Editor’s Note: Investing for Impact

The threshold group, which was established to invest the assets of the Russell family of Russell Investments fame, now represents 60 well-heeled clients. It recently found itself facing an odd conundrum.

Of the $3 billion it manages, says Threshold President Ed Lazar, $1 billion is money clients want invested in ways that will improve social and environmental conditions in the Pacific Northwest. But the group hasnt found enough viable investment opportunities.

Lazar figures that with so many wealthy people in the Pacific Northwest interested in impact investing, and with some 50 rural foundations across the state run by individuals who want to help people who helped me, there are many others facing the same predicament.

Thresholds response? Encourage more social entrepreneurship and improve the ability of fund managers to assess and invest in those companies. Thats the genesis of Invest NW, which Lazar calls a platform that will allow other foundations and ultra-high-net-worth individuals there is a $25,000 minimum fee to make impact investments in a coordinated way.

Place-based investing is the next big thing, says Brad Harrison, an investment analyst at Threshold. Today, there is a structure in place that encourages investments in clean tech and low-income housing projects. But what about wildlife habitat? If investors want to help protect the environment in Washington state and help fight global warming, says Harrison, Threshold might acquire a large chunk of timber acreage that has important ecological value not just for storing carbon but also for protecting endangered wildlife or wetlands. It might then switch from clear cuts, now common among timber companies, to selective harvesting, which is easier on the land and allows the acreage to continue to store more carbon. Threshold might make up for the lower cash flow by acting as a land bank and selling wetland mitigation rights and carbon credits. After 10 to 12 years, the land would be sold to a like-minded buyer. We are the catalyst [for change], says Lazar. Alternatively, the firm might acquire agricultural land and add value to it by switching to organic farming.

The company could also invest in venture funds that help create local jobs. But with total investment in venture companies in Washington state last year at just over $1 billion, that sector has little capacity to take new money, says Lazar.
In an effort to develop the impact investing ecosystem, Threshold has commissioned the Business Innovation Institute at the University of Oregon to launch a survey of investment managers involved in investing locally. The goal is to catalog, then nurture, social impact investing activity both by investors and social entrepreneurs. Threshold plans to evaluate managers investing in local impact, and provide feedback and training to help develop their ability to evaluate financial returns and social impacts from their investments.

Social impact investing may not be able to solve all our problems, but Thresholds efforts to rationalize the sector could go a long way toward pushing the envelope on taking economically reasonable approaches to address pressing social issues, including job creation.