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August 27, 2013

Community Investment Practitioners Urged to Diversify Approaches
    by Robert Kropp

A new report published by US SIF notes barriers to increased community investment but finds that the industry is poised for expansion if practitioners can diversify products and marketing.

SocialFunds.com -- In a report published in 2010, US SIF – The Forum for Sustainable and Responsible Investment noted that while assets devoted to community investment had increased by 60% over a three-year period, barriers to directing capital to underserved communities persist.

US SIF's 2012 Trends Report found that community investment experienced a 47% increase in assets over 2010, and stood at $61.4 billion by the end of 2011. However, in a recently published report, US SIF and its collaborators—the Initiative for Responsible Investment (IRI) and the Milken Institute—repeats the earlier report's concern that barriers to an even more significant uptake of the practice by investors remain.

As the earlier report found, the new report identified a lack of investor knowledge about community investment products. The new report also states that different expectations for financial returns require that the industry diversify its product offerings. Also, and perhaps the most significant barrier currently preventing the industry from realizing its potential, “There is a shortage of community investment products that have the scale appropriate for larger institutional investors.”

'Bringing new actors into the field requires understanding both their financial and social/environmental return expectations and developing messages and products that speak to these expectations,” the report states. “Increasing investor interest will require the right approaches to investor engagement and product construction.”

But the report is “intended both as a practical guide for those who develop and manage community development vehicles and as a primer and list of resources for potential investors,” and the resources demonstrate that there is no shortage of community investment opportunities available. “Investors have an increased interest in where their investments go and how they are affecting society at large,” the report states. “These changing attitudes coincide with increased excitement around growing and maintaining local economies.”

The enthusiastic response of many high net worth (HNW) and family office investors to the relatively new term impact investing suggests that they can offer “potential scale and flexibility of capital” to community development initiatives if designed and marketed effectively. “Wealth management offices have begun to incorporate more community investment opportunities into their portfolio construction for clients,” according to the report.

While the report details significant barriers to the uptake of community investment by pension funds—few community development products attain the scale pension funds seek, and the funds invest exclusively at market rates while many community development products offer only below market returns—the financial crisis encouraged pension funds such as the California Public Employees Retirement System (CalPERS) to revisit their policies on community investment.

As an example of an investment opportunity that may offer pension funds the scale they require, the report highlights the West Coast Infrastructure Exchange (WCX), a recently formed collaboration between three West Coast states and British Columbia. WCX was launched “to create and develop innovative new methods to finance and facilitate development of the infrastructure needed to improve the region’s economic competitiveness, support jobs and families, and enhance our shared quality of life.” While WCX has yet to provide assistance to any infrastructure projects, it “offers a unique opportunity for pension fund involvement,” the report states.

“There is room to build on the community investment field’s many achievements by capturing the attention and meeting the needs of different kinds of investors,” the report concludes. “It is our hope that this paper contributes to ongoing efforts to channel more capital, more effectively, towards social purpose.”

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