Extending the J-Curve

Certain regulations within the finance sector, such as the Community Reinvestment Act, encourage financial institutions to meet the needs of borrowers in all reaches of their communities, especially the low- and moderate-income segments.  Banks, such as Deutsche Bank, have embraced these initiatives and created a Foundation and absorbed these regulations into their Corporate Social Responsibility efforts.  

The Economist article “A Place in Society” speaks about the official “launch” of the new asset class “impact investing”.  This is where investors can look beyond the bricks and mortars and checking a box; but rather, see what kind of social externalities are resulting from their funding of unique projects.

http://www.economist.com/node/14493098

These formalized efforts are certainly showing how an innovative approach to financing can result in social good by transforming the quality of lives for poorer communities.  The Clinton Foundation has concerted efforts towards addressing health and wellness issues throughout India; and as a result, are helping to maintain healthier and informed communities.  Experienced investment professionals may show some hesitation and concern, some likening it to a private equity investment.  And it could very well be that like a private equity investment, social investments can also follow a j-curve: investment gains may not be realized until later, in the outlying years as the investments begin to mature. 

The optimism towards impact investing is certainly growing as most major banks have created foundations and the asset class is now recognized by top investors.  When everyone comes together, the goals are not granular or too vague, rather, aspirationally aligned with what everyone views as a positive return: creating a strong social impact.

I also recently read another Economist article that discuss the origin of globalization.  It presents some interesting views; especially with the references to Adam Smith’s “Wealth of Nations” with the description of economic development has as its underlying principle the integration of markets over time.  Some can even argue that the origin of globalization can be more recently, maybe with the launch of impact investing?