Encouraging Global Connectivity in the Impact World
A wonderful element of impact investing is the community it bears. Moving capital in a way that works for the good of humanity and the planet unlocks a well of relationships that otherwise may not have been brokered.
Toniic exemplifies this. A global community for impact investors, Toniic encourages connections and facilitates greater learning around creating deeper positive impact with capital. Its membership is diverse and expansive, consisting of more than 400 people representing twenty-six countries, each with varied asset ownership. Yet, the group feels familial and intimate.
“There is a very non-judgmental quality,” says CEO Adam Bendell. The group’s ethos of inclusivity, and a shared understanding that the path of impact is not a perfect one, are several things that have created an “extraordinary atmosphere of trust, where people feel comfortable sharing their journey in impact,” Bendell continues.
In the following conversation, which originally took place with The Conscious Investor founder, Eva Yazhari, and Ed Stevens, for an episode of The Beyond Capital Podcast, Bendell speaks candidly about how Toniic is providing cutting-edge research from the field, the need for connectivity in the impact world, and where the industry is headed.
“I think impact investing is in its adolescence,” he says, “and it's a really interesting time to play among its leaders.”
A Q&A with Adam Bendell
We'd like to start off talking about the scale of work that you do as CEO of Toniic. How has it evolved?
The term impact investing was coined more than ten years ago, and the practice of impact investing has rapidly evolved in that time. In the early iterations, I think folks thought about impact investing as early stage investing in social entrepreneurs and difficult markets that are aimed at providing basic goods and services to the poor or to those otherwise underserved. That definition has broadened dramatically over the past ten years, and what Toniic does to serve its members who are active impact ministers has changed with that.
Today, people think about impact investing as across multiple asset classes. And so, with Toniic, we have been leaders in that thinking, but we've also followed. About half of what Toniic does is serve our global membership. We have primarily family offices, foundations of high net worth, and individuals in our membership, all of whom consider themselves to be active impact investors. We convene them in events so that they can connect with each other and really have a sense of community. We provide educational tools and frameworks for them. And then we host investment opportunities that we think would be interesting to our membership.
What is the typical profile of your members?
The typical profile is private wealth holders as opposed to institutional folks who are managing people's money. We have a group of people who are investing very widely across all of the seventeen UN sustainable development goals across a wide range of wealth levels. They all learn from one another. You might think that their needs are quite different. In some ways they are, but in many ways they're not because the different wealth levels can support each other in filling out rounds with different ticket sizes and so forth. Because of the kind of active focus on positive social or environmental impact, we find that these investors have a lot in common.
One of the most inspiring parts of the Toniic vision is that it encourages its members to bring their whole selves to the conversation, and to live with a mindset of impact investing that goes beyond their investments. Can you talk about this experience, quality, and work of the network?
There is a very non-judgmental quality; an extraordinary atmosphere of trust, where people feel comfortable sharing their journey in impact. And that journey is never a straight line. There are always ways in which we are out of alignment with our best intentions. I think that is true for everyone, and impact-oriented enterprises, as well. But it's tricky to explore those out-of-line in places and not feel judged. So, creating an atmosphere where that can happen; where we say we share a common intention and I am willing to look at my behavior—and not just my investments, but also my consumption decisions, the way that I deal with my employees or staff, the decisions I make about real estate, how much I fly given the climate emergency. Those questions are on the table, and we will investigate those with mutual respect and with a deeply empathetic point of view.
One of the first steps to becoming an impact investor is to discover and understand your own values. And for some people that might take a period of time. How has Toniic been a place to let that unfold?
We've recently completed the design of a curriculum for those getting started an impact investing, which we call The Activator Series. It's quite a comprehensive benefit of the membership. It required us to think through the sequencing of steps to become an active impact investor. We've designed this both for folks who have lots of investment experience and those who have none, but who are—in either case—new to impact investing. What we concluded is that you have to start with an exploration of your values, but if you wait to make your first investment until you have got that really clear, you're going to wait a long time, because you learn quite a bit from doing.
We know from extensive studies that you don't have to sacrifice returns when you're an impact investor, but still, many investors are skeptical. Have you had to convince people that impact investing is viable and an option for their portfolios?
I think one of the reasons that myth persists is that the truth is more nuanced than a simple sound bite can convey. The majority of Toniic members are targeting market rate returns across their portfolio. But also, the majority will make some sub-commercial investments when they see that they can achieve, or expect that they can achieve, outside impact with those investments. They do that in the context of a larger portfolio with the plan that some of the other investments will carry the overall portfolio, which is the way any traditional—at least early stage or venture investors—look at things.
We see a role for market rate impact investments that have both market rate returns and impact alongside. That role is mainly about convincing traditional capital, including those who feel constrained by fiduciary obligations, to invest for impact. Basically, treating impact as an additional constraint along with market rate financial returns, or risk adjusted returns. And also, a role for catalytic or sub-commercial investing. Many of our members relax that constraint very consciously, in certain areas, because they see that there are very impactful investments that won't quite make market rate returns but could be hugely impactful and return their capital—and then some. A conscious portfolio construction strategy weaves those things together in ways that meet the needs of the investor. And to say that an impact investor is, in some cases, targeting sub-commercial returns is not to say that they’re throwing all financial due diligence or caution to the wind. Rather, they are simply taking on the additional challenge of managing impact as a constraint in portfolio construction.
In the three-plus years that you've been at Toniic, have you seen a balance between commercial and sub-commercial, or has it been trending in any particular direction?
