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Market Systems Innovation

Overview

Few challenges in this world can be fully solved without understanding how different actors and sectors interact with and shape markets. Our systems-based approach facilitates deep analysis of market forces, as well as interventions that can be based in part on these market forces when appropriate. We recognize that the philanthropic community, even when backed by government funding, simply does not have enough resources to go it alone. Indeed, the private sector invests or spends trillions of dollars that could be harnessed for the benefit of poor or vulnerable people. At the same time, philanthropy is able to take greater risks and seed good ideas and test them—but many of these ideas cannot be sustained or scaled to the degree needed for effective change unless market systems carry them forward, and/or are focused on providing greater access to economic opportunity.

How We Harness Market Systems

Given these realities, The Rockefeller Foundation’s strategy includes an intensive focus on catalyzing market systems change by harnessing innovations at the intersection of private, public, and philanthropic capital and actions. Our experience has shown that strategically and intentionally engaging this intersection to unleash the power of markets is a critical factor in assuring greater sustainability of outcomes. We do this by:

  • Building the infrastructure to support market systems innovations such as impact investing. The Rockefeller Foundation has been a lead funder of IRIS, the catalog of generally accepted performance metrics for measuring the social, environmental, and financial performance of impact investments. We also supported the creation of the Global Impact Investing Network (GIIN), which manages IRIS, and funded the development of Global Impact Investing Rating System (GIIRS), the gold standard for measuring impact investing’s social return. In addition, we have provided support to B Lab—an organization that helps businesses measure and manage their social and environmental impact—and worked with B Lab to encourage the emergence of companies known as B Corps, which have committed themselves to rigorous standards for social responsibility and sustainability. The adoption of new measurement systems and standards is facilitating the growth of impact investing, a major market innovation that enables investors to direct their capital into efforts to improve the lives of the world’s poor or vulnerable populations while also realizing a financial return on their investment.
  • Demonstrating how specific market frameworks can be disrupted and strengthened to enable inclusive, scalable solutions. In rural India, for example, the Foundation’s Smart Power for Rural Development (SPRD) initiative is proving the economic viability of building mini-grids powered by alternative energy. Supported by a key market system innovation, in which telecom companies and their cell towers are enlisted as anchor tenants, this initiative is catalyzing economic development in rural areas. The Foundation is using grants, Program-Related Investments (PRIs), concessionary loans and support for government policy to build and scale a new “smart power” ecosystem in which private companies, regulators, and civil society are linked to transform the energy access market in favor of poor, remote communities. In this case, the government of India’s largest state, Uttar Pradesh, seized the opportunity to accelerate the spread of modern energy to rural areas through a market systems approach, which led to the adoption of the country’s first-ever Mini-Grid Policy aimed at providing clarity and transparency to entrepreneurs and investors. The same approach is now being considered for other countries and regions, as well.
  • Designing and implementing innovative financing mechanisms that increase the amount of funding available to address major global challenges. The Foundation’s Zero Gap portfolio, for example, is developing financing mechanisms that deploy relatively small amounts of public funding to mobilize large pools of private capital for the identification and support of solutions with the potential to create outsized impact for vulnerable populations. Projects currently in development include a micro-levy financing model that will create a large and stable funding source for the fight against chronic childhood malnutrition; forest resilience impact bonds, which are channeling private investment funds into forest restoration and fire suppression efforts in California; and efforts by African Risk Capacity (ARC), a Foundation-supported agency of the African Union, to establish a sovereign insurance product that would fund a timely response to possible future Ebola outbreaks. The Rockefeller Foundation has also helped pioneer social impact bonds, which allow investors to fund programs that provide services for the disadvantaged, and to realize financial dividends when these programs are successfully implemented. By offering sustainable, evidence-based NGO-run programs as a more effective and lower-cost alternative to the traditional government-run approach, these innovative bond mechanisms are creating a new model for funding and implementing such programs.
  • Creating novel insurance mechanisms to support local enterprises. For example, in addition to the Ebola insurance being established by African Risk Capacity (ARC)—an entity developed by The Rockefeller Foundation and now managed by the African Union—the ARC runs a weather-indexed insurance fund for smallholder farmers in Africa that is enabling these farmers to avoid financial ruin due to periodic drought. This drought insurance is providing greater stability for local economies while also securing the food supply chain. A related Zero Gap effort, the ARC’s Extreme Climate Facility (XCF), will issue more than $1 billion in climate change bonds over the next 30 years to fund a risk-pooling mechanism that will enable African countries to improve their capacity to plan, prepare for and respond to extreme weather events and natural disasters. The Foundation is supporting the creation of other insurance-linked financing mechanisms as well, including RE:Bound, which promotes climate resilience in the U.S.; a sovereign risk pool operated by our Global Resilience Partnership that supports climate resilience in South and Southeast Asia; and a Financial Disaster Risk Management entity that will provide funding for improved disaster response around the world.
  • Creating new platforms for the aggregation and distribution of socially beneficial products and technologies. For example, the Foundation’s 100 Resilient Cities initiative has created a platform for a range of companies to innovate and provide resilience goods and services that are critical for cities’ efforts to build resilience in their poor or vulnerable communities. Our resilience work has also provided a platform for new technologies on the global level, such as the Foundation’s partnership with Planet Labs to provide high-frequency satellite images that enable resilience-building teams to monitor landscape change in a defined geographic area.
  • Providing the first layer of risk capital for potential innovations that generate both financial and social impact. The Rockefeller Foundation does this through a careful blend of both Program Related Investments (PRIs) in the form of debt financing and equity, as well as grants. By analyzing the incentives and behaviors of stakeholders and how returnable and non-returnable investments will shift market constructs, we are able to understand which forms of capital provision will be most catalytic in breaking open a market.

