The first bottom-line in any investment is obvious: market-rates of return for banks, pension funds, foundations, and other financial investors.1 The second bottom-line consists of social or environmental returns.2 This can be realized in the form of job creation, community revitalization, or energy conservation, among others.3 As a growing number of investors express a desire for their investments to address social and environmental concerns, the field of double bottom-line investing has grown rapidly.4
The legal structure of double bottom-line fund sponsorship could potentially take shape in a couple of ways. A nonprofit fund sponsor hoping to create a double bottom-line initiative could contract with a fund manager with an existing track record to direct its impact investment agenda, forming the fund as a limited liability company or limited partnership.5 Direct ownership is another option: instead of contracting with a fund manager, a nonprofit fund sponsor could own the fund manager and designate policies to ensure that the fund is having a social or environmental impact.6 Finally, a fund manager could create a double bottom-line fund of its own, without making a financial commitment to a nonprofit sponsor.7
In order to achieve social and environmental returns alongside financial returns, the fund manager may help portfolio companies develop practices appropriate for the portfolio company that target a double bottom-line. Depending on the nature of the business, this could be done in a variety of ways. One area that is universally applicable to medium and large businesses is employment practices. These could range from offering employees opportunities for professional development and continuing education to contracting with or hiring qualified local and minority residents in lower income communities.8 For businesses that are concerned about their environmental footprint, best practices could be as simple as recycling or promoting the use of public transit by reimbursing employees for their public transit payment cards.9 Green building design and operation is another environmental practice that has greater potential for long-term impact but might require more resources to implement.10
An example of a double bottom-line investment private equity fund is the $75 million Bay Area Equity Fund. Managed by a JP Morgan subsidiary and sponsored by the Bay Area Council and Alliance for Community Development, this contractual model fund focuses on companies in low-to-moderate-income neighborhoods.11 Ninety percent of the fund is directed at growing companies in green-tech, specialty consumer goods, and healthcare industries.12 The remaining 10% of the fund is directed at smaller companies with close-knit relationships with the local community.13 The investment criteria addresses two areas: (1) capacity for social impact (location in target neighborhood, ability to provide jobs for residents) and (2) capacity for market-rate returns (plan and readiness for rapid sales growth, more than $1 million in annual sales).14
In January 2008, a double bottom-line venture capital firm was created from the spin-out of the Bay Area Equity Fund.15 Like any other venture capital firm, DBL Investors’ investment strategy involves investing in “high-impact, high-growth companies with market-changing innovation,” but then goes one step further by collaborating with management to create social and environmental impact.16 For instance, DBL Investors assisted Tesla Motors in its search for a suitable manufacturing location in the Bay Area that could enhance economic development in the region.17 Tesla ultimately bought an old auto manufacturing plant in Fremont, California.18 The plant once played a central role in the city’s economy before the shutdown in 2010 that eliminated 4,700 jobs, and Tesla’s purchase helped revitalize the city’s economy by creating new jobs in the area.19
As the field of double bottom-line investing continues to grow, we will hopefully see more funds that, like the aforementioned examples, aim to achieve social or environmental impact alongside financial returns.
Erin Flynn et al., The Double Bottom Line Handbook: A Practitioner’s Guide to Regional Double Bottom Line Investment Initiatives and Funds 7 (2007), available at http://sdsgroup.com/wp-content/pdf/DBLHandbook.pdf. ↩
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Paul Brest & Kelly Born, When Can Impact Investing Create Real Impact?, Stan. Soc. Innovation Rev., Fall 2013, at 22. ↩
Flynn, supra note 1, at 53. ↩
Id. at 54. ↩
Id. at 52, 55. ↩
About DBL Investors, DBL Investors, http://www.dblinvestors.com/about (last visited Sept. 21, 2013). ↩
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Bay Area Council Family of Funds – Bay Area Equity Fund, Bay Area Council, http://www.bayareacouncil.org/family_funds_equity.php/ (last visited Sept. 21, 2013). ↩
Flynn, supra note 1, at 97. ↩
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Id. at 98. ↩
About DBL Investors, supra note 7. ↩
ImpactAssets 50: DBL Investors, LLC, ImpactAssets, http://www.impactassets.org/ia50/fund.php?id=a01E000000CHJhXIAX (last visited Sept. 21, 2013). ↩
Nancy E. Pfund, Response to When Can Impact Investing Create Real Impact?, Stan. Soc. Innovation Rev., Fall 2013, at 30. ↩
David R. Baker, Tesla Starts Delivery Out of Former Nummi Plant, S.F. Chron., Oct. 11, 2012, http://www.sfgate.com/business/article/Tesla-starts-delivery-out-of-former-Nummi-plant-3653530.php. ↩
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