Leaders in Impact Investing Series: Laurie Spengler - Impact Investment Banker
In the second of our Leaders in Impact Investing series, we speak with Laurie Spengler. Laurie is an impact investment banker and a Non-Executive Director of both CDC, the UK Government's development finance institution, and of the Impact Investing Institute. Laurie lifts the lid on the world of investing to support specific social and environmental goals, and shares her fascinating career journey of purpose.
In your opinion, why has impact investing gained momentum recently?
While all investments have an impact – positive, negative or neutral, impact investing is trending because more and more people want to be deliberate and thoughtful in directing their financial resources. Using investment capital to generate positive social and environmental results while making money is at the heart of impact investing.
This interest and demand comes from many quarters: there are millennials anxious for a better world and frustrated by what they see as a lack of urgency in current capital markets; there are family offices seeking to align their resources more closely to their values; there are institutions (foundations to pension funds) finding opportunity in pursuing investments that support the achievement of the Global Goals (UN Sustainable Development Goals) and who also want to tap into the momentum of young people seeking change - the list goes on.
What led you to specialise in impact investing?
Getting the right type of capital into the hands of entrepreneurs to drive positive and inclusive community development has been a core theme of my personal and professional life. I have had the privilege of studying, living and working in many places around the world and what I discover in each location is the commonality of entrepreneurial pursuit. Business can be a driver for positive social and environmental change and impact capital is an enabling ingredient to fuel those businesses.
I was born and raised in New Jersey where my father – a dynamic entrepreneur working in the distribution sector - defined business success in terms of the health and prosperity of the wider community, not a focus on business profits alone. It is this community-led approach to business that inspired me and led to a life working on projects located around the world that aimed to have a broad impact and touch the lives of as many people as possible.
I studied Political Science and Economics at Stanford University, followed by law at Harvard University. When I arrived at Harvard to embark on their new East Asian studies legal programme, I was struck by the number of homeless people living on the streets of Boston. I started volunteering at a shelter called ‘Rosie’s Place’ – most of the women coming in, many of whom had children, were not using the legal support available to them. I soon realised that if you are homeless, the daytime is by far the safest time to sleep, and therefore heading out to a legal clinic during the day was not a popular option.
As a result, I created legal clinics within homeless shelters. On graduation, some of my fellow classmates who had taken high-profile legal jobs contributed 1% of their salaries to a fund. This allowed a few of us to dedicate ourselves to public interest law – a path rarely taken by newly qualified lawyers, who need to pay back large student loans. I truly believe that law is a tool for social change, so I was drawn to following this path.
We were doing good work, supporting people with very real legal challenges – a lot of which centred on housing. It was a paradox: we were helping people to win rights to housing, but there weren’t enough houses to go around. What was missing was the finance element, and it highlighted the synergies between law and finance working in tandem, to chip away at social issues. It was also my first experience of seeing how finance could be used for positive social outcomes.
How did your career path develop?
After university, I joined international law firm White & Case, working in Central and Eastern Europe. My role focused on representing sovereign and quasi-sovereign institutions as they dealt with privatisation, at a truly historic time just after the fall of the Berlin Wall. I subsequently left White & Case in 1993 to set up two entities – a law firm and a corporate finance firm under one umbrella called Central European Advisory Group. We represented entrepreneurs and others seeking expansion capital, and on the M&A side, those looking for strategic partners.
Over the next 12 years, we completed a range of great transactions, including advising the Czech Government on its mobile telephony strategy and issuance of a GSM licence, raising capital for numerous groups of real economy entrepreneurs (from a regional candy business to electronic consumer goods to retail internet). I sold the company to the management team in 2005.
A year later, I joined Shorebank International as CEO; I was based between Chicago and London and spending significant time travelling to emerging markets where the work was focused. Shorebank International then merged with Triodos Facet, an advisory firm within the Triodos family, branded as ‘Enclude’. Enclude was bought by Palladium in 2018, with Triodos remaining as a shareholder in Palladium. I continued during a one-year integration period and exited as CEO in December 2019.
Throughout my executive roles I have always contributed to the development of the impact investing community. Currently, I serve on the Impact Investing Institute's board and am a non-executive director of CDC (the UK Government’s development finance institution that has been at the forefront of supporting companies that help poor countries grow for the last 70 years). Through these roles, I hope to contribute to the wider impact investing industry as it seeks to make impact investing better understood and more accessible.
What can be done to get more people impact investing?
