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Vogel: Impact Investing

Most of us have causes that we’re passionate about. In my case, I’m passionate about trying to eliminate homelessness and provide decent housing for low and moderate income families. Volunteering and philanthropy offer the most direct way to support these causes.

Another approach that’s growing in popularity is called impact investing, which means trying to align our investments with our values. But to date, studies are inconclusive as to whether this kind of investing has a significant impact in changing government policies or the behavior of corporations.

For example, investing our savings in mutual funds that promise to screen out corporations that create a lot of greenhouse gases or buying stock in companies that build solar collectors may make us feel good, but it hasn’t yet had a meaningful impact on global climate change. Nevertheless, given my interest in affordable housing, I decided that I would invest in Vermont’s first Sustainability Bonds where the proceeds would be used to finance affordable housing in Vermont.

When I spoke with my investment adviser, he explained that from a purely financial perspective these housing bonds were not the best investment. One could buy a diversified pool of municipal bonds that had a lower risk and a higher return. But he understood why I wanted to make this investment and that for me the nonfinancial benefits of investing in affordable housing in Vermont more than made up for the lower return.

As it turned out, I wasn’t alone in my desire to make this investment. According to the underwriters, the bonds received such a positive response from the market that orders were seven times greater than the amount of bonds being offered. This overwhelming demand allowed the Vermont Housing and Finance Agency to pay an even lower interest rate and issue $37 million dollars in bonds instead of the $35 million they originally proposed. The extra two million dollars will enable Vermont to finance another twenty to thirty units of housing for low and moderate income families in addition to the 600 initially projected.

Time will tell whether impact investing will play an important role in solving global problems like climate change and homelessness. It’s not a magic bullet. But because investors, who were mostly from Vermont, were willing to take a below market return, their investment will have a huge impact on at least twenty low and moderate income families.

John Vogel is a retired professor from the Tuck School of Business. His tenure at Dartmouth began in 1992, where he taught Real Estate and Entrepreneurship in the Social Sector, among other subjects. He was named by the “Business Week Guide” to Business Schools as one of Tuck’s “Outstanding Faculty” members.
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