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hello my name is Jacob gray and I'm the
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senior director of the Wharton social
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impact initiative and I'm happy actually
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delighted to be here with dr. Judith
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Roden who is the president of the
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Rockefeller Foundation and a past
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president of the University of
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Pennsylvania and we're here to talk
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about her book the power of impact
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investing which was co-authored with
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Margo Brandenburg so welcome dr. you I
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know a lot of people have heard the term
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impact investing not everyone knows what
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it means so just from a high level to
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start out can you can you sketch out for
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us what impact investing is right it's
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the intention to produce both the social
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or environmental and a financial return
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so it's a conscious investment that
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really looks for a double bottom line
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okay so in the book you talk about
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impact investing as existing on this
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continuum with traditional grant making
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over here and traditional financial
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investing over here and so my question
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is our impact investors people who are
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coming at this from more the
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grant-making perspective and they're
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trying to find new ways to do good or
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are they coming from the traditional
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finance perspective trying to make their
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capital work harder as the field started
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to develop it was either people who were
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investing philanthropically through
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grants through Family Foundation's or
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other kinds of grant making who were
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looking for ways to develop further
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flows of capital where they could use
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their grant making potentially to help
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bring in another kind of investor
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sometimes by deep risking the investment
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of being that first year of
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concessionary financing and then
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allowing another investor to come in and
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they found that that helped to build the
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field and build that capacity and in
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fact the term impact investing was
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developed at the Rockefeller Bellagio
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conference center in 2007 when we
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convened a group of investors to talk
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about what they had learned working in
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the space interestingly Jacob we've been
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working more recently around the world
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rather than just
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in Europe and North America and what we
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are finding is the Gateway in Asia the
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Gateway in Latin America and I think in
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Africa too is from the financial
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investor who is becoming more socially
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responsible in his or her own country
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okay and really is starting to think
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well I know how to do the financial and
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maybe I can put that money to work for
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social purpose okay all right that's
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really interesting so it's a different
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angle so you know in the in the book you
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cite the example of delight the the
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solar technology company which I think
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is a really accessible example of a
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social impact enterprise in other words
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an enterprise in which impact investors
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put their money can you talk a little
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bit more about how that company works
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somehow its what its social theory of
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change is um its theory of change is
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that electricity poverty is one of the
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root causes of poverty globally really
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so people who have no source of lighting
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that is reliable they tend to use
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kerosene or they can't have any lighting
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at night or they burn wood and that's
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environmentally unsustainable and so how
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do we get either solar or other battery
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light that doesn't come from solar but
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some way to really allow these people
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often in very remote areas of the world
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to have access to lighting and they
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started as a very small almost
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flashlight model idea yeah and then we
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ran a competition for them because they
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wanted to know could they scale their
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technology to light a whole room with
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the kind of technology that they already
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had and we're at a global competition
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through InnoCentive which is a platform
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that has inventors from around the world
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registered and they compete to win a
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prize and the winner was somebody in
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China and they helped them to develop
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the technology that allows that to light
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a room so that allowed them to go to
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scale and then impact investors started
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coming
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and now they are a phenomenal example so
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that's one example that is where there's
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direct investment into a social
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enterprise and that's wonderful for some
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kind of impact investors and we give a
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lot of those examples in a book I mean
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people who want to touch and feel the
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enterprise yes they want to help them
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they have they are themselves wealthy
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enough they have sources of capital but
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they really want to engage with the
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enterprise and they want to see and feel
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the outcome of the work yeah but not
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every impact investor is like that some
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impact investors really have very strong
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views about social purpose but some feel
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that they don't have the time or the
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experience or the energy frankly to
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engage that deeply with the enterprise
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itself and so there's grown just as
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there is in the financial only industry
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funds that are investing in these social
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enterprises that do the social and the
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financial due diligence and the
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investors then invest in the funds sown
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in capital is a very well-known one now
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that there are many others great funds
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exciting and so they can really use
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those opportunities to make impact
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investments but in a traditional
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investor way mm-hmm
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so I have noticed in the field so I was
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an impact investor for 14 years before I
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came to Wharton and over time the field
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has really professionalized and changed
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and you know I've noticed in the funds
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where as fund managers way back when I
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started might have been more like the
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executive director of a nonprofit type
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now we're seeing something different
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we're seeing people who come I mean if
