Remarks by Dr. Judith Rodin at 2014 Aspen Ideas Festival Breakfast Session on Impact Investing
June 29, 2014
Good morning, everyone. We’re so delighted you could join us for this breakfast discussion on a topic close to the heart of our work at the Rockefeller Foundation: impact investing and, more broadly, galvanizing more types of innovative finance to solve social and environmental problems.
For too long, funding market-based solutions to social problems was eschewed by traditional philanthropy. But we and others have helped to change that perspective.
Impact investments are investments intended to generate both a financial and social and/or environmental return, offering opportunities that blend both for a double bottom line return.
The name was conceived at The Rockefeller Foundation’s Bellagio Center in Italy in 2007 by a group of philanthropists and finance leaders who had convened to crack a very specific nut: how to unlock more private capital to help solve environmental and social challenges.
Because a decade ago, it was clear to some of us that both government and philanthropy no longer had enough money to address all these challenges. Yet trillions of dollars were flowing through private markets—and increasingly, investors were seeking ways to align their investments with their values.
And so while we at The Rockefeller Foundation have directly made more than $100 million of impact investments through our endowment, our strategic programmatic goal was to catalyze the development of a field, much like the growth of modern venture capital industry, which emerged in the mid-1960s and transformed entrepreneurship.
We saw the potential for impact investing to follow a similar trajectory at an accelerated pace; if we were willing to invest in the infrastructure necessary to catalyze that acceleration.
In all, over the last seven years, The Rockefeller Foundation has invested more than $40 million to build the public goods and infrastructure that will allow the impact investing industry to grow, flourish and remain accountable to its goals. This has included launching and incubating global networks including the Global Impact Investing Network and establishing reporting and performance standards such as the Impact Reporting and Investment Standards, or IRIS, and the Global Impact Investing Rating System, known as GIIRS. We also helped to catalyze the increase in B-corporations businesses that are accountable for social or environmental impact, in addition to their bottom line, and funded the development of the field of social impact bonds in the United Kingdom and the United States.
Now, we are seeing impact investing move from the margins to the mainstream. Global investors surveyed by JP Morgan and GIIN expect to commit 19 percent more capital to impact investments in 2014 compared to 2013, and 91 percent of investors surveyed reported financial returns above or in line with expectations, while 99 percent reported social and/or environmental impact above or in line with expectations.
With the field maturing, Rockefeller’s grant making in impact investing has now moved into a broader innovative finance portfolio to catalyze the next new fields, including on the demand side.
We are focused on four priorities: supporting and scaling the capacity of impact enterprises; mobilizing large amounts of capital towards resilient infrastructure; and unlocking impact investments from the diaspora community to support entrepreneurs in their home countries; and using innovative finance in our own programmatic initiatives.
First, impact enterprises. As impact investing comes into the mainstream, there are not enough investment-ready enterprises able to absorb the amount of capital that impact investing is poised to generate. The Rockefeller Foundation’s Impact Enterprise project focuses on building the capacity for social enterprises to better absorb the private and commercial sector capital seeking investable projects in the social sector.
Our work in resilient infrastructure is pegged to our overall resilience portfolio, which is helping cities, communities and organizations build greater resilience against the shocks and stresses of the 21st century. Infrastructure that is robust and flexible to the changing climate is critical to the success of these efforts, but the bill is often too big for governments to pick up on their own—rather, we must find ways to attract private financing.
To this end, we’ve created partnerships with the International Finance Corporation and Overseas Private Investment Corporation to channel private financing for resilient infrastructure for the developing world. And we are working on potential funding structures with global bank and private infrastructure funds. And our 100 Resilient Cities initiative, a $100 million effort to build urban resilience in 100 cities worldwide, is working to catalyze public-private partnerships with public and private companies, including Palantir and Swiss Re among others.
Third, our diaspora work, in partnership with the Aspen Institute. We are in an exploratory phase this year to see if there is enough appetite in the diaspora communities for us to build a capital aggregation platform that will engage and enable high-net worth members of the diaspora, who hold billions in assets, to make impact investments in their home countries. Already global remittances represent $535 billion in capital flow to the developing world. That’s 25-times the assistance Foundations provide, and three-times that of bilateral and multi-lateral aid. The Indian Diaspora alone is estimated at more than 30 million people, with nearly 5,000 individuals worth more than $30 million each. By mobilizing even 5 percent of those remittances as impact investments—imagine what it could do for social entrepreneurs eager and able to grow their home economies.
Finally, we are excited to take new financial structures to our work on systemic change.
Take energy poverty—a global challenge that, as of yet, has not found a lasting market-based solution.
Through our program, Smart Power for Environmentally-Sound Economic Development, or SPEED, we are pursuing a model that leverages new-mini grid technology and brings together three groups of potential customers: telecommunications companies that need electricity to run their mobile phone towers; small enterprises, such as carpenters or agri-businesses, that need electricity to operate and will pay for reliable and quality electricity; and household consumers.
Our theory is that this demand is enough to make it profitable for energy-services companies to bring electricity to rural parts of the developing world. But right now, it’s not a proven model that can attract private investors. By providing both grants and concessionary debt financing to energy-services companies, the Rockefeller Foundation is working to de-risk these investments for impact investors and prove that this model can be profitable and scaled in India and across the developing world.
In all these efforts, we see philanthropy as providing the risk capital that can help bring in commercial capital behind it, for example in financing affordable housing, health care, schools, and alternative energy generation
This is not an alternative to grant making—but to open market-based solutions, often grant dollars are needed first, to fill gaps, build the metrics, do policy analysis and advocacy, or to provide early concessionary loans.
This is just a small sample of things we’re actively exploring, and I will stop there in order to open up the conversation. I’d love to hear from you about what your experiences have been, what you see as the lingering hurdles for unlocking greater investment of the private sector, and how philanthropy might help accelerate that process.