The impact investing market is rapidly expanding as investors and institutions increasingly embrace the significance of integrating Environmental, Social, and Governance (ESG) factors into investment decision-making.
ESG is a set criterion used to assess a company’s worth and risks regarding sustainability. This criterion may be used to evaluate relationships with stakeholders; For example: Does the company donate or invest a certain percentage of its profits to the local community? Is the company supporting vulnerable groups, and does it encourage other institutions to do the same?
Impact investors consider ESG criterion when making investments. Equalize Capital CEO Lee Calfo defines the impact investing Equalize conducts as, “Making sure the investment dollars that are made by our funds aid an individual or a business in increasing job creation, increasing capital availability to disadvantaged individuals or businesses, which ultimately helps the entire community in which a borrower resides to prosper.”
Who is impact investing for?
Many financial institutions are subject to Community Reinvestment Act (CRA) rules. These rules require certain insured depository institutions to help meet the credit needs of communities in which they are chartered, including low-and-moderate (LMI) neighborhoods (Office of the Comptroller of the Currency, 2022). Investors of such financial institutions want to make investments that assist borrowers who may struggle to obtain traditional financial loans and services.
What types of investments are available?
It’s important to understand that impact investing is not simply buying a share of stock. “If somebody buys Apple stock, it doesn’t produce any new jobs or help a small business owner grow their business. Impact investing at the community level is direct investing into residential borrowers or small businesses that need to expand,” says Lee.
Smaller financial institutions often have a difficult time finding impact investing opportunities or don’t have the expertise to make the investments directly. At Equalize Capital, our community development fund assists in providing and expanding access to bank loans for growing businesses and companies that struggle to obtain traditional bank financing, while helping smaller financial institutions meet their CRA requirements. Specifically, the fund participates in the market for SBA 504 Loans by buying the SBA 504 Loan which allows the financial institutions (mostly banks) that invest in the fund to meet their CRA obligations. The SBA 504 program is designed to facilitate lending to minority-owned businesses, women-owned businesses, veteran-owned businesses, and those in economic opportunity zones. Equalize Capital also establishes and manages funds that provide financing to underserved borrowers, including mortgage loans to minority borrowers and loans tied to U.S. Government lending/investment programs, such as the SBA and USDA, that promote community development, green power, and sustainable investment.