Why We Harness Market Systems

  • By harnessing the power of market systems, The Rockefeller Foundation aims to generate impact that is self-sustaining, independent of philanthropic support and government subsidies (though still subject to government regulation). This is critically important, given that our model is built on the premise of time-bound initiatives, and also because of our focus on building mechanisms and processes that increase the likelihood of long-term sustainability of beneficial outcomes.
  • Market systems innovations can also unlock vastly larger pools of capital for a range of pressing global issues, while fundamentally altering how local economies, policy, and civil society function together. For example, the Alliance for a Green Revolution in Africa (AGRA) is increasing incomes for smallholder farmers in Africa by developing seed and fertilizer companies and agro-dealers, rural marketplaces, commodity exchanges, warehousing systems and milling operations—all designed to assure higher returns to vulnerable farmers’ investments—as well as connecting farmers to regional markets and creating alternative markets for crops. Similarly, the electricity supplied locally through Smart Power’s mini-grids is enhancing the productivity of small- and medium-sized community businesses and creating sustainable incomes for poor rural residents.


The Rockefeller Foundation and Yunus Social Business are developing the Social Success Note (SSN)—an innovative pay-for-success financing mechanism that addresses the investment gap for impact-oriented social businesses.

Finally, by focusing on market systems, the Foundation can move beyond catalyzing isolated social or environmental benefits and specific products or services. Instead, we are able to carry out more transformative interventions in which entire markets are reshaped to benefit poor or vulnerable communities through innovations that connect the private, public and social sectors.

Impact Investing and Innovative Finance

"Unless we really catalyze the private sector and private capital, we are not going to solve all of the social problems."

