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Creative industries have tremendous potential for economic and social impact. Experts such as British author John Howkins, who popularized the term "," and urban studies theorist Richard Florida, who coined the term "," have demonstrated the power of creative people and sectors to strengthen communities and unleash growth.
Concurrent with the rise of the creative economy, we have witnessed a substantial growth in impact investing. According to , $8.72 trillion in U.S.-domiciled assets apply environmental, social, and governance (ESG) criteria in their investment analysis and portfolio selection. As impact investing has developed, targeted investor interest and substantiated opportunities are finding dedicated investment products catering to a range of values, themes, and social issues.
We have not seen, however, the alignment of impact investing with the creative economy. According to the , zero percent of impact investment is in the arts and culture sector. This report was validated in 2015, when three impact investment advisory firms — , , and — working independently could not identify impact-investment opportunities in arts, culture, and creativity for clients who requested them.
Because creative places (such as cultural institutions, cultural corridors, affordable housing for artists, and shared studio and work space for creatives) and businesses in creative industries exist in rural and urban communities of all sizes and demographics, strengthening this segment of economic activity can have far-reaching benefits. Creative places anchor communities and help foster cohesion and engagement at a time when our nation is divided and its values are tested. Creative businesses can also generate quality jobs.
With the United States facing public spending cuts to the arts, public media, and community development, we need ways for investors to deploy values-based capital to make up the difference.
We know creativity is investable. Arts and culture in the United States represent $730 billion, or 4.2 percent, of U.S. gross domestic product, according to the and the . Since this measure focuses on arts and culture and does not fully reflect the culinary arts, fashion, digital media, design, and crafts, it represents a conservative assessment of the creative economy as a whole. The arts and culture sector is also one of the country's most important exports, generating an international trade surplus of $26 billion between 1998 and 2014.
We also know that creativity has impact. In the , the Federal Reserve Bank of San Francisco documented how creative activity in low-income communities can strengthen economic development, encourage civic engagement, build resiliency, and contribute to quality of life. Since 1995, the (SIAP) at the University of Pennsylvania has further documented how the presence of cultural resources in low-income neighborhoods is "significantly" linked to better health, schooling, and security.
Yet today there are no dedicated investment products, funds, or strategies to help impact investors align their values and capital with the creative economy. This doesn't mean impact capital is not flowing to the creative economy — it just isn't doing so on purpose.
To be sure, there are significant investments in the creative sector through community development financial institutions (CDFIs), private financial institutions dedicated to delivering responsible, affordable lending to help low-income communities. The U.S. Department of the Treasury's deployed $460 million through the into creative places from 2004 to 2013. And over the last thirty years, the (LISC), a nonprofit CDFI, invested $138 million in grants, loans, and project equity in ninety-eight creative-place projects across the United States, with total development costs of more than $939 million. Other CDFIs such as Craft3, Enterprise Community Partners, RSF Social Finance, and the Reinvestment Fund report investing in creative places and businesses as part of their comprehensive community-development strategies.
However, none of these community development institutions are tracking and measuring their creative-economy investments. While impact investments have been reaching creative places and businesses in low-income communities, they have gone unnoticed due to a lack of naming and framing. Even while there are examples of creative places and businesses benefiting communities, they are currently categorized as affordable housing, community facilities, or small businesses. Until creative places and businesses are recognized as a distinct segment, impact-investment capital cannot be targeted to the creative economy.
Shaping the Creative Future
Last April, I launched to help close this investment gap. Upstart Co-Lab connects artists, impact investors, and social entrepreneurs to create opportunities for artist innovators to deliver social impact at scale. Our goals are to unleash more capital for creativity, to increase opportunities for artists as innovators, and to enable sustainable creative lives. Upstart Co-Lab is now exploring how existing impact-investment products and funds — especially those focused on low-income communities — can be tweaked and redeployed to allow impact investors to direct their capital to creative places and creative businesses.
Our first pilot, which closed in November 2016, showed how existing investment infrastructure can be used to link impact investors to the creative economy. After searching for opportunities in the arts and creative economy that would deliver social and financial return, impact investor Lorrie Meyercord invested $1.2 million with the , an impact-investment intermediary, through Calvert's and subordinated debt. The note is a proprietary debt security issued by Calvert since 1995 to channel capital to high-impact community development initiatives. Meyercord's investment was targeted as part of a $2.5 million loan that Calvert extended to Artspace, a nonprofit real estate developer of live/work space for artists across the country.
Upstart Co-Lab made the necessary connections for this investment by introducing Meyercord to Calvert and Calvert to Artspace. Since then, five individual impact investors and one foundation have invested in the Community Investment Note in support of Artspace and affordable artist housing. This demonstrates how existing community-development investment products can be successfully deployed to creative places and businesses and can attract the interest of investors.
We have also found that there are plenty of opportunities. , a new report we issued with the Calvert Foundation, describes demand for impact capital among creative places and businesses over the next five years across the United States. The report highlights twenty-six projects in fourteen states, with total project costs of $1.5 billion. While this pipeline of investable projects is by no means exhaustive, it demonstrates the nature and scale of opportunities available.
For example, CDFIs and have invested $3.3 million and $5.2 million, respectively, in Equinox Studios LLC, a 100,000-square-foot affordable work space in Seattle that is 100 percent artist-owned and provides studios for more than 125 artists and artisans, including blacksmiths, sculptors, painters, ceramicists, glassblowers, leatherworkers, woodworkers, and photographers. In response to demand for 70,000 square feet of additional work space by these and other local artists, Equinox is currently looking to borrow an additional $10 million to acquire two adjacent buildings.
, an entertainment and educational publisher, harnesses the power of social impact video games to help youth understand and shape the world. With its partner, the , E-Line has published the award-winning adventure game , which shares traditional Alaskan stories, music, and art through the medium of the video game. E-Line Ventures LLC is capitalized by individual and institutional impact investors, and assembles financing from government, philanthropy, and impact investors for individual game titles.
Beyond community development, artists and designers are founders of some of the leading companies of the Internet age, including Airbnb and CrowdRise. such as Kickstarter and Etsy have further demonstrated the potential crossover between sustainability and the creative economy. In fact, 10 percent of U.S. B Corporations — for-profit companies that are certified for meeting social and environmental standards — are in creative industries. The opportunity to garner a financial return and create social impact through art, culture, design, and innovation is only growing.
That impact investing has not yet connected to the creative economy is confounding, especially given the ample supply and demand. Our research examined investable opportunities in the creative economy that have the potential to stabilize threatened communities and generate quality jobs. We also spoke with impact-investment wealth advisors such as Veris Wealth Partners, , Tideline, and , and confirmed that impact investors have been requesting such opportunities.
I recognize that such efforts face hurdles. The creative economy is not yet recognized as a distinct segment of impact investing, and targeted financial products, standards, and metrics all need to be developed. But if we figure out how to bring the capital, creative people will find the solutions. When creative people pursue businesses that have a social purpose, they can have a catalytic impact on job creation, the economy, and social well-being. And that benefits everybody.
Laura Callanan is the founding partner of Upstart Co-Lab and former senior deputy chair of the National Endowment for the Arts. She previously served as a consultant in McKinsey & Company’s social sector office.