Investing for Impact, Not Just Returns

This blog post provides insight on SP3’s approach to improving upward mobility in the Charlotte-Mecklenburg area. Upward mobility refers to an intergenerational movement from one social level to a higher one and all the related benefits a group of people gain from this upward movement. In 2013, a Harvard University/UC Berkeley study found that Charlotte-Mecklenburg ranked 50th out of 50 in this metric among the largest U.S. cities.

The Charlotte-Mecklenburg Opportunity Task Force, consisting of 20 community members, spent 18 months (2015-2016) analyzing factors that influence the inheritance of intergenerational poverty and its negative impacts on the life trajectory of many Charlotte-Mecklenburg children and youth. Ultimately, the task force identified three interrelated determinants that have a significant impact on an individual’s trajectory: (i) Early Child Care and Education; (ii) College and Career Readiness; and (iii) Child and Family Stability. Two factors that cut across all three determinants were segregation and social capital. Social capital is defined as the networks of relationships among people who live and work in a society that can connect them to opportunities.

SP3 will incorporate information generated by the task force report as well as add our own visions in the areas of health, affordable housing, entrepreneurship, information management, and the relationship between environmental and social conditions.

Our major goal is to identify actions that remove inhibitors to, and advocate for, children’s upward mobility in the most vulnerable areas of Charlotte. One major focus area will be linking those in need with those who can provide the needed services. Another focus will be to develop businesses that encourage upward mobility. In this realm, SP3 supports enterprises that seek to improve Charlotte’s natural environment while also having a positive social impact.

SP3 plans to achieve risk-adjusted market returns and social and environmental impact through adherence to our mission, our due diligence with investment criteria, our ability to help recipients improve their capabilities, our close investment monitoring, and our adherence to industry standards for effective impact investments.

Additionally, we support the UN’s Sustainable Development Goals by focusing on the following goals: (2) Zero hunger; (6) Clean water and Sanitation; (7) Affordable and clean energy; (8) Decent work and economic growth; (10) Reduced inequalities; and (13) Climate. These goals align with several key challenges in the Charlotte region.

All of SP3’s activities are guided by common practices found within the impact investing industry. These practices are outlined below.

Additionality: Making investments and creating an involvement that adds to the wealth-creating potential of the environmental, societal, and financial systems that might not otherwise have been made. For example, SP3 will look for opportunities that cannot obtain funds from capital markets or philanthropic funds.

Diversity of Approach: Offering diverse products or a variety of approaches to address a single systems-level issue. In SP3’s case, the focus is on upward mobility.

Interconnectedness: Increasing the flow of information between peers in the environmental and societal systems-level considerations. SP3 works to create interconnectedness through technology and human involvement.

Locality: Making sound investments that support the development of resilient environmental, societal, and financial systems within limited geographic boundaries. SP3 focuses on the Charlotte region, in particular on six zip codes that are at high risk of failing to achieve upward mobility.

Polity: Engaging in public policy debates relevant to investment risks and rewards at an environmental, societal, or financial systems level. SP3 advocates for various policies to improve the chances of our success.

Standards Setting: Developing broadly accepted bounds of normative conduct that set standards for industry conduct and for industry specific investments. SP3 hopes to serve as an example on how to achieve desired outcomes.

Social Impact: For those we target to help, we look for evidence that firms, for example, pay fair prices to suppliers, employees, and provide benefits; offer social programs and make community investments; create opportunities for underrepresented groups; and provide quality work environments. For their products and services, companies need to make a product or deliver a service that addresses one of the critical needs in our focus area. Within our geographic scope these products and services should generate social impacts that compare favorably to those on the market or through charitable channels. We will use at least two methods to assess this impact: Social Return on Impact (SROI); Best Available Charitable Option (BACO).

Financial Sustainability: Aiding companies in showcasing financial sustainability within a reasonable timeline (usually 4-5 years) – including the ability to cover operating costs and generate revenue.

Environmental Impact: Encouraging companies to deliver products and services that improve the environment. We expect companies to adhere to sound environmental principles in its operations. Among these principles are:

  • Principle 1: Do no harm by finding ways to decrease concentrations of substances extracted from the Earth’s crust and those produced by society. Firms adhere to this principle by seeking ways to decrease fossil fuels and finding more renewable sources of energy.
  • Principle 2: Identify ways to facilitate and build upon the productivity of natural systems. For example, ecosystem services offer excellent sources of competitiveness and services that are duplicated by man-made structures. For example, agricultural firms that use natural crop rotation and natural processes for pest control have been shown to be more productive than those that artificially control crops.
  • Principle 3: Offer biologically-inspired production models and materials. One way firms can facilitate and build upon natural systems is to use biomimicry (i.e., imitating biological processes to innovate product and service design) as a basis of production. For example, architects and builders are discovering ways to design buildings that decrease the need for artificial substances (e.g., paint and lighting fixtures); the designs mimic and adapt from nature’s designs. Firms can also use natural processes to suggest ways to solve intractable challenges.
  • Principle 4: Advocate for a decrease in degradation of our world by physical means. The less we build, the more we can contribute to a more sustainable world. By reducing our footprint on the world, we will increase our productivity and decrease our impact on the environment.
  • Principle 5: Do not expose people to conditions that systematically undermine their capacities to meet their needs. This principle addresses human-capital needs and helps firms consider waste, working conditions, pay, and all interactions between an organization and those providing supplies to the organization.

Scale Potential: Developing opportunities that have the potential to scale and reach a significant number of people. Scale can occur through a single business growing in size or the business model being replicated by others with the same focus area or geographic scope.

Established Businesses: SP3’s engages mostly with businesses or business concepts that have been operating at least 3 years and have a demonstrated a proven impact track record. This demonstrated track record should include (a) measurement of impact; (b) management capacity. Additionally, SP3 looks (c) for high quality people in the major functional leadership positions. Lastly, we consider how the business has (d) reported on its environmental, social, and governance performance as well as evidence of meeting industry standards.

Each opportunity will be subject to an Impact Rating based on the Global Impact Investing Rating System administered by B Analytics. We will balance these analytics with appropriate IRIS metrics. SP3’s reporting format will follow the Global Reporting Initiative which is the gold standard for ESG (Environmental, Social, and Governance) reporting and for non-financial reporting.

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