The Power of Impact Investing: Introduction

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A new wave of investors is using impact investing to address some of the greatest challenges of our time—from climate change and water scarcity to lack of access to health care, education, and affordable housing—with the intention of also generating a financial return.

Transcript of The Power of Impact Investing: Introduction

  • Philadelphia THE P WER OF IMPACT INVESTING Putting Markets to Work for Profit and Global Good Judith Rodin President, The Rockefeller Foundation Margot Brandenburg
  • 2014 by The Rockefeller Foundation Published by Wharton Digital Press The Wharton School University of Pennsylvania 3620 Locust Walk 2000 Steinberg HallDietrich Hall Philadelphia, PA 19104 Email: whartondigitalpress@wharton.upenn.edu Website: wdp.wharton.upenn.edu All rights reserved. No part of this book may be reproduced, in any form or by any means, without written permission of the publisher. Company and product names mentioned herein are the trademarks or registered trademarks of their respective owners. Ebook ISBN: 978-1-61363-035-8 Paperback ISBN: 978-1-61363-036-5 Please contact Wharton Digital Press for special discounts on bulk purchases of ebooks and paperbacks: whartondigitalpress@wharton.upenn.edu. The advice and strategies contained herein may not be suitable for your situation and should not be considered to constitute investment advice of any form. You should consult with professional advisors, including investment, legal and tax advisors, prior to making any investment decision on the basis of the information contained herein. Neither the publishers, the authors, nor The Rockefeller Foundation shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. Past performance of company or an investment, such as the performance of the investments and companies described in this book, does not guarantee future results.
  • Contents iii Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v Chapter 1. What Is Impact Investing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Chapter 2. Who Are the Impact Investors?. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Chapter 3. Impact Investment Opportunities . . . . . . . . . . . . . . . . . . . . . . . 33 Chapter 4. Support Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Chapter 5. A Global Movement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Chapter 6. Getting Started. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Epilogue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127 Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129 Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135 Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143 About the Authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151
  • v Introduction For nearly 30 years, Ron Cordes made his living, and a comfortable one at that, in finance. He and his partners built an investment services firm with $9 billion in assets, 400 employees, and offices across the country. In 2006 he sold the business to a large investment firm for $230 million. But as he reached his fifties, he began searching for something to fill the next chapter in his life. He and his wife, Marty, set up a family foundation (and were later joined by their daughter, Stephanie), but they found the prospect of grantingmoney,inawaythatcouldbringaboutrealchange,daunting. With modest foundation funds, Cordes was struggling to come up with grant-making strategies that would have a lasting impact. He decided he needed to see the effect of poverty for himself. On his first trip to Africa, he visited a village in Uganda five hours east of the nations capital, Kampala. With the images of starving children so often seen on television fresh in his brain, he expected to be greeted by scenes of hopelessness and despair. Instead, he met a group of women whose entrepreneurial spirit inspired him to transform his approach to giving. The women, widows who had lost their husbands in the Ugandan civil war, were recipients of small loans given out by a microfinance program Cordess foundation had funded. With the loans, the women had started raising chickens, selling clothing, and running a caf. Rather than relying on Western aid, the women explained, they wanted to establish livelihoods and support their children on their own.
  • vi Introduction That was a powerful moment for me, Cordes said in a TEDx talk he gave in 2011.1 It changed my whole perception of the way I was looking at the problem of povertyI was looking at the poor as victims who needed us to create solutions for them instead of folks that were entirely capable of being the creators of their own solutions, if they were given just a hand up. Cordesalsorealizedhecouldbesttacklesocialandenvironmental challenges as he had once approached his entrepreneurship: by seeking solutions that would be self-sustaining and replicable and that could be rapidly expanded. Rather than launch his own initiatives, he saw that more could be achieved by putting funds into the innovative social enterprises being developed by others. As a result, since 2007, Cordes has dedicated much of his foundations financial resources to impact investments alongside its philanthropy. Put simply, impact investments are intended to deliver both financial returns and social and environmental benefits. Although investing directly in socially motivated companies or projects, as Cordes has done, might require experience and knowledge, the existence of funds and other intermediary vehicles that pool investments in underlying companies means that anyone can engage in this form of investing. The rise of impact investing comes at a critical moment. Catastrophic environmental trends have created an imperative to mitigate the effects of climate change. Alarming levels of global youth unemploymentwith young people three times more likely to be jobless than older peopledemand heavy investment to help vulnerable individuals launch careers or become entrepreneurs. Seismic shifts in the global economy have left insufficient public funding to tackle the worlds social and environmental challenges. In fact, it would be hard to overstate the extent of the tumult in which our world finds itself today. While some of us are struggling to cope with change, others are pushing for it. A new wave of young professionals is entering the workforce, bringing with them alternative ideas about the role of
  • Introduction vii business in the world. Meanwhile, this era has seen the generation and accumulation of unprecedented wealth, and the next cohort of wealthy individuals wants to approach things differently, combining their business activities with their commitments to society. In fact, in recent years, more and more questions have been arising about the nature of capitalism itself and whether its current practicereallyservesoursocietyandtheplanet.Manyhaveresponded with anger, as was the case at the height of the Occupy movement. Others have sought a more pragmatic approach to economic and financial transformation. At such a moment, it is hardly surprising that impact investing is attracting the interest of everyone from bankers to philanthropists to private individuals. Here is a new way of deploying capital that can combine the demand for profitability with a desire to solve social and environmental problems. Whether it is a globally connected teenager making an online micro-loan to an African farmer or a retiring executive taking on a new role as head of a social enterprise in the United States, a new spirit of social activism is emerging. Fewer and fewer people are content to sit back and watch the worlds problems unfold before them. They want to play an active role in making things different, and to do so in new ways and with the new tools and resources at their disposal. Impact investors belong to this community. Perhaps youve already made an impact investment or are thinking of doing so. If this is the case, you are not alone. Cordess story is just one among many of the growing community of impact investorspeople and organizations seeking to use their money to solve some of the worlds biggest problems. Like Cordes, they may want to help empower women to create better lives for themselves and their families. Or perhaps their goal is to help halt the destruction of precious natural resources. Whatever their aim, they want to find innovative new ways of tackling these problems. Perhaps you have similar goals and have worked toward them by giving to nonprofits or volunteering your time. Or perhaps your values are reflected in your purchasing decisions, from Fairtrade
  • viii Introduction coffee to products made from recycled packaging. Until recently, it seemed, these were the most practical ways of pursuing such goals, particularly if you werent part of the 1 percent. Even if you made it into the Forbes list of the worlds wealthiest, traditionally you made contributions to society by maximizin