Judith Rodin, Rockefeller Foundation President

The Evolution of Market Systems Innovations

  • The Rockefeller Foundation began to focus intensively on market systems innovations following our strategic refresh in the mid-2000s. One early step involved seeding $5 million in 2006 to help launch the New York City Acquisition Fund, a public-private partnership that provides bridge loans to developers committed to creating affordable housing in New York City. The Foundation brought in other foundations as well, forming a group that provided a total of $36 million to fund the first, high-risk tier of the project. By significantly lowering the risk for other actors to participate, this initial funding was able to catalyze very large additional investments of private capital from commercial lenders. Today, the fund has leveraged nearly $300 million to build or preserve some 7,500 homes.
  • Also in 2006, the Foundation helped launch the Alliance for a Green Revolution in Africa (AGRA), the first large-scale project initiated under our new strategic model. Funding of $150 million for the initiative was provided from The Rockefeller and Gates Foundations to develop improved agricultural production methods and strengthen the market system for produce grown by smallholder farms. One of AGRA’s key elements is the Africa Enterprise Challenge Fund (AECF), which leverages private sector and donor money to fund commercially viable market-based innovations that have the potential to significantly impact poor rural populations. The AECF selects these ideas through a series of transparent competitions, with winners awarded up to $1.5 million each in grants or interest-free loans.
  • The Rockefeller Foundation went on to lead a series of global meetings that identified the unleashing of private capital through innovative partnerships between the private, public and nonprofit sectors, as the next transformational accelerator for social change. These included a 2007 conference at the Foundation’s Bellagio Center in Italy, which brought together a group of early impact investors to discuss their experiences and explore ways to integrate their efforts. This conference is where the term “impact investing” was coined. The convening led to the creation of the Global Impact Investing Network (GIIN), with The Rockefeller Foundation as a lead supporter. Besides serving as a forum for large-scale impact investors, GIIN provides information on and access to several hundred impact investing funds around the world and has also supported the development of tools and institutions for assessing impact investment performance.
  • The Rockefeller Foundation was advancing other innovative financing mechanisms around this time as well, such as the index-based weather insurance project it helped launch in Kenya and Ethiopia in 2008 to develop crop and livestock insurance products for farmers. This project led to the establishment several years later of African Risk Capacity, a Foundation-supported agency that provides weather-related insurance to smallholder farmers in participating African nations.
  • In 2011, The Rockefeller Foundation expanded its impact investing work into supporting the innovative creation of social impact bonds, which use private sector investment to fund empirically proven NGO interventions that support government goals around pressing social issues. That year, the Foundation provided a half-million dollars to Social Finance, a nonprofit, to help introduce social impact bonds to the United States, after supporting Social Finance’s earlier pioneering work on social impact bonds in the U.K.

As our work in innovative finance continued to expand beyond impact investing, The Rockefeller Foundation in 2015 began developing a blueprint for a portfolio approach to managing these efforts. This approach, called Zero Gap, aims to link the goals of philanthropy and government with the scale that private capital provides, to help close the $2.5 trillion annual funding gap between currently available development funds and what’s needed to achieve the U.N.’s Sustainable Development Goals (SDGs) in developing countries. Zero Gap has already produced over 20 pilot projects, and will ultimately generate up to 40 pilots. Our goal is to have at least ten of these new mechanisms yielding $1 billion each in new capital within five years. Examples of projects now underway include wildfire impact bonds to prevent forest fires, market-based mechanisms for funding climate adaption efforts, and UNITLIFE, a proposed micro-levy finance model that will be used to combat chronic malnutrition.

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Market Systems Innovation in Action

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Impact Investing Initiative—Launched in 2008

The Power of Impact Investing

Why This Initiative

The question of how to create self-sustaining vehicles for positive social change is one of the central challenges in global development. One promising approach involves linking nonprofit and government development efforts with private investment capital. This approach, known as impact investing, provides ongoing capital flows to socially and environmentally beneficial activities while also harnessing the discipline of the marketplace. The emergence of this approach has coincided with a growing interest among the private sector investment community in finding ways to couple traditional investing with efforts that yield positive social and environmental outcomes.

The Solution

Through our Impact Investing initiative, The Rockefeller Foundation provided funding to build the critical infrastructure needed to accelerate the growth of this new field. We also utilized our expertise and influence to engage the full market system and partner with the private sector, governments, and nonprofit development organizations in advancing this approach.

