Impact investing can be a compelling financial tool with which to make a positive difference in communities. But it can also be an effective part of the corporate treasurer’s portfolio. Evantz Perodin, Vice President and Assistant Treasurer, T. Rowe Price, explains how his publicly owned global investment management firm is meeting its investment criteria and changing lives.
As more businesses begin to realise they have a duty of care not only to their employees but also the communities in which they operate, so exploration of ways in which this responsibility can be best executed come to the surface.
It takes effort and belief to make it more than a simple ‘washing’ exercise. But when the results can be seen first-hand, that effort builds in momentum until one day, doing something good becomes doing something normal. But it has to start somewhere.
“Our Black Leadership Council within T. Rowe Price created a workstream to explore how the firm, via social impact investing of our corporate cash, could support and empower under-represented communities to narrow the racial wealth gap,” explains Perodin of his organisation’s social goals.
That workstream concluded that, as opposed to direct investments in businesses, the greatest impact would be achieved if the firm partnered with an organisation that provided scale and shared its mission. “After interviewing a few such organisations, the workstream team felt that CNote was uniquely positioned to be the partner we needed,” says Perodin.
Shared goals
CNote is an impact investment platform. The aim of this TMI Innovation Lab entrant is to unlock diversified community investments that fund small businesses owned by women and people of colour, affordable housing, and economic development in financially under-served communities across America.
With the stated mission of closing the wealth gap, the platform provider clearly met the criteria set by T. Rowe Price’s Black Leadership Council. “And interestingly enough,” notes Perodin, “it was one of the organisations that we interviewed which suggested that we talk to CNote, once it understood what we were looking for.”
The partnering with CNote, and the $50m investment commitment set by T. Rowe Price, was endorsed by the Black Leadership Council and approved by the firm’s CEO and CFO. “Their approval was symbolic of the firm’s commitment to the social impact investing initiative at the highest level,” comments Perodin.
The onboarding process that followed the approvals included legal, risk, and IT security due diligence. In addition, Perodin says the team from T. Rowe Price worked with CNote to agree upon the social impact themes and geographic locations that it wanted the deployed funds to target.
While opting in to certain investment goals is possible with other platforms, being able to work closely to specify community targets is a notable differentiator for CNote. Indeed, as Perodin enthuses: “We work with CNote because it is the ideal partner with the expertise, knowledge, and technology to align a portion of our corporate cash investments with our social impact investing goals.”
With CNote sharing a similar impact objective of addressing the US racial wealth gap by providing support to under-represented minority businesses and entrepreneurs in underserved communities, he feels that the partners’ goals were closely aligned from the outset.
Having onboarded, leveraging CNote’s technological platform – its Impact Cash solution – and network of vetted mission-driven financial institutions (MDFIs) enables Perodin to maximise, at scale, the deployment of T. Rowe Price’s $50m commitment. The solution, he adds, also provides quarterly custom impact reports “such that we are able to articulate and quantify how our deployed funds have affected the targeted communities”.
Commerce meets community
T. Rowe Price has so far deployed the millions of dollars in deposits placed through the Impact Cash solution to more than 50 MDFIs. “These deposits have supported loans to BIPOC [Black, Indigenous and people of colour] and low-to-moderate-income communities,” reveals Perodin. “The loans to the borrowers are in response to the changing needs in the local communities with respect to auto loans, commercial loans, and housing loans.”
T. Rowe Price’s ethos, concerning social impact investing, is intended to help alleviate the racial wealth gap that exists in the US. The focus areas, where it believes that funds should be deployed to address that gap, today cover affordable housing, access to banking and financial health, business development, and diverse workforce training and development.
With this in mind, the current aim for the partnership is the full deployment of the $50m commitment “in a timely manner and in line with our social impact objective,” explains Perodin. As the deployment of funds into the certificates of deposits in the MDFIs progresses, he says the team is able to continually monitor its financial position via CNote’s online portal, and through reviews of the impact metrics and spotlight stories that are conveyed in its quarterly Impact Report.
“As the certificates of deposits mature, the opportunity will arise for us to leverage our relationship with CNote to explore the various other solutions it offers to address our social impact investing objective,” he comments. “We value CNote’s expertise in this area now and in the future.”
Of course, one aspect that could quickly sour a working relationship is the technology that sits between the partners. From a purely technical perspective, Perodin feels that CNote’s online platform is “user friendly” and is able to provide his team with the information it needs to monitor its investment portfolio. However, if he had one criticism, it is that while the site uses username and password authentication, it does not support the use of Single Sign-On (SSO), “but it sounds like they’re exploring it”, he comments.
It’s clearly not a deal-breaker. Indeed, while some impact investors may have a degree of latitude in accepting a few technical quirks, treasurers do not have that luxury. And nor can they prioritise the social element over capital preservation. CNote’s Impact Cash placements are Federal Deposit Insurance Corporation (FDIC)- and National Credit Union Administration (NCUA)-insured but, as Perodin cautions: “social impact investments are still investments”.
Indeed, he continues: “the usual ‘security, liquidity and yield’ are aspects that you still need to think about. The weighting that you allocate to those components may differ in impact investing because you have other components, such as the impact investing goals, that you need to consider, but it is always a balance”. It’s one that Perodin and his team at T. Rowe Price have clearly factored into achieving a good outcome for all.
