Impact investing is a fast-developing area of interest for investors and philanthropists. There are numerous definitions of impact investing, but a generally accepted description is “investing for both financial and social return.” Put another way, impact investing is “making money while influencing positive change.” According to Kristi Combs, Managing Director of wealth advisory firm Greycourt, in her article for Corporate Finance Review, “More than just a trend: The importance of impact investing,” impact investing draws its inspiration from earlier trends such as socially responsible investing (SRI), a well-defined framework for choosing investments based on environmental, social and governance (ESG) criteria, sustainable investing, community development, and microfinance.
How does impact investment differ from traditional investing or philanthropy?
As this Forbes explainer video shows, impact investment “combines both the rigorous analytics of traditional investment and the heart of philanthropy.”
Impact investing has matured in the past decade. There is now an abundance of projects in clean water, education and low-income housing, but growth in arts investing has been slow. The arts sector still relies on traditional philanthropy models for raising the necessary contributed income to support their missions. Charitable giving in the United States has historically been about $390 billion per year. In contrast, there is $80 trillion in assets under management, of which almost 50 percent resides in North America. The World Economic Forum has projected impact investing to grow to over $500 billion in 2020.
Yet we, in the art sector, have yet to provide the tools, strategies and tactics for impact investors to align their capital with arts and culture. Currently JP Morgan and the Global Impact Investing Network report, Impact Investments: An Emerging Asset Class, does not track arts and culture as a segment of impact investments.
In looking to uncover why this is the case, I discovered its due to our challenging metrics. Evan Beard, national art services executive at U.S. Trust, a private bank for high net-worth individual explains, “There are metrics to say how many people got clean water or how many were cured of malaria. [Whereas,] the arts by their nature are intangible, and so their results are intangible.”
Why should we, as arts leaders, advocate for impact investing for the arts?
Researchers and policymakers have come to recognize creativity as one of the most important drivers of sustainable growth, economic development, and innovation in the world today. A growing body of evidence points to the increasing advantage that the “creative class” and the “creative economy” are necessary for success in today’s knowledge-based society.
“To our thinking, creativity fuels every successful human enterprise. Creativity, to form something new and valuable based upon a different perspective, is essential for economic development and capital formation.” – Erika Karp
Sharon Percy Rockefeller has stated, “Art is the conscience of a nation.” And there is no better time than now to put this capacity to work. There are compelling reasons to consider “creativity and the arts” as an investment segment, in its own right. Cornerstone’s Head of Research and Corporate Governance, John Wilson, lays out the case for investing in the “creative economy” as one way to counter the negative effects of widening income and wealth inequality, and the opportunity gaps that have resulted from the knowledge-based economy. Laura Callanan, a founding partner of the New York City based field-building organization Upstart Co-Lab, cites creative enterprises as “an on-ramp to wealth-building for entrepreneurs including women, people of color and others who benefit from lower barriers to entry to a sector of the economy more interested in merit than advanced degrees and pedigrees.”
Since the Co-Lab’s founding in 2015 it has helped increase interest in impact investing in the arts because “we learned how to talk about this and frame it,” said Callanan. Upstart Co-Lab, a collaboration connecting artists, impact investors and social entrepreneurs to create opportunities for artist innovators to deliver social impact at scale, outlines three reasons why impact investors may want to consider investing in the creative economy for financial and social impact: to gain portfolio diversification; as a new way to achieve social return related to key priorities like climate change and community development; and to harness the projected growth of the creative economy to build an inclusive, equitable and sustainable future.
There’s an effort underway to create a chair at the table for the creativity and the arts. Upstart Co-Lab’s team states to be working with the U.S. Department of Treasury’s Community Development Financial Institutions Fund and Opportunity Finance Network to separate the creative industry’s information in future reporting and surveying, while also trying to raise the arts-as-investment profile with the likes of J.P. Morgan Private Bank and Goldman Sachs’s Imprint Capital.
What are some ways impact investing are being implemented in the arts sector field today?
Upstart Co-Lab is not alone in pioneering the way forward. There is a rising tide of organizations working to facilitate the interaction between investors and arts organizations that create a social and financial return, both in the US and abroad. Examples include the Arts Impact Fund in the UK and Exponential Creativity Ventures based in New York City. Funded projects include initiatives such as Roots Studio, and artFix.
Roots Studio digitizes traditional Indian art from rural communities into an online library for licensing. The organization aims to preserve the culture and reclaim authorship for rural tribes. Through investments from Exponential Creativity Ventures the organization is able to provide a 500% profit return above the status quo to the artist per license.
In the UK, artFix is a combination cafe, co-working space, learning center and pop up venue where you go to make your project happen. Activities hosted include art classes, film-screenings, capoeira and yoga. Between 2017-2019, over half of its events its events and workshops have been either free or less than £5 to attend. Beyond making everyday arts accessible, artFix is also about creating inclusive and participatory spaces that engage local communities and give voice to vulnerable social groups through collaborative programming and community arts projects.
With artFix’s work being recognized by the local council, as well as property developers interested in building communities within their residential sites, a number of expansion opportunities arose for the business. Capital was needed to fund the start-up costs of potential new sites and manage cash flow for the first few months of trading. After scrutinizing the business viability of the existing site and financial projections, the Arts Impact Fund offered a loan of £200,000 to expand into two new sites. Additionally, the Arts Impact Fund was integral to creating a framework with artFix to measure their social impact over the lifetime of the investment. In this way, the business will be better able to articulate the value that it brings to both corporate and community stakeholders.
What’s next?
These funded initiatives are ultimately investments in creative people. Creative entrepreneurs are launching and growing great companies that are good enough to attract investors who only care about profit. But as true social entrepreneurs, creatives want to attract impact investors who share their values and will help to growth these companies – and the creative economy as a whole — to be more inclusive, equitable and sustainable. The impact investing sector concluded a long time ago that intention and purpose count when it comes to determining if an investment is having an impact.
There is still a lot of education needed to help investors and funders better understand the creative sector and develop formal tools to facilitate their investments. A few conversations we can begin to have with our constituents to bring the arts out of the kitchen and into a seat at the table:
- Art collectors and art patrons can insist on information about opportunities to invest in creative places and businesses to their wealth providers rather than simply in the form of Picasso paintings.
- Foundations can pave the way for impact investing in the creative economy—as they already have for the environment and low- income communities—by being first-mover investors.
- Endowed cultural institutions (e.g. museums, performing arts centers, fine art schools, performing arts conservatories, artist-endowed foundations) can demonstrate some enlightened self-interest by aligning their investment portfolios to drive impact through the creative economy.
The concept of a powerful creative economy challenges artists and creatives alike to serves as an outlet to reframe our role in society, to see ourselves as leaders and drivers of this new world order, instead of being a vital and necessary drain on limited resources.
Let’s work together to disrupt the status quo of public subsidy and donation-dependency among arts-related businesses, embrace market-driven strategies and demonstrate inclusion in the art sector and create cross-sector partnerships prioritized by the impact investing community. Let’s harness our role as advocators of the cultural vitality that is transforming our local communities and driving sustainability throughout the nation and around the world. After all, we are stronger when we work together.