If you think about impact investing as a kind of early stage investments in difficult markets and social enterprises, then those were almost inherently in a lower, or often lower, return. It's not always the case, but that is often of those difficult markets. You have to make the market at the same time that you're investing in a particular enterprise. So those tend to be more concessionary. As you think about a portfolio approach across real estate,, across even public equities, there you see lots of opportunities to get impact and not have to relax your return expectations at all. So, as the definition of impact investing and as our approach has migrated more towards a portfolio approach, we've seen a move towards market rate as a constraint becoming much more common in the impact of the world.
What kind of impact are Toniic members generating in the world?
Our membership is about half of what we do, and the other half is sharing and learning. We have two projects that I want to share. One is a project called T100, which is a study of the journey to full deployment of those of our members who committed 100 percent of at least one of their portfolios to impact. We have written three reports. We collect data from those members, both behavioral survey data and also detailed investment portfolio data that they allow us to aggregate, anonymize, and share with the world. There is a directory that is a list of more than 1500 investments that our members have made and shared with us through that project. We share that with an academic research consortium to power academic research on impact investment.
The second project is called Impact Terms. That is a compilation of the most innovative deal terms and structures in impact investments, typically private and typically earlier stage-type investments. But as we've developed the field, we've learned that many of the structures that we inherited from traditional finance aren't necessarily purpose suited for all impact investments.
You've been the CEO of Toniic for over three years. What trends have you noticed in the industry?
The growing class of mutual funds in the United States is sustainable investments. That is a broader indicator of the level of interest. Now, impact investors typically go further than simply screening out investments that they wouldn't be comfortable owning, or using environmental, social, or governance factors as a risk mitigation strategy. We now are talking about this distinction between values, alignment, and impact contribution. Values-alignment is about owning properties that you feel good about, because they are well run or because they take a multi-stakeholder model approach that does not just serving shareholders, but also serves employees, customers, the communities in which they operate, and the environment. Sometimes that's only investing in sectors that you feel good about. Sometimes that is investing in “dirty” sectors. For instance, you may think you've identified a fossil fuel company that is really trying to envision the post-fossil fuel economy. All of that is values-aligned. It's about feeling really good about what you own. It is often the place that a new impact investor starts when they tackle their portfolio. That is what our co-founder, Charly Kleissner, calls detoxifying the portfolio.
The second category of things are those that are making an actual impact contribution. And that's narrower and harder to find sweet spot for impact investors. There we want to understand that our capital is doing something that otherwise would not happen. It might be that we're supplying new or undersupplied capital markets, that we have a more patient or flexible approach to harvesting our gains from the investment. And that is also the place where the concessionary capital plays, where if you are willing to, at least in some investments, get less than market returns, all of that then qualifies as impact contribution. For clarity, I will say it is not only sub-commercial investments where you can be contributing. The language isn't yet settled in the industry, but that distinction is getting clearer as the big players come in with ESG funds about the distinction between values, alignment, and impact contribution is something that we see happening much more broadly in the market.
You've had quite a career as an entrepreneur, investor, lawyer, consultants. What motivated you to pursue a career at this intersection of social good and investing?
The opportunity to have a really deep meaning and the sense of service in my day job. I was an impact investor, personally. After my first significant exit, I sold a business I had started to a public company. I was still working at that public company in a series of demanding roles and doing my impact investing on nights and weekends. I saw the Toniic leadership opportunity as a chance to put those two things—which had always been sort of separate paths in my life— together. It was an opportunity to give back to the world in gratitude for the successes that my privilege and my hard work had engendered. The opportunity to really be among some of the most joyful investors and people that I've ever met. And the opportunity to further this field of impact investing in a really interesting time; a time when it's no longer in infancy, but it's sort of long-term success as an adult is not yet assured. I think impact investing is in its adolescence, and it's a really interesting time to play among its leaders.
Ten years in the future. Where do you see Toniic? And also, where do you see impact investing?
Since I've been an innovator in my previous career, sort of over and over again, one thing I know about myself is I'm not always right about where things were going, but I'm often right about where things were going. I am also often overly optimistic about how quickly they will arrive. So, I'm going be a little more cautious here in terms of predicting a timeline. I'll tell you the vision, which is super clear: All investments will honor people and the planet. That's the world that we're working towards, and it's one that I think will come someday. One where the kind of current form of capitalism will be seen as a sort of temporary aberration.
I don't think capitalism started in Adam Smith days with the current definition. I think it started in the seventies with Milton Friedman and his famous New York Times pronouncement that the social purpose of business is to increase its profits. You may be familiar with the change that the Business Roundtable announced. This influential group of about 170 US CEOs of public companies who adopted the stakeholder model and rejected the Milton Friedman shareholder model that the only constituency that matters for public companies is its shareholders and increasing stock price. This is indicative of a broader trend that is stronger, frankly, in Europe than it is in the United States—but it's happening here as well.
That trend is to recognize that what is externalized from the enterprise is born by the commons. The planet is a finite resource. The idea that we can simply pollute it and just go find something else somewhere else is rapidly running out of steam as an idea. So, the integration of social and environmental impact into the thinking of business leaders is an inevitable trend.
Businesses can be run with a greater sense of integrity than we have imposed upon them. That integrity involves treatment fairly of all of its stakeholders. I think it's an extraordinary time to be contemplating that future. I don't know how long that will take, but I think that that day is coming—and it will be up to all of us.
Lastly, as the world is facing tremendous challenges and reckonings, we would like to offer the opportunity for you to speak on the current state of social impact.
The world is in the midst of a revolution, around the health and economic effects of the pandemic and our collective reckoning with the legacy of institutionalized racism and colonialism. Many aspects of life BC—before Covid—won't return—the amount of flying to meetings we realized we can do better on Zoom, the sense that money can always buy you privileged medical care or mobility, and the shattered sense of being able to insulate from humanity's fundamental interdependence. This is good news for those dedicated to positive social and environmental impact.
To learn more about Adam Bendell and Toniic, visit: toniic.com
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