Margot Brandenburg, Associate Director at the Rockefeller Foundation, joined SOM’s weekly Organizational Effectiveness seminar to speak about the growing field of impact investing. Margot spoke broadly about the Foundation’s role in nurturing the expansion of social impact investing as an important complement to government and philanthropy, as well as her own observations about recent trends in the field. The Foundation’s “Harnessing the Power of Impact Investing Initiative” seeks to grow the sector by creation of an industry-wide infrastructure that promotes the placement of private capital into companies or funds that not only provide financial returns, but that also have a positive social or environmental impact.
Margot explained that the Rockefeller Foundation began to develop this new program area after hearing from investors who wanted to move away from the binary between capital markets on the one hand and philanthropy on the other, but who found that their investment managers did not know how to do this. In some ways, she said, the Foundation’s timing was perfect: in November 2008, when the initiative was launched, more and more people were beginning to understand that a narrow focus on quarterly financial returns is not enough. On the other hand, she pointed out, some high net worth individuals have become more reluctant to place their resources in newer and potentially riskier investments due to recent events in the financial markets.
On the positive side, thanks in large part to the Rockefeller Foundation and its partner organizations, the sector has developed a more specialized infrastructure over the last several years. One important example is the formation of industry associations such as the Global Impact Investing Network (GIIN), which provides a gathering place and a platform for leaders in the field. A parallel initiative, the Impact Reporting and Investment Standards (IRIS), has developed a common language and set of frameworks for monitoring and evaluating the performance of impact investments. GIIN is also working, together with B Lab, on the creation of a Global Impact Investing Ratings System (GIIRS), to provide a mechanism to monitor and gauge social performance for interested impact investors.
Given the growth and maturation of the impact investing sector, there are many reasons to be optimistic about the potential for harnessing the power of the capital markets to address social problems. Still, Margot said, a common response from some fund managers is that they simply cannot accept a lower rate of return and jeopardize the future value of their fund by shifting a portion of their portfolio into double- or triple-bottom line investments. This is where thoughtful public policy can play an important role, by creating incentives and protections for investors to consider this new way of thinking about the social as well as financial returns on their investments.
By Beth Brockland, SOM ‘12