No Journey Without Barriers: How to Overcome Challenges Along the Impact Investor Journey

CSP’s second Think Big — Think Impact webinar dove into the question of overcoming challenges and hurdles and finding your focus after encountering detours on the road to impact. The webinar was chaired by two experts in the field: Britta Gruenig Castelli, Coaching Program Lead at CSP, and Carsten Hjelde, alumnus of the IRI/CSP Impact Investing for the Next Generation Program. Britta is specialized in supporting next generation investors in moving from the dream of having an impact to actually having one. Carsten, in turn, is a seasoned impact investor who, together with his siblings, increased the focus on impact within his family’s portfolio.

This webinar is packed with learnings from Britta’s experience in coaching wealth owners, as well Carsten’s personal story on staying true to your values as an impact investor. As he put it, “… in order to find the good parts, you need to have several detours. So you need to search a little bit broader, a little bit deeper sometimes, in order to get to where you want to be.”

A journey indeed.

Watch the full discussion on YouTube

Or listen to us via Soundcloud

Highlights from the Q&A

Family Dynamics

1. Is it more important to focus on managing up, for example to your parents, assuming that they hold the steering wheel of a family enterprise, or managing horizontally, say to your siblings and peers, when making the case for impact investing?

Carsten: For us the question was very simple because my father stepped back when he transferred his wealth. He left all of the responsibility with us, so we didn’t have the conflict some people have between generations. We have one generation and we are aligned, so that made the question of management simple for us. Generally speaking, the challenge is that a lot of members of the older generation are holding back too long, which can create challenges in families.

Britta: Situations are very individual and there is no one-size fits all answer here. One thing that I can recommend is to start to look for your allies. They can be in your very close family, or they might be in your extended family. An ally can also be someone working in the family office, or in the bank. Key is to look around and find people who care about impact and explore their motivations. And then start to build a strategy from there.

What I’ve also seen is that sometimes moving toward impact might not be a question of the typical two-generational conflict, where the older generation only cares about making money and then distributing it through philanthropy. What I’ve seen is that within the same generation, there are siblings who have different views. Maybe both/all care about impact but have different ways of expressing it. To get around this, it is vital to determine what you want to achieve and why it matters to you. This way people understand your motivation. Get prepared, get educated, so that you know what you’re talking about and to ensure that you’re not burning any bridges. From there you can start to go into implementation mode.

2. Aside from where and how to invest, what are other common conflicts that arise when bringing impact investing to the discussion?

Carsten: On several investment decisions, the impact might be stronger or weaker in the future of the company. And, it is always hard to eliminate all disagreements. Our focus is to have strong definitions for exclusions. Once the exclusion framework is set, we look at instruments and sectors. Even with this narrowing down, it is a challenge to find the best investments

Britta: Yes, absolutely. My webinar looks into how to move from values and preferred futures to investments and mandates. Our experience with impact investors from around the world shows that it’s important to be strategic about why and how you, as an individual or a family, want to make a contribution. Once you have clarity on your values and the future you want to create, you need to know how to communicate the boundaries of what investments you are willing to make before jumping into the execution. Any individual investment is then rooted in a strategy and portfolio context. If this particular investment happens to perform suboptimally, as investments sometimes do, this incident doesn’t question investing with positive impact overall.

Investor-Specific

3. When you are in the scouting phase, what are some of the unnecessary detours you either go through or should avoid?

Carsten: I like to be polite and hence find myself detouring sometimes. In general, it is good to prepare for detours, and my thinking at this time is that I accept some of them. I’ve had several detours that have led to good connections and positive outcomes afterward. At the same time, I consciously stop detours from interrupting my life too much. The fact is, that you need to search a little bit broader and a little bit deeper sometimes in order to get to where you want to be.

Britta: What I’m observing is that people sometimes start without having a framework in their mind. Carsten has clearly laid out such a framework. I would advise everyone to do that. If you start in impact investing and you go to a conference, or you go to your bank, and you really don’t know what you own and what you want, then you’re not going to get anywhere. You have to be crystal clear about who you are, what you want, and what is the impact you want to have.

For all of that, it is very important for people to get an understanding of their “why”. Find out why you want to do something and what your theory of change is. And after that, start to get an understanding of impact investing. See what is out there and who the players are, as well as where you can get support. Once you have this framework in your mind, it will be easier to accept or reject an offer.

4. Is there an impact investing approach that is less explored or that you didn’t mention so far? Some new trends in the sector?

Carsten: Hard question. But to turn the question, I think there is an excessive focus on PE/Venture/Managed funds. The performance (both financial and on impact) is often not justified by the high management fees. Personally, I believe investors can make a big change if they engage themselves as founders, or board members of companies to push for more impact. Another under-communicated impact mechanism is shareholder activism. If you have some substantial holdings in a company, even only 0,1%, the management will normally listen if you reach out to them.

Britta: I would like to add two more approaches: 1) supporting and investing in accelerators for impact start-ups and 2) considering the opportunity for using tech for good to provide scalable solutions. For both of these, have a look at the amazing work that Katapult does.

5. Why do you see listed investments as “impact investments”? Aren’t they just about buying shares from someone else instead of putting new money into world-changing projects/businesses?

Carsten: Yes, this is correct. On some of our listed stocks, we have influenced the management to do better greenhouse gas emission reporting. Then our holding has made a difference. For some of the others, for example, solar or wind, it is a good place to have the money. But, yes, the additionality is not there. In a perfect world of additionality, capital holders should start and fund new companies which would otherwise not be funded, and then grow them.

Britta: Additionality is key, but so is considering the whole range of approaches for the following reason: In some families, the next gen might be the first one to talk about positive impact in the context of investments. However, it is vital to place the discussion into context. It might be that the family has a history of seeing the destructive impact of war and conflict. In such a family, if you want to start a conversation about impact investments, you could build on the aversion to weapons and simply propose to exclude weapons. This might be a no-brainer and can be quickly implemented. From there, the conversation might move over time to investment approaches with higher additionality.

Upcoming webinars

April 8th at 17:00–18:00 CEST
Britta Gruenig Castelli: From futures and values to mandates and investment strategies
Register: https://zoom.us/webinar/register/WN_oHs-sd2OTAGmsi3Q31JkPg

May 14th at 15:00–16:00 CEST
Dr. Julian Kölbel & Florian Heeb: Changing the world as an investor — what to do and what not to do
Register: https://zoom.us/webinar/register/WN_CYq-k0CSRmCYOCALl3Hyqw

May 21st at 17:00–18:00 CEST
Antonis Schwarz & Romy Kraemer: Impact through funding social movements and activists
Register: https://zoom.us/webinar/register/WN_Eu3xl7nURm665TbOGiYvKQ

June 16th at 16:00–17:00 CEST
Taeun Kwon: Faith-based investors and impact investing
Register: https://zoom.us/webinar/register/WN_xDeb8ou-SBGwFoVyo57xMw

September 30th at 16:00–17:00 CEST
Dr. Falko Paetzold: Family Dynamics & Impact Investing: Mapping out a Family System, Finding Allies and Pulling the Right Strings (and Avoiding the Pitfalls)
Register: https://zoom.us/webinar/register/WN_SrPanE_BSQ-wM7i19cS5dA

*Schedule subject to slight changes.

The webinars are brought to you with the support of EIT Climate KIC and FC4S. Warm thank you for the collaboration!