Implementing Market Systems Innovation for Positive Change

In order for impact investing to succeed on a large scale, all actors in the system—nonprofits, governments, and private sector actors—must work together to develop monitoring capabilities, financial mechanisms and other market infrastructure elements that support and facilitate the investment process. Over the past decade, The Rockefeller Foundation has been a global leader in designing and implementing these support systems.

While the Foundation and others had previously engaged in impact investing efforts, our leadership role in this area began in 2007–2008, when we convened two international conferences of socially oriented investors and other global actors at our Bellagio Center in Italy. During these gatherings, the term “impact investing” was coined and a strategic framework was developed that would guide the activities of the Foundation and our partners in catalyzing the impact investing field over the next half-dozen years.

The Rockefeller Foundation’s Impact Investing initiative was formally launched in 2008, when the Board approved $38 million in funding for the period of 2008–2011. The initiative was later extended through 2012 and then again through 2013, with total funding of $50 million over this time period. Its aim was to support the small but rapidly growing impact investing field by working with the private, government, and philanthropic sectors to: catalyze collective action platforms that would let impact investors collaborate more effectively; develop a supportive infrastructure, including standards and rating systems; support intermediary organizations that could serve as a bridge between investors and the impact enterprises themselves; and support research and advocacy around impact investing.

The initiative went on to disburse more than 100 grants in support of these goals. One early and important step was the publication, with J.P. Morgan, of a research paper outlining and defining impact investing as a set of new asset classes. With J.P. Morgan and The Rockefeller Foundation as lead investors, sending an important early market signal, the Global Impact Investing Network (GIIN) was established as a forum where impact investors around the world could share ideas and work together to shape impact investing policy and infrastructure. Today, the GIIN is an independent organization with some 200 members, including many of the world’s leading banks and asset managers, nonprofit foundations and government development arms.

In 2008, the Foundation teamed with the nonprofit global venture fund Acumen and B Lab to spearhead the development of Impact Reporting and Investment Standards (IRIS), which provide a common system for organizations to report their social and environmental performance. A year later, the management of IRIS was transferred to the GIIN. In 2009, The Rockefeller Foundation also began funding B Lab’s development of the Global Impact Investing Rating System (GIIRS)—a system for assessing the social and environmental impact of developed and emerging market companies and funds, with a ratings approach similar to Morningstar investment ratings. GIIRS has continued to be tested and refined in collaboration with a group of leading investment funds. Both GIIRS and IRIS are now essential analytic tools for establishing performance norms and measuring results in the impact investing field.

The Foundation also provided substantial funding through Program-Related Investments to impact investing intermediaries for the development of demonstration projects. These intermediaries include Acumen (which as of 2012 had raised more than $70 million for investments in some 65 enterprises in Africa and Asia that created or supported 55,000 jobs); Root Capital (which finances rural farmers’ cooperatives in Africa and the Americas); and the venture capital firm IGNIA (which supports projects such as developing affordable housing and phone service in Mexico). In addition, the initiative has collaborated on a number of influential research projects around impact investing, and its grantees and partners have helped inform supportive governmental policies in the U.S., the U.K., and other countries. These policy efforts included a Bellagio Center conference in 2011 which led to a global project on impact investing policy exchange and advocacy.

Finally, The Rockefeller Foundation has played a key role in influencing and shaping the field of impact investing globally. Our initiative team actively engaged and advised actors in all sectors around the world, and has presented at various global forums. In 2014, Wharton University Press published The Power of Impact Investing by Foundation President Judith Rodin and Margot Brandenburg, a former member of the Foundation’s impact investing initiative. The book is a resource for impact investors and draws from the Foundation’s experience to share stories of impact investors and the social enterprises and disadvantaged people benefiting from these investments. Today, the initiative’s $50 million investment continues to produce dividends, as evidenced by the ongoing, robust growth of the impact investing field—a growth supported in large part by the institutions that The Rockefeller Foundation helped establish over time.

