Letter from our Chief Strategist of Impact Investing
Chief Strategist, Impact Investing
25 years of impact investing
The Access Capital Community Investment strategy made its first investment in June of 1998, making June 2023 the official 25-year anniversary of the strategy’s commitment to impact investing. Since inception, the strategy has consistently focused on supporting low-to-moderate income (LMI) communities and individuals across a variety of social and economic themes: building wealth through homeownership, providing affordable rental housing, increasing access to education and healthcare, and making investments supporting small business and economic development.
The rationale for the founding of what was originally called Access Capital Strategies, LLC, began in 1995 when I participated in formulating major revisions to the Community Reinvestment Act (CRA). The CRA, enacted in 1977, required “financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods”1. The goal of the CRA was to provide a counterweight to discriminatory credit practices such as redlining that were common in the banking system at the time. Several revisions had been made to the CRA regulations since its inception, but the 1995 regulatory changes – including the adoption of “Lending, Service and Investment” tests – prompted me to consider how I could create an investment strategy that would focus on community development by forming a secondary market for pooled CRA loans.
The vision for the strategy extended beyond simply being able to meet regulatory requirements. We sought to launch a strategy that would use the same government programs and access to the capital markets that helped build “Main Street” America to address some of the systemic inequities that continue to exist. As a result, the Access Capital Community Investment strategy launched in 1998 with the goal of expanding access to capital to people and communities previously underserved – in other words, an impact investing strategy.
As we reflect on the past 25 years and the evolution of impact investing, we would like to share a few observations of how the space has changed.
Market-driven returns are key
Twenty-five years ago, most people thought of impact investing as a concessionary endeavor. While that belief persists in some circles, more and more investors are looking for market-based solutions to social and environmental problems, and there is growing acknowledgment that in order to have sustainable impact, investments need to be market-driven.
Fintech solutions are helping
Some of the barriers around access to homeownership decades ago were not necessarily due to a lack of opportunity to make loans, but were due to the unprofitability of these loans resulting from their high transaction costs. The advent of fintech solutions has dramatically reduced transaction costs, making lending more accessible, and provided more opportunities to structure securities to meet impact investors’ goals for returns and positive impact.
Greater emphasis on climate change
Over the past two decades we have seen an increase in the types of technology developed, products available, and amount of legislation supporting the fight against climate change. These factors have contributed to a significant increase in the number of opportunities for investors who are looking for climate change solutions.
Progress toward greater economic equity has certainly improved by some measures – for example, the gender pay gap is much smaller than it has been historically. Yet by other measures, such as homeownership, the gap between white and Black ownership is actually larger than it was forty years ago. And while not the sole contributor to wealth inequality, this disparity in homeownership is a significant factor.
Increased awareness…but also deep politicization
Investors seem to have greater awareness of social and environmental concerns, and many have sought to invest in ways that address these persistent issues. On the other hand, there is pushback to doing so by some factions looking to politicize investment strategies that seek more than a financial return.
By and large, the changes we have seen since 1998 in the impact investing space have been positive.
The recognition that the capital markets can be part of the solution to some of these longstanding systemic issues gives us hope that we can continue to increase the flow of capital into LMI and other underserved communities that need it most. Impact investors are making a significant contribution to these efforts.
However, for more benefits to come from impact and community investing, two major events must occur. First, mission-related financial institutions that are interested in providing services to specific communities need to be aggressive in obtaining access to tools that can be utilized for this, including risk share, 7(a) loans (the SBA’s most common loan program), and access to the Fed discount window. Second, fintech needs to be applied to improve financial literacy and access to much-needed loans. Today more than ever before, fintech and more specifically social media, may be used to teach would-be borrowers how to obtain small business loans, mortgages, and even higher education loans. Low-cost, high-reach technologies are key to improving access to needed funds and growing communities at the local level.
We are proud of our legacy in the space and we are confident that with our long-standing experience in this field, we can guide the next generation of impact investors. We look forward to seeing improvements to systemic issues such as homeownership, racial wealth inequality, and gender pay equity that can be made through impact and community investing.