The 20% consisted of microfinance, agricultural cooperatives and small business loans around the world, most of it in the global south in countries that he joked he “could neither pronounce, spell, nor find on a map.”

Yet somehow, said Cordes, all of these underlying borrowers and entrepreneurs had not ‘gotten the memo.’ “They didn’t know that AIG had fallen, that Lehman Brothers had fallen, that Merrill Lynch had been sold, that the world had kind of cratered financially.” Despite the West’s economic disaster, these borrowers had gone on building their businesses and paying back their loans, he said. For Cordes, this was a key moment in which he realized that impact investing — a term not even coined yet — could really work.

A 30-plus-year veteran of the financial services industry, Cordes and his wife Marty started the Cordes Foundation in 2006. The foundation focuses on alleviating global poverty and empowering women and girls to participate in community development. He is also the co-founder and executive co-chairman of AssetMark, a provider of asset management solutions to independent financial advisors.

Cordes’s leadership in social entrepreneurship and impact investing has been highlighted in prominent news media and he shared some personal and professional reflections at the recent Wharton Social Impact Conference.

Saving Our Own Children

Quoting Mark Twain, Cordes said that “the two most important days of your life are the day you’re born, and the day you find out why.” He said the day he “found out why” was November 4, 2008 when he visited a small village in Uganda that had benefited from one of his microfinance investments.

He described how he and a group of businesspeople found themselves “totally off the beaten track” in a jeep going down a ravine, three hours from the last road they had been on. They came to a small village in Buyobo, Uganda, where about a dozen women were “excited” to see them and showed them the businesses they had created with their microloans.

“We get to this one particular woman whom I’ll never forget,” said Cordes. Her business is to resell used clothing, necessitating a trek once every three to four weeks to Mbale, a city two hours away, to buy used clothing, bring it back and sell it at a stand that she had created. Through an interpreter, the woman told Cordes, “We appreciate when you, people from the U.S. come to Uganda to save our children. But we need to save our own children. Thank you for investing in us so we can do that.”

“This wasn’t a supplicant asking for charity,” said Cordes. “This wasn’t us showing up with our used T-shirts and tennis shoes, dumping them off saying ‘Here, we have something, you take it.’ This was someone saying thank you for the fact that we had enough trust and confidence in her and in her ability as an entrepreneur.” By 2014, the program, which had started with 40 women, had increased to 3,000 women in three countries.

“I really do think that impact investing is about investing with both the heart and the head,” said Cordes.

Cordes recounted how in 2008 he was eager to help develop the fledgling field of microfinance and social impact investing, but encountered some serious roadblocks. For one thing, financial advisors at the time were — and many still today are — unwilling to offer social impact options to their clients.

He cited a study that the non-profit Calvert Foundation had done at the time called ‘Money for Good,’ which surveyed 1,100 high net worth and affluent clients about the concept of impact investing. Although the report suggested substantial interest in the idea (48% interested or very interested; 40% somewhat interested), it also identified that almost no one was actually making these kinds of investments. The chief reason, the survey revealed, was that these individuals’ financial advisors had never mentioned it as an option. One survey comment Cordes recalled was, “It’s as if I’m at a restaurant and there’s this really cool item available, but they neglected to put it on the menu.”

Cordes decided to do some anecdotal research, arranging a meeting with a group of 200 financial advisors. The feedback he heard over and over was, ‘I just don’t have enough credibility and expertise in this area to not only not bring this up with clients, but to … be comfortable with inbound requests.’

What was happening in a lot of cases, he said, was clients were clipping articles about microfinance out of newspapers and magazines and showing them to their advisors for guidance. The advisor’s response would typically be something like, “That’s something you should do with your philanthropy, but it’s not something that would be my fiduciary duty to put in your investment portfolio.”

He added, “I’ve been doing this for 35 years and that is ‘advisor-speak’ for ‘I don’t know enough about this to look credible, so if I throw out words like ‘fiduciary responsibility,’ you’re going to think there’s something improper about doing it, and so maybe you’ll make a philanthropic contribution, but I’ll be off the hook.’”

This general state of affairs inspired Cordes to partner with the Calvert Foundation to form ImpactAssets, a non-profit financial services company that works to bridge the gap between investors and financial advisors. According to Cordes, ImpactAssets today has a portfolio of about $250 million.

“We have a donor-advised fund that allows about a thousand donor-advised clients around the country the opportunity to do what we did … which is to use a charitable portfolio not just as a vehicle to give money away, but also as a vehicle to make impact investments.” The ImpactAssets team helps package the investments and performs all the necessary administrative work.

He added that the organization has built up a large body of research and resources for financial advisors “to help them understand how it is they can have this conversation with their clients and the importance of having it.”

‘Democratizing’ Impact Investing

Recently Cordes has begun to focus his efforts on being a “networker” for the social impact space. He sees a great need to build a stronger professional community. For example, he said, for the past seven years the Cordes Foundation has run a global poverty event in Mexico “and it never ceases to amaze us that we’ll bring on two social entrepreneurs, both from… [say,] Kenya, both working in exactly the same issue area, but they’ll meet [for the first time] in Mexico. We’re big believers in the power of connectivity.”

Another current goal is to “democratize the field” by making it easier for a larger number of people to make impact investments. To help get there, ImpactAssets is launching a new retail product called ImpactNotes. Cordes explained that the notes are similar to debt products generally only available to “qualified clients,” which in the U.S. means having at least $5 million in investable assets. ImpactNotes will be available to those with much less: a minimum of $250,000 of investable assets. The product, which will be available across retail platforms and can be traded electronically, is designed to drive capital into microfinance and sustainable agriculture.