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YieldWise—Launched in 2016

Photo credit: Purdue University

Why This Initiative

Over one-third of the world’s available food either spoils or gets thrown away without being eaten—enough to feed everyone in the world for two months. The impact on the environment is equally profound, with 93 trillion gallons of water used in 2015 to grow food that was never eaten. With an estimated 1.2 billion people who are food insecure or undernourished, a population expected to increase by two billion by 2050, and a world suffering from water depletion, we cannot afford these losses—which impact people, planet, and profits.

The Solution

Work with the private sector and governments to promote system-wide implementation of existing approaches to preventing food loss and waste—including technologies that keep food fresh longer, as well as private sector engagement models that ensure smallholder farmers have steady buyers for their yields.

Implementing Market Systems Innovations for Positive Change

In early 2016, The Rockefeller Foundation announced the launch of YieldWise, a $130 million initiative aimed at demonstrating how the world can cut food loss in half by 2030. This initiative represents an important expansion in the Foundation’s work in food security, which has been an important part of our legacy, as well as an extension of our efforts to revalue ecosystems and secure livelihoods. While the Foundation had made great strides in helping smallholder farmers and economies employ improved agricultural techniques to increase their production of food through initiatives like the Alliance for a Green Revolution in Africa (AGRA), we recognized that these gains will not be sustainable without also addressing waste and spoilage of available food.

To do this effectively, it was clear that the Foundation would have to encourage different behaviors throughout the market system—including farmers, government, food suppliers and other market operators, consumers, and investors. Fortunately, through AGRA’s work to improve regional food production methods, the Foundation has gained a deep knowledge of the agricultural market systems in sub-Saharan Africa and has also developed a wide network of relationships in the region’s governmental, commercial, and nonprofit sectors.

Like our other work with market systems, YieldWise involves recalibrating the private, public, and civil sectors to unleash innovative partnerships and solutions that can benefit from the scale that private sector actors bring, while ensuring a continued focus on positive social outcomes. The YieldWise effort in the developing world is initially focusing on fruits, vegetables, and staple crops produced in Kenya, Nigeria, and Tanzania, where up to half of all food grown is lost. Its strategy, which builds on the Foundation’s existing relationships and experience, is centered on four types of market systems innovations:

  • Strengthening the links between farms and markets in African communities. Foundation activities in this area include training and aggregating farmers, and facilitating buyer agreements between smallholder farmer groups and multinational companies like Coca-Cola and Cargill that will guarantee farmers steady access to new local and global markets.
  • Helping farmers gain better access to technologies and solutions that can be used to reduce preventable crop loss. We are now working with companies like Dangote Farms Limited to build processing industries, and with the government of Tanzania to supply farmers with storage solutions like metal silos and hermetic cocoons.
  • Investing in new financing models and innovative technologies. In Kenya, Nigeria, and Tanzania, for example, The Rockefeller Foundation is helping equipment manufacturers promote the use of mobile processing, solar-drying, and cold storage units to extend the shelf life of crops.
  • Engaging global businesses to account for food that is lost and wasted in their supply chains. The Foundation is currently creating tools to help businesses measure and track supply chain loss, which will encourage accountability, strengthen supply chains, and ultimately increase profits and food security.

The Rockefeller Foundation is also committed to developing innovative, market systems approaches to preventing food waste in the United States and Europe, where food loss—often up to 40 percent of what is produced—typically occurs at the retail and consumer level. Consumer bias against unattractive (but nutritious) food, for example, accounts for 1.5 trillion pounds of annual waste in the U.S. alone, and costs economies approximately $680 billion in annual losses. By creatively adapting our waste-prevention efforts to these different markets, the Foundation’s goal is to help build a truly resilient and productive global food market system for the benefit of humanity across the globe, while also producing related environmental benefits through reduced consumption of water and other resources.

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