Making the process of impact investing more efficient
Having seen the impact, or lack thereof, of government-driven environmental, social, and corporate governance (ESG) programmes and incentives during her time working for the United States Diplomatic Service, Aisha Williams has since been driven to cut through the bureaucracy and shepherd positive change in the private sector.
A self-avowed entrepreneur, futurist and sustainability activist, Williams is using her real-world experience to drive a new focus on achievable impact and sustainability as the Founder and Chief Executive Officer of alternative asset management firm ImpactVest.
“I started my career as a junior Foreign Service officer within the National Security Agency and the Department of Defense,” says Williams. “Our role was to analyse and fully immerse ourselves in other cultures and languages, and to see how other cultures saw us as Americans.
“I started out in Rio de Janeiro in Brazil, for about five years, then moved to San Paulo, Chile and Argentina. Then I went to South Africa, the Middle East, China and finally to France.
“During my time in the service, I learned a lot about how to measure impact outcomes in emerging markets, considering macro factors that we don’t have here in the West. As part of the job, both on the ground and at gala events, I spoke to many private equity experts and local governments, which taught me a great deal about sustainable finance.”
Here, Williams, talks about how her background in the Diplomatic Service is helping her to shape a sustainable, inclusive and resilient future...
It’s about making the investment process transparent and having capital flow directly to the sustainable outcome that it’s meant to solve.
Your time and experiences in the United States Diplomatic Service coalesced into what would become ImpactVest. How did that evolution come about?
From the outside, the life of a diplomat looks very glamorous — but it’s not quite that way. There are set targets and goals to meet and there’s a delicate interplay between your own government and the local government. Everything was very much a negotiation.
We wanted to do much more than we were able to do. Because of red tape from both sides, it was very difficult to get anything meaningful done through government.
Between year one and year ten of my service, there was very little that I felt that we had accomplished. That’s where my interest in real impact outcomes came from. The general consensus is that it’s government that is needed to solve many of the challenges we face, but the reality is that real change is not going to come from government.
When I had the option to renew my service term, I felt like it would be more of the same, so we decided as a team that we would go into the private sector and try to make a difference in our own fields.
Oftentimes, I feel like I still am in the Diplomatic Service, inasmuch that I approach the problem in a different way. For example, how do we direct capital toward entrepreneurs, who actually have the solution for water and food scarcity, the climate crisis, etc, but they’re doing it on such a small scale? I’m really focused on cutting through all the red tape to get to those solutions, scaling them and finding the actionable insights.
We may never find all the answers, but at least we’ll get close to answering the big questions… How do we make capital transparent? How do we measure outcomes? How do we drive capital?
It’s about making the investment process transparent and having capital flow directly to the sustainable outcome that it’s meant to solve. In the Service, there was only so far that we could go in terms of implementing programmes. Now, we’re aiming to do so much more.
How does your boots-on-the-ground experience better position your clients for greater impact?
We always ask, ‘how can we make this process more efficient?’ starting with an on-the-ground outcome that can be measured. In order to make an impact, we have to be able to have measurable goals.
That approach really came from my time in the Service, where we had to be able to measure everything we were doing to be able to receive funding. We were, and still are, looking for the positive metrics.
Take, for example, ESG which tends to penalise those from emerging markets because the framework is very Westernised. If we focus on positive metrics, then we can take an industry that’s considered unsustainable and move it from a dark brown industry to light brown, that’s a positive metric and a positive narrative, right?
It may not be perfect, but it’s an improvement from the last metric. That’s what we focus on at ImpactVest. To be able to provide visibility for companies and entrepreneurs that may not be able to achieve a green metric right now because of the resources available to them or because of where they’re based.
I think it’s very important to take impact investing and widen it beyond just green investing. It’s vital to include sectors that have been considered unsustainable, because if those sectors don’t improve then we’re not going to be able to close the Sustainable Development Goals (SDG) funding gap. It’s really important to be able to expand on the conversation about what impact really means. It may mean small, incremental, positive increases over time.
It’s a simple fact that all capital makes an impact. It’s just a question of is that impact positive or negative?
Campden Wealth’s Investing for Global Impact report found that the majority of impact investors are satisfied with their returns, with 80% of respondents saying that financial returns on impact investments met or exceeded expectations. Considering impact investing is perceived as a primarily Next Gen-driven approach, will these returns help to encourage future investment across all generations of wealth holders?
It’s a simple fact that all capital makes an impact. It’s just a question of is that impact positive or negative? Do you want to have made a positive impact and to leave a constructive legacy?
It’s about being aware of what impact your investment is making. If it’s a negative one, then you can start to change it through a positive impact metric narrative of, ‘how do I make this investment sustainable?’ Even if it’s in oil and gas, there are ways to transition to a more sustainable investment.
I think this is going to be a multi-generational movement because the challenges that we are seeing in our world really can only be solved by investors. They are the ones who can make great change, but first they have to be really aware of the impact of their portfolios.
The same report found that, in five years, the average portfolio allocation to impact investing is expected to rise to 50%. In your opinion, is this enough of an allocation to affect long-lasting sustainable change?
I think it’s a positive metric in the right direction. However, I do think that for long-lasting, sustainable change, we also have to look at the policymakers. We would like to see portfolio allocation at more than 50%, but, realistically, because I’m coming from a government background, there are many policy decisions that have to be made.
If we look at energy, for example, around 85% of global energy is powered by fossil fuels, which is a very profitable asset class. The honest truth is that we cannot make the full transition to renewable energy because we don’t have the infrastructure for it. It’s too expensive for most of the world. So how do we tackle that conversation?
Investors, at the end of the day, want to maximise returns in their portfolio. If their holdings in oil and gas are doing well, there’s not a lot we can say to them to make a more positive impact, especially if governments have not made it a priority to invest away from fossil fuels.
Presently, the most profitable asset classes are not the most sustainable. So I would say, a 50% allocation is a step in the right direction, considering that policymakers are not really stepping up to the to the plate. I think it would be different if we could rely more on renewable energy options, but the infrastructure has to be put in place to be able to do that. Without governments incentivising infrastructure to lower the cost of renewable energy, I believe it’s going to be quite difficult to raise that allocation amount.