While philanthropy is great, said Cordes, impact investing can do even more. “We’re the most generous nation on the planet, we gave away $300 billion last year, and that’s a terrific number. But the fact is, collectively as individuals, we’ve got $40 trillion in investment accounts.” If Americans directed 1% of their collective investment portfolio to solve the same world problems, he noted, “we would more than double, and double, and double again the amount we’re putting into philanthropy.”

Cordes exhorted the conference audience to ask their financial advisors about options for impact investing. He commented, “We all control assets in one way or another, whether it’s working with a private bank or with a financial advisor… directly online with Schwab or TD Ameritrade or another provider, or in our 401K plans.”

“I can tell you from 30 years in the financial services business … demand flows up,” said Cordes. “When demand begins to be recognized in the field by individual financial advisors; when the callers on call service lines begin to go to their managers, and their managers say ‘people are asking for this, why can’t we deliver it to them?’ — in my experience that’s when things start to happen.”

Last November, two articles raised some fundamental questions about impact investing. “Impact Investing Benchmark: What’s ‘Impact Got to Do With It?’ (Paul DiLeo, Grassroots Capital Management) and “Impact Investing: Financial Returns are Only Half the Story” (by Roots of Impact’s Bjoern Struewer and Rory Tews) both begin as reactions to various specific points raised in a recent joint publication from Cambridge Associates and the Global Impact Investing Network (GIIN). But both articles quickly expand to address the important, broader debate that the report has spurred.

The Cambridge/GIIN report, published in June 2015, seeks to define, for the first time ever, a benchmark for impact investments. It provides detailed analysis of financial returns on “impact investments,” but curiously, it leaves social returns entirely in the eye of the beholder. And as Struewer and Tews note, “The [GIIN/Cambridge] report uses a self-reported ‘intention to generate social impact’ as the only impact-related inclusion criteria”—in other words, impact means whatever anyone says it means. DiLeo, for his part, forthrightly asks “why we bother to distinguish [impact investing] from conventional investing at all, other than for marketing purposes” if the only metric is shareholder returns.

Both articles acknowledge that impact assessment is complex, and that it would be unreasonable to expect that the first-ever attempt at an investment benchmark would or could be definitive. But as they also point out, benchmarks have a self-fulfilling quality: Once in general circulation, they become the target toward which the industry aims. Benchmarks don’t just describe market conditions; to a large extent, they shape them.

Ten years ago, the microfinance industry was exactly where the impact investment community finds itself now. We prided ourselves on the “double bottom line”—delivering meaningful social performance while operating on a financially self-sustaining, even profitable, basis. Great efforts were underway to measure financial performance. But—and stop us if any of this is sounding familiar—with a few notable early exceptions, no one was measuring social performance. No one was even defining the term. It was simply taken for granted that if a financial institution said it had a social mission, it was serving poor people well. In short, social performance back then, like impact investment today, meant whatever anyone said it meant.

The backlash did not hit until 2007, but when it did, it was fierce. The windfall profits from high-profile IPOs—and the mind-boggling interest rates paid by very poor people that had made those profits possible—soured the public on an industry that had enjoyed respect, not to mention taxpayer funding. Never mind that the IPOs were hardly representative of the whole industry. Without universal standards, the public understandably concluded that “social performance” was nothing more than a marketing slogan.

With the benefit of hindsight, it’s striking how closely the story the microfinance industry told itself then parallels the story the impact investment community (at least segments of it) appears to be telling itself now. The pre-IPO narrative in microfinance went something like this: If a customer pays off her loan and comes back for a new one, it proves that she values the product and can manage the interest. Therefore, the institution can charge a premium and still rest assured of its “social performance”—no trade-off required. Ten years later, Paul DiLeo tackles the “no trade-offs required” assumption head on. He notes that investors believe—because they choose to believe—that they can earn comparable or greater return on their “impact investments” because experience proves that people will pay more for cruelty-free chicken, or dual-fuel cars, or solar panels. But as he points out, when we are talking not about affluent customers paying more for virtue-signaling luxuries, but instead about poor people buying necessities, “the idea of them choosing to pay more makes no sense.” If an investor still demands above-market returns from a company that provides necessary goods or services to poor people, on what basis, DiLeo asks, should it be considered an “impact investment?”

The Social Performance Task Force (SPTF) was created in 2005—crucially, so it turned out, before the IPOs—as a platform for the industry to get real about social performance: defining it, measuring it, promoting best practice. It took 10 years, and intensive collaboration among all the major stakeholders, but today the microfinance industry has the Universal Standards for Social Performance. These standards enjoy credibility (because the work was well underway before the IPOs and thus could not be dismissed as damage control) and wide adoption (because everyone had a say in them). We have a suite of other tools, too, including some specifically for social investors in microfinance, and we have an active Investor Working Group.

Our journey provides a roadmap for the impact investors, considering how closely history appears to be repeating itself. Following that roadmap could help them avoid some of the quick sands we stepped in along the way. Above all, our experience suggests that unless impact investors resist the powerfully seductive lure of “no trade offs required,” disaster will ensue, causing the greatest harm to the most vulnerable.

SPTF also has a vested interest in sharing our experience with investors because so much impact investment is aimed at our sector. We’ve seen what happens when a market gets flooded with new money from investors who demand aggressive returns and are content not to ask the tough questions about what makes those returns possible. That story never ends well.

The impact investor community has an opportunity to write a new story, and get it right from the beginning. Judging from the new benchmark, and the debate it inspired, the story could end up going either way.

- See more at: http://ssir.org/articles/entry/what_impact_investors_can_learn_from_the_microfinance_industry#sthash.yUWNJIV7.dpuf