About ImpactPHL Perspectives:

ImpactPHL Perspectives is a multi-part content series that explores the many facets of the impact economy in Greater Philadelphia from the perspectives of its doers, movers, shakers, and agents of change. Each volume is written directly by a leader in this space, to discuss best practices and share lessons learned while challenging our assumptions about financial and impact returns. For more thought leadership like this, check out the full catalog of ImpactPHL Perspectives.

By: Kim Griffin, Member Engagement Director, Toniic

In developing your plan for giving and/or impact investing, the inevitable questions come up of if and where to focus geographically. Assuming you don’t have endless cash to deploy for solving our seemingly endless list of global problems, you need to make some tough choices about where to put your money. Should you direct your capital to where it can do the most good, or to areas that you best understand, or should you make allocation decisions based on some other criteria?

Here, I offer some considerations in thinking through what makes the most sense for you and your capital deployment.

Local Investing

While some argue that local investing and impact investing are synonymous (1) this is overly-simplistic and assumes that all locally-controlled businesses have a net positive effect on our communities (which they don’t). The Pittsburgh Innovation District and subsequent tech boom are often celebrated as “exemplary of a new growth model.” (2) Yet, not everyone benefited: from 2005 to 2015, the median wage of Pittsburgh-area Whites rose almost 10%, while Blacks saw their wages fall nearly 20%. (3)

“While some argue that local investing and impact investing are synonymous, this is overly-simplistic and assumes that all locally-controlled businesses have a net positive effect on our communities (which they don’t).”

So please, let’s be clear that the zip code cannot be the only factor. Investment is a double-edged sword -- it has the potential to power amazing social innovation, but it can also be an extractive force that exacerbates wealth inequality, unnecessary consumption, and environmental degradation. Although it’s not easy nor widely adopted, it’s critical to consider the negative outcomes of our investments, or else “we cannot be sure we are achieving our intended net societal and environmental benefits.” (4)

With this in mind, there are some significant benefits to using a local lens for your investing and giving activities:

• It’s simpler. Don’t underestimate the importance of logistics. Building trust with international partners takes time, money, and carbon (for travel). International investments can also increase complexity by adding currency exchanges, language barriers, and compliance considerations for different jurisdictions. Investing locally allows you to skip all of that and focus on other components (which are still not entirely simple!).

• You might be more likely to know what you’re doing. Invest in what you know. For most of us, that means our own communities. From creating a theory of change, to choosing successful managers/companies, to assessing progress toward your impact goals, your own experiences in the community will make you better equipped to make the right choice. Although impact measurement standards are gaining traction, investors across the globe must still rely on self-reported data from potential and current investees. You are likely to be better informed in the local context.

• Your ownership means more. Investing locally allows you to trust your intuition. It’s easier to prioritize what a community needs when you are an integral part of it. There is something to what David Attenborough says: “No one will protect what they don’t care about, and no one will care about what they have never experienced.” People are more likely to take figurative “ownership” in their local community, so incorporating literal ownership (through investment) might be especially meaningful for you and have important effects -- working with people you know, on issues that directly affect you.

Global Investing

Despite its benefits, focusing locally is inherently limiting. For all the reasons above, it’s tempting to focus locally because you can see the impact. But our local economies are inextricably linked with national and global economies -- as well as their social and environmental impacts (both positive and negative).

“our local economies are inextricably linked with national and global economies -- as well as their social and environmental impacts (both positive and negative).”

Business ownership is just the tip of the iceberg with regard to the impact of an enterprise. The supply chain and the environmental footprint extend well beyond the boundaries of whatever you consider local. For example, a cafe might create local living-wage jobs, give back to the community, and provide a meeting space for activists...at the same time they profit from underpaid farmworkers, deforestation, and a net contribution to climate change. These externalities shouldn’t be ignored just because they are harder to see. I think we would all agree that the people and planet outside of your local sphere are no less deserving of the positive impact you are trying to create.

Since the global impact is unavoidable, let’s consider the benefits of embracing a global perspective:

• It gives you the opportunity to contribute to wealth redistribution. If investments continue to be deployed in metro areas where the majority of impact investors live, it will exacerbate the rural-urban wealth disparity as well as the global disparity between developed and emerging markets. Responsible (read: non-extractive and non-displacing) investing in lower-income and often-forgotten geographies provides access to capital that would not be available if they were waiting on local investors.

• It can be more cost-effective. If given the choice to help one person or many for the same amount of money, what would you choose? A dollar deployed in an emerging market can be hundreds of times more effective than in developed countries, giving you the opportunity to maximize your wealth for good. To support this type of decision-making, a body of research that identifies the most effective interventions is being developed through the Jameel Poverty Action Lab (J-PAL) and the Effective Altruism movement, which empowers people to focus their capital on “the most promising solutions to the world's most pressing problems.” (5)

• It can be applied to your full portfolio. I’ve yet to meet a financial advisor who would recommend an entirely local investment portfolio. Most portfolios include a sizable exposure to the public markets, where limiting yourself to local investments is neither useful nor possible. So developing a global thesis enables more consistency across your investable wealth, a “portfolio approach” to your impact, and better ability to achieve net positive impact across all asset classes. (6)

Conclusion

No matter where you decide to give or invest, remember what comes first: “Think Globally.” Looking through a local lens does not diminish the complexity of our global challenges. Covid-19 demonstrates how inextricably connected the world truly is and has highlighted why our responsibility cannot stop with ourselves, our families, or even our neighbors. We are all global citizens, and our purchasing, investing, and giving should reflect that.

Kim Griffin works at Toniic, the global action community for deeper impact investing. As part of her role, Kim cultivates a peer-learning community for high-net-worth individuals, family offices, and foundations who seek to advance their impact investing practice. Previous positions were with The Nature Conservancy, Austin Habitat for Humanity, St. Edward’s University, and Agua Dulce Farm. In addition to an MBA from St. Edward’s University, Kim holds a BA in Environmental Studies and Spanish from Southwestern University and a CFA certificate in Investment Foundations.

Sources

(1) Pearl, A. (2015, August 18). Local investing is impact investing. Hatch Innovation. Retrieved from: https://hatchthefuture.org/local-investing-is-impact-investing/

(2) Katz, B. & Nowak, J. (2017). The new localism: How cities can thrive in the age of populism. Brookings Institution Press. Page 71.

(3) Perry, A. (2020). Know your price: Valuing Black lives and property in America’s Black cities. Brookings Institution Press. Pages 36-37.

(4) Bendell, A. (2019, May 12). Impact investors fail to measure negative outcomes. Financial Times. Retrieved from: https://www.ft.com/content/8ffb4e56-546d-11e9-8b71-f5b0066105fe

(5) Effective Altruism (2016, June 22). Introduction to effective altruism. Retrieved from: https://www.effectivealtruism.org/articles/introduction-to-effective-altruism/

(6) Toniic (2019). Impact investing: The Toniic approach. Retrieved from: https://toniic.com/impact-investing/