back

Impact Investing Is...

EMERGING MARKETS, EMERGING MODELS A Monitor Institute Report Market-Based Solutions to the Challenges of Global Poverty
Executive Summary Full Report Monitor press release CATALYZING AN EMERGING INDUSTRY A Monitor Institute Report Market-Based Solutions to the Challenges of Global Poverty
Executive Summary Full Report

...investment that generates social and environmental value as well as financial return
February 2009

A growing group of investors around the world is seeking to make investments that generate social and environmental value as well as financial return. This emerging industry of impact investing has the potential to become a potent force for addressing global challenges. But how might it succeed or fail? Will it take the next five to 10 years? 25 years? Or will it not happen at all?

-- What is the Impact Investing opportunity?
-- Why do we need a foundation initiative on Impact Investing?
-- What is Rockefeller Foundation’s Impact Investing initiative strategy?
-- How will we measure success?
-- With whom will we work?

» Links to partners appear below relevant text

What is the Impact Investing opportunity?
Delivering social change, at the scale and breadth we seek, will require more capital than philanthropy and public resources alone can provide. This is apparent across the work of the Rockefeller Foundation, whether rallying support for climate change resilience, mobilizing a Green Revolution in Africa, developing global health systems, or catalyzing a new social contract for American workers. Other philanthropists confront the reality of this dramatic need for capital infusion in their own program areas, whether in the US or abroad.

While most funds invested globally seek only to maximize financial return, a relatively small, but rapidly growing, portion of this investment capital is seeking to create non-financial benefit as well. This emerging industry, called “impact investing,” is comprised of investors seeking to generate both financial return and altruistic value—while at a minimum returning capital, and, in many cases, offering market-rate returns or better. Impact investors are putting their money to work, providing low-income housing loans in the United States and finance to entrepreneurs in Nicaragua, enabling Indian doctors to build hospitals and Congolese farmers to participate in global trade. If the volume and efficacy of this capital continues to grow, it could prove a potent partner to philanthropy in scaling solutions to pressing social and environmental challenges.

Why do we need a Foundation initiative on Impact Investing?
Despite, and sometimes because of, a proliferation of activity, the impact investing industry stands at a delicate moment. On one hand, structural forces around the world are gathering to bolster the industry’s development. Despite recent market turmoil, wealth remains concentrated in the hands of individuals attracted to private-sector solutions to social challenges while, simultaneously, a new generation of entrepreneurs is launching viable ventures across an array of geographies and sectors that address social challenges. On the other hand, the nascent industry remains beset by inefficiencies and distortions that currently limit its impact to a narrow set of sub-sectors and threatens its future trajectory:

• Lack of coordination hampers collaboration necessary for the industry to mature.
• Intermediation—the placement of money between investors and the businesses and projects that can use it productively—is generally sub-scale and specifically embryonic in sub-sectors such as public health and agriculture.
• Basic market infrastructure and the investment ecosystem necessary to identify, vet, and monitor investments efficiently is missing or fragmented.

As the Monitor Institute highlights in its recently-published Investing for Social & Environmental Impact: A Design for Catalyzing an Emerging Industry, the next three years will be crucial in determining whether the industry can fulfill its promise. Implementing the recommendations from the Monitor Institute’s report will require input from various sectors. The Rockefeller Foundation, consistent with its mission, will support charitable and educational initiatives that complement the efforts of players outside the philanthropic sector.
» Monitor Institute
» Investing for Social & Environmental Impact: A Design for Catalyzing an Emerging Industry

What is Rockefeller Foundation’s Impact Investing initiative strategy?
We seek to help catalyze, rather than capitalize, the industry’s evolution. While the size of investments we can make is relatively small compared with those of institutional investors, we will make grants and Program Related Investments (PRIs) to help create the basic public goods that can build conduits through which others’ investments can flow more efficiently and effectively. Specifically, we will focus over the next three years on:

• Catalyzing collective action platforms that enable investors to work together more effectively. This work will initially center on assisting with the development of the Global Impact Investing Network that provides the vehicle through which a select group of leading impact investors and intermediaries can help strengthen this nascent industry, undertake advocacy and execute a coherent communications agenda. In addition, we will support other related networks, such as the Aspen Network for Development Entrepreneurs.
  » Global Impact Investing Network
  » Aspen Network for Development Entrepreneurs



• Supporting, consistent with the Rockefeller Foundation’s charitable purposes, scaled intermediation vehicles that place capital in new geographies and sub-sectors, attract institutional investors who control the lion’s share of global capital, and invest this capital into businesses and projects that require both scaled resources and upfront subsidy in order to target poor and vulnerable people.
  » Root Capital
  » Rockefeller Foundation/Root Capital press release
  » Project Summary: Africa Healthcare Fund
  » Social Stock Exchange: press coverage
  » Acumen Fund
  » Calvert Foundation
  » Kiva
  
  
• Facilitating the development of industry-wide infrastructure, in conjunction with the Global Impact Investing Network where appropriate. Priority initiatives include a constellation of activities pertaining to the reporting and measurement of social and environmental impact, as well as support to the providers of investment banking services to impact investors. With respect to impact reporting and measurement, we are supporting in particular two complementary initiatives: Impact Reporting and Investment Standards (IRIS), which will create a set of financial, operational and impact measures for enabling transparency of social and environmentally-oriented investments through a user-configurable, open source XBRL-enabled toolset, and Global Impact Investing Ratings System (GIIRS), a rating system designed to provide impact investors with an independent, objective way to assess the social and environmental impact of companies and investment portfolios. IRIS is a joint initiative of the Rockefeller Foundation, Acumen Fund, B Lab and others, with support from Deloitte and PwC, and the development of GIIRS is being overseen by a working group of the GIIN, using a baseline methodology called the B Ratings System.
  » Global Impact Investing Network
  » GIIRS Overview and Sample rating

How will we measure success?
The ultimate success of this initiative, and of the impact investing industry, will be evident when substantial impact investment capital is brought to bear in solving social and environmental challenges. As an intermediate measure, we will consider our initiative a success if it has achieved certain benchmarks related to the three areas of activity described above; for example, whether the Global Impact Investing Network serves as a platform to address inefficiencies, etc.

With whom will we work?
We focus on investors and intermediaries with the capacity to operate at institutional scale. They are uniquely placed to steer billions of dollars, support collective action, set standards, and back the new businesses that will be required to fill in the gaps in the current impact investing ecosystem. While maintaining this focus, we will coordinate our work with others who support the entrepreneurs and civil society leaders who represent the “demand-side” of impact investing capital.

This Initiative also requires collaboration, sometimes in uncommon partnerships, such as with institutional investors, investment banks, family offices, and rating agencies, in addition to private foundations. We seek co-funders in most activities, not only to share costs, but also to ensure adequate support and direction from industry leaders.

For more information, please contact the Initiative leader, Antony Bugg-Levine.

---