Impact Adjusted Returns - Is there room in your portfolio for deeper impact?

Over the past several years, much research, time, and discussion has gone into busting the myth that investors must sacrifice return for impact. It is not hard to find such an article from most firms in the impact investing industry. It is safe to say that there are many opportunities to receive market rate returns while creating a positive impact. However, I think it is worth asking:

Shouldn't we be willing to accept lower returns to generate greater impact?

We can hope that there may someday be no tension between financial returns and positive impacts, but we must admit that this tension exists in numerous industries and asset classes. So, perhaps we should make some room in our portfolios for investments that deliver lower returns but deeper impact. 

For many, choosing impact over return may feel like no sacrifice at all, even if there is a significant financial opportunity cost from making that choice. Helping to house families struggling to find affordable housing has a value that is not measurable in a brokerage account statement. Seeing employees thriving and building wealth won't appear on a company's balance sheet. You won't find assurance that an energy company isn't poisoning the water flowing into nearby communities by looking at their cash flow statement.

Investors commonly accept lower rates of return when there is lower risk. Accepting a lower rate of return when there is a deeper impact may be necessary to make some deals work.

At Impact Charitable, we are seeking, analyzing, and creating investment opportunities that offer what I call “Impact Adjusted Returns” (“IAR”). We believe that donor advised funds offer a unique opportunity to target impactful opportunities within a portion of our investment portfolio that are not able to deliver market rate returns. With no set timeline or future event driving liquidity requirements; all funds set aside for charity have an opportunity to analyze investments with a stronger impact lens.

There is a large area of opportunity where an IAR approach can yield investments opportunities that would not otherwise be funded by the capital markets. Instead of holding all investments to the same risk/return standards demanded of traditional investments, an impact investment can be analyzed based on the positive impact created relative to the forgone financial return or increased risk.

In comparing a traditional market rate investment with an IAR investment, we can seek to determine what the financial return differential is between the competing opportunities. In some cases, this differential may be quite large, but in other cases, it may be only a few basis points. If we can define what the forgone expected financial return would be, we can then determine if the impact created by the investment is worth that tradeoff. The same can be done with a risk comparison between opportunities, though perceived risk can vary significantly.

Most fundamentally, an Impact Adjusted Return approach asks:

Is the expected impact worth the financial return that I will be foregoing?


Is the additional risk worth the expected impact of this investment?

Many individual impact investors and a small number of foundations are already effectively taking this kind of approach, though they may not articulate it this way. I take this approach in my own personal angel investments, and I know of many others who, in practice, do the same. For many, the potential impact of an investment opportunity can far outweigh concerns around return, risk or liquidity. However, that notion may not survive traditional credit committees or financial advisors.  We hope to see that begin to change, especially for dollars set aside for charity.



This is the beginning of a series of blog posts to further explore the idea of Impact Adjusted Returns and apply it to different asset classes. We will also analyze how IAR investments can be included in a reasonable investment portfolio, especially with dollars set aside for charity or when the portfolio value exceeds the expected needs of the investor.



Social harm without consequence - Social benefit without compensation

NPR’s Planet Money podcast first shared the story of Fredrick Hutson in March 2015 and recently updated his progress in their “The Prisoner’s Solution” episode. Hutson’s story illustrates the heart and foundation of social enterprise and impact investing. 

During Hutson’s 5 years in prison, he faced an unexpected yet common struggle for those incarcerated and their families – paying to talk to each other over the phone.  After leaving prison, Hutson decided to start a business that would meet this need more fairly. He is also likely saving all of us tax payers a lot of money and our communities a lot of harm. 

Numerous studies over more than 40 years have consistently shown that prisoners who maintain close contact with their support network while incarcerated have better post-release outcomes and lower recidivism rates. Nevertheless, our prison system often moves inmates far from their support networks.  Prisoner communication services are often provided by sometimes predatory private companies who pay millions of dollars in commissions to correctional facilities for the opportunity to do the business.  

Communication between prisoners and their support networks are a public benefit, reducing future costs of incarceration and the numerous monetary and social harms done when released prisoners return to crime. However, both correctional facilities and phone service providers treat phone calls as purely a profit making opportunity. Financial benefits are being privatized while lower income families are financially burdened and deep social costs are being externalized to communities and tax payers.  

Enter: Fredrick Hutson. 

The podcast ( tells the story best, but I will highlight what was most striking to me. Pigeonly has launched two products addressing communication barriers between inmates and their support network of family and friends. As Hutson was in prison, he saw the financial burden born by his family and girlfriend just to talk to him, which often led to frustration and reduced connection. He personally knew and saw what both mail and phone calls meant to him and other prisoners, especially on their path back to their communities. Despite the numerous resource and networking limitations that all former felons face, Hutson has shown the grit to build his vision. 

Hutson created Pigeonly whose first product was Fotopigeon, which allows users to send printed photos to their incarcerated loved one directly from their cell phone, tablet or computer. Telepigeon, a VoIP phone service, provides inmates a cost effective alternative to otherwise expensive prison phone calls. The company is currently sending approximately 5,000 photos a day and facilitating 2 million minutes of phone calls a month. 

I suspect Pigeonly may be doing more to reduce recidivism and prevent future crime than any other for-profit company in the country. Hutson is likely saving our country millions of dollars in future incarceration costs. Unfortunately, we do not operate in an economy that would shows such values on their income statement. So, he will continue to compete against deeper pockets, high paid lobbyists, and established industry networks, but I would be willing to bet on him and his team as others have. 


1. According to Crunchbase, Pigeonly has raised over $5 million since 2012, with close to $2.5 million closing in June of 2016. Y Combinator was the lead in their 2014 funding round.

2. The primary providers of prison phone call services in the U.S. are Securus Technologies, Global Tel Link, and CenturyLink. See if they are in your portfolios; then review their practices and decide if you want to continue to profit from their work. 

3. In 2015, the FCC moved to place caps on phone service fees as some rates approached $1.50 per minute. As the Trump administration began, the FCC dropped its defense of these new rules against the legal challenges brought by the industry. In June of 2017, the D.C. Circuit Court of Appeals said in 2-1 decision that the FCC overstepped its authority by trying to set limits on intrastate phone call rates. The court, though, found that an FCC rule capping interstate rates is permissible.