Whilst there is no doubt that impact investing is a growing area of the finance world, there are still barriers to real progress that prevent the industry from maximising its potential. A key area we need to change thinking around is the notion of ‘return’ and specifically financial return. Unfortunately, our financial markets have not served us well, because they are not delivering distribution of capital along the entire spectrum of financial and impact return. They are not enabling investors to make informed choices; rather they are directing investors to focus on near-term results with financial return expectations that are not necessarily grounded in the underlying business activity.
There’s a top-down articulation of financial return, without asking the right question: ‘What is the appropriate financial return for this specific activity?’ Once understood, the investor should have time to make the decision if they want to support that activity or not. The return – both financial and impact – is derivative of the product or service being delivered. Too often, this equation is inverted where the return level is being set by investors without regard to the entrepreneurial undertaking the capital is supporting.
Advisors have an enormous part to play in changing the conversation too, but unfortunately they will only start to change their recommendations when clients themselves are demanding impact. For impact investing to grow, investors need to ask - consistently - about the impact of their investments and as part of their analysis (or that of their advisors) to consider the risk, return and impact of the investment: these three dimensions of investment assessment need to become the norm.
How do impact investing returns compare against more traditional investment approaches?
There are examples of sectors where the risk, return and impact analysis is being done – and shared publicly. The Global Alliance for Banking on Values (GABV), has done research that shows the financial performance of impact-driven banks (referred to by the GABV as values-based banks), is as good, if not better, than that of the very large financial institutions. One of the reasons for this is that impact-driven banks are often less volatile in their performance, leading to a lower volatility of financial return.
Looking at investment funds more broadly, there is a range of financial returns across the impact landscape. As an impact investor, the starting question should be: What are we solving for with this capital? The return of an impact investment should be derivative of the answer to that question as capital is an enabler for the generation of positive impact. This framing supports more informed investment decision-making and portfolio construction. For example, even where the financial return figure of an impact fund might be in the single digits, this investment may be attractive to an investor as the impact return is significant. In addition, there is growing data to confirm that taking environmental and social indicators into account strengthens the long-term performance of a business. Therefore, it is now possible to construct well-performing portfolios for investors that include significant allocations to impact investments. In building robust and resilient portfolios, we need to look at the risk, the return, and the impact of each investment – reframing the notion of total return of an investment.
How can an individual engage with impact investing?
The goal of investing with positive impact is for everyone. It does not matter if you are a pension fund or a major institutional investor, an employee or an individual. Irrespective of our means, we all have the ability to assert our desire to use our money in ways that will contribute to positive impact in society – for people and planet. Expecting a healthy financial return is not mutually exclusive from impact investing. Even with this expectation, we can choose to put our money in places that are closer to our values. If we adopt a portfolio approach to our choices we may find even more latitude in considering the full range of impact opportunities.
Across the landscape of players, we are starting to see some thoughtful impact investors across the categories of investors. In terms of large institutional investors, we are seeing a few leaders emerge among large insurance companies, pension funds and other types of institutional asset managers. From our vantage point, we see that those leading entities are those that have made a specific allocation for impact. These actors are starting to give impact investing the dedicated professional support it deserves and, as a result, are seeing the benefits. Individuals can research the commitments made by these large institutional investors before purchasing their products and putting their money into such institutions.
Within the universe of institutional actors, there is a significant opportunity for individuals to get involved; and that is by engaging with the emerging ‘pensions with purpose’ movement. This movement is encouraging pension funds to offer pension investments that include impact offerings. Corporates - as large employers with pension plans, have an important part to play by ensuring that their employees have impact choices in selecting their pension options. The voice of employees is a source of influence in encouraging pension providers to offer pension products that reflect the employees’ impact interests. Individuals can make sure their voice is heard.
In addition, as millions of people around the world have a bank account, we need to realise that our money is working all day (and night) long. We have the choice to determine whether it is whirling around the world’s traditional financial systems making money for bankers or it is in the real economy, sitting inside someone’s newly established solar farm that promotes renewables, or inside a fruit and veg shop that supplies local communities with organic produce.
I would encourage all of us to see money as an enabler for building the real economy; an economy with the positive environmental and social impacts we want to see in the world around us.
What’s next for impact investing?
In five years, the conversation we are having today will be global and accessible to everyone. The question an investor will confront is not whether to make impact investments within their investment portfolio; rather the question will be why their entire portfolio is not in impact investments.
For more information on impact investing, please refer to the following sources: