend the Couch to 5K.  Another great opportunity to exercise and do good is Charity Miles – a running app that empowers users to earn money for charity while running, biking or walking.  Or check out organizations like Girls on the Run and Good Sports!  

Resolution: Save Money

Revolution: The great thing about helping the environment is that it often helps your bank account as well.  Just use less water or electricity to save on your bills. Biking or walking saves on gas.   You can also wash your clothes in cold water, replace your light bulbs, and make coffee at home and use a reusable cup. The list goes on and on! 

Resolution: Find a Better Work/Life Balance

Revolution:  If you were at NI15 in November, you might have seen Imperative's CEO, Aaron Hurst talk about purpose.  If you haven’t seen it, you can here.  Aaron argues that we shouldn’t be looking at Work-Life Balance, but instead, should be aiming towards work-life integration.  Sign up to take Imperative’s Quiz to find what you’re meant to do.  Then check out our Job Board and build a career with a positive social and environmental impact.  

If you’d like to just spend more time with family and friends, try Volunteer Match to find an organization near you to help.  Invite the people you love and spend time together making a difference!

Resolution: Get Organized

Revolution: As you get rid of all that extra stuff, don’t just toss it in the garbage!  You can head to the usual places like Goodwill and The Salvation Army or find local charities that can use your old books and toys.  If you’re downsizing your closet, check out your favorite store’s policies – companies like Levi Strauss and Madewell have been known to give vouchers for donated items.  Or try Yerdle to send your stuff on a new adventure and to get something you need in return.

Resolution: Learn Something New

Revolution: Join a local Net Impact Chapter!  Our chapters host events that are educational and experiential, including speaker panels, professional development workshops, networking events, case competitions, local conferences and more.   You’ll learn a lot, make new friends and have a positive change on campus and in the community.  

Happy 2016!. If you have a New Year's Revolution of your own, add it to the comment section below.

Net Impact & Toyota's Next Generation Mobility Challenge

One month into the Foster MBA program I found myself at the Toyota and Net Impact Next Generation Mobility Challenge. On my team there was a transportation engineer, industrial engineer, human centered design engineer, a construction manager and me, the MBA. I signed up for the event because it reminded me of the engineering challenges I did as an undergraduate in mechanical engineering. I jumped at the opportunity to work with engineers again, perhaps subconsciously seeking the comfort of the familiar in this whirlwind of an adventure that has been my first month as an MBA student.

Leading up to the event we were given information and materials regarding the current state of mobility and some of the problems Toyota and Net Impact are focusing on – productivity, safety, and happiness in the field of transportation. When I arrived and met my team, we started talking about which of the personas from the reading materials we identified with the most and started throwing out ideas before we had even finished our coffee. Our excitement got a little bit ahead of us as we forgot that the schedule of the day wouldn’t have us even start brainstorming for another couple of hours, after we had discovered and framed. Using a classic human-centered design approach, our process was split into four parts: discover, frame, imagine and prototype.

This part of the day was focusing on delving deeper into the persona of our choice. The goal was to really the pains and gains our customer faced in regards to transportation. My team picked Reed, a teenager who loves driving, gives his friends rides all the time and doesn’t quite feel comfortable behind the wheel yet.  The materials provided to us included a template of an empathy map and user journey to better help us get inside Reed’s head.

My favorite quote of the day came from the framing section: “If I had an hour to solve a problem and my life depended on the solution, I would spend the first fifty-five minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.” – Albert Einstein. The presenter put this quote on the screen and it resonated with me and my team. Even in the Discover portion of the day, my team found it difficult not to get too far ahead of ourselves and skip right to the solution, and it was through this Framing part of the day that we really realized how much we needed to focus on what Reed’s real problem was before we figure out how to solve it.

The best part of the day, in my opinion. This is when the creativity really lets loose and you brainstorm for the problem at hand. My team had a ton of ideas jotted down on post-it notes, and I began to worry about being able to narrow it down to one idea. However, once we started organizing the ideas into groups and really focusing on if they addressed the problem at hand, we came to a solution naturally. Having industry professionals in the room as mentors to guide us along significantly helped us in this portion as well.

I’m used to prototyping for engineered solutions, I know how to use cardboard and pipe cleaners to illustrate the functionality of the product being pitched. However, in this case our solution was more of an experience that we decided to convey with a story board and role play.

At the end of the prototyping phase, we got to present our idea to the judges and see everyone else’s pitch. I was amazed at the variety and completeness of all the other teams solutions. We had all been given the same material, all gone through the same steps, and yet every team had a completely unique well-thought-out idea. I was amazed and humbled to be included in such an amazing group of individuals working together to solve these very real mobility challenges. I originally signed up to do something familiar, however I ended up completely outside of my comfort zone, and I am a better designer and business leader because of it.


Criticism of Chan Zuckerberg Initiative and Implications for Impact Investing Industry - The Challenges in Using Market Forces to Do Good

Facebook co-founder and CEO, Mark Zuckerberg, announced earlier this week that he and his partner, Dr. Priscilla Chan, would devote 99% of their wealth, approximately $45 billion, to create social good by making impact investments in sectors such as health, education, scientific research, and energy. The announcement came in the form of an open letter announcing the pair’s launch into parenthood, through the birth of their daughter, and the impact investing industry, through the founding of the Chan Zuckerberg Initiative (CZI), LLC.

Zuckerberg and Chan’s announcement was met with mixed reception. While some celebrated the pair’s efforts, others criticized CZI for its LLC structure, calling into question the motives involved, particularly the tax implications of the LLC structure as well as CZI’s abilities as an LLC to invest in for-profit companies, potentially make political contributions, and avoid disclosure obligations.

Zuckerberg responded to criticisms via Facebook to dispel initial concerns. Primarily, Zuckerberg stated that he and Chan receive no tax benefit from transferring their shares to CZI and that the LLC model was favored over a nonprofit foundation structure to provide flexibility and agility in financing impact projects.

While Zuckerberg is not the first tech entrepreneur to contribute their fortune to the benefit of society through an LLC – for instance, eBay Founder Pierre Omidyar created his own impact investing firm, the Omidyar Network, structured as both an LLC and nonprofit foundation, providing flexible financing in the form of investments and grants –  the initial criticisms of CZI are instructive to general concerns surrounding the impact investing, which may persist as the amount of capital and the number of potential players in the industry continue to grow.

In an interview with NPR, Stacy Palmer, editor of the Chronicle of Philanthropy, discusses impact investing and the perceived dichotomy between nonprofits and market forces. Stacy notes, “there is an important change happening. And one of the things that’s been part of this conversation is how can we use the market to better advantage… there are people who think this is a great idea and [those] who are concerned about it because they said the whole reason philanthropy and nonprofits exist is to correct what the market does wrong”. However, as regulation around the impact investing industry, particularly related to fiduciary responsibility and risk assessment of impact investments, continues to change, the line between market forces and nonprofit efforts begins to blur (See: IRS Ruling Makes Impact Investments More Accessible for Private Foundations).  
As impact investing continues to evolve as an industry, impact investors may inevitably have to mitigate public concern and general skepticism surrounding the use of market forces to alleviate social ills. While the number of realized impact investments continue to grow – adding to the body of evidence surrounding financial and impact performance of the industry – the strategies used by impact investors may also greatly influence perception of the impact investing as a whole. 

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Merrill Lynch Publishes White Paper Regarding Impact Investing

In a white paper published by the Merrill Lynch Wealth Management Institute, Anna Snider, Head of Global Equity and Impact Investing Due Diligence, provides an overview of the contemporary impact investing landscape, derived from analysis of academic research and industry data. “Impact Investing: The Performance Realities” discusses risk assessment in impact investing, the growing body of evidence surrounding the financial performance of impact investing, and key development challenges to the impact investing industry.   

Some key findings and observations include:

  • Impact Investment Risks and Returns – While impact investments are not generally riskier than traditional investments, the risks involved are usually different and important to understand.

    The white paper represents the range to which investors should consider impact investment risks and returns by illustrating the impact investing universe across public and private instruments (Exhibit 13). The paper addresses the issue of scale and capacity for higher risk and return impact investments, such as alternative energies or impact venture/growth equity, and the common issue of smaller private markets being able to absorb significant inflows or outflows of capital. Conversely, lower risk and return investments, such as microfinance or community development loans, may provide relatively higher social impact but below market returns to investors.

    The paper also observes that using ESG-related criteria in making investment decisions can actually help investors develop more robust financial analysis by accessing risks that may not be found on a balance sheet; Anna Snider notes that “from a practical standpoint, using impact analysis to evaluate companies can help mitigate risk, regardless of whether the investment is being evaluated for impact.”

  • Impact Investment Performance – Impact investments can produce market-like returns and may, at times, outperform their traditional counter parts. However, investment performance is largely dependent upon investment strategy, and additional research is required in order to avoid generalized conclusions on impact investment returns. 

    While impact data can aid in reducing portfolio volatility by helping investors and managers identify non-financial risks important to a company’s financial performance, an impact-oriented impact strategy can also help produce long-term returns. As sustainability and impact factors – through both positive and negative screens – become more commonly integrated into investment strategies, impact investing provides the investor the ability to not only have positive impact, but also the opportunity for long-term financial growth.
  • Development and Challenges of Impact Investment Industry – The impact investing industry has developed tremendously in the last decade, largely in response demand from the investor community and consumer trends. For instance, by 2014, 80% of S&P 500 companies issued corporate social responsibility reports, whereas only 20% of companies in the same index issued such reports in 2011. 

    With this growth in impact reporting integration, there has also been a growth in aggregate data sources and service on social impact. And, while efforts are currently underway by organizations such as the Sustainability Accounting Standards board, there is still no industry-wide accepted measurement framework to define impact investments and further quantify impact.

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