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you can talk a little bit about what
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there's the sophistication of the
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industry now well the reason that that's
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important is twofold one the
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sophistication of the industry is
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helping it to grow so we have very
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experienced people now who are
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experienced investors doing it but it
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also is a stamp of approval we're seeing
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people
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leave from Goldman or JPMorgan or you
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know the traditional investment banks
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and move into this space in really
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interesting ways my favorite group as a
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group who invented the social impact
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bond social in social finance UK oh yes
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and those are young folks who went the
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investment banking route then stayed for
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about eight or twelve years and then
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with the leadership of serve on Alcoa
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and in the UK started social finance and
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invented this amazing impact investment
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instrument different from a fund and
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different from investing in a social
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enterprise social impact bonds all over
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the world I mean it's been and we we
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Rockefeller funded bringing it to other
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places in the world and we're scaling it
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in the u.s. that's very exciting yeah I
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often I was thinking about what you're
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saying about the stamp of approval from
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new people in the field and often I tell
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students that I would never make it into
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this field at this point as I did
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because I don't have their credentials
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so talk a little bit more about the
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overall scale I mean how big of an
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industry is this and and why is it
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what's the promise that's so exciting to
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you at the Rockefeller Foundation
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Rockefeller got interested in this
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because we are so clear when you look at
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the magnitude of philanthropy around the
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world which is enormous and wonderful
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and you add to it the magnitude of
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development assistance that comes from
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individual countries such as USAID in
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the US or differed in the UK and so many
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others around the world when you add
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those together it doesn't get to the
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trillions of dollars that we're going to
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need to solve the social and
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environmental problems and I mean this
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really broadly because I call crumbling
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infrastructure in the United States a
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social problem and so it's it's a broad
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category yeah and we realized that
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unless we really catalyze the private
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sector and private capital
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we're not going to solve all of the
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social problems and that when you bring
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in private capital you bring in market
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forces these are what are sort of
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philanthropic do-good impulses and we
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feel that's really important it is
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wonderful to feel good it is very
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important to do good but it is most
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important to have impact and so it's
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been a combination in a very interesting
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way of unleashing private capital but
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unleashing market force thinking into
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this field and it will never replace
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philanthropy and grant-making nor should
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it philanthropic capital is America's
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risk capital after all it's our tax
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advantaged dollars so we ought to be
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doing the most risky pilots we ought to
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be taking that most risky tier if we're
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doing concessionary financing and we've
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put in like we put in a with another
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group of foundations a 50 million dollar
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first year about 15 years ago for the
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Bloomberg administration to build
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affordable housing because the
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commercial banks wouldn't lend for the
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acquisition and pre-construction costs
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so we guaranteed the banks the first 50
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million of risk and then they put in
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three hundred and fifty million and the
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affordable housing started to be built
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so there's so many ways that grants and
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concessionary financing will always be
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useful but you see in these impact
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investors people who are very
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sophisticated financially and what we
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did and what we talked about in the book
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is that we saw the market failure and
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why the field wasn't accelerating
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quickly enough was that a lot of them
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said well I know how to do the financial
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due diligence but I don't know how to do
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the social due diligence so what does
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social impact look like how will I
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measure it how will I know that I've
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succeeded so we at Rockefeller invested
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in most of the metrics that are
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currently being used by the field the
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impact rating system and the global
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impact rating system that rates both the
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performance of the funds and rates the
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social impact potential social impact of
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the social enterprise
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yeah so I want to I want to get to a
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question about the critics of this
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industry one of them I mean maybe the
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more pithy ones was Marc Andreessen of
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the venture capital firm andreessen
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horowitz said you know the compared
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impact investing to a house book
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it's neither he said it's neither a
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great house nor a great boat so
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pettiness aside is there some sort of
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inherent tension between the desire to
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push toward purpose and and the push
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towards profit is there any fiduciary
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duty risk or pressure that that's in
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tension here yes so there absolutely is
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attention and that's why just as I said
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we never want to stop grant-making mmm
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we never want to stop innovative venture
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capitalists like Marc and Ben from being
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a financial only investor yes but this
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is for that category that says and Marc
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is a great philanthropist and a friend
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of mine and so he is investing making a
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lot of money and then with his wife
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Laura giving philanthropically and
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that's a wonderful thing to do yes and
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that's the traditional model so Marc
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doesn't like when I use the word
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traditional but there's lots of people
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now who really want to be in between are
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willing to take a somewhat lower rate on
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financial return look fixed income is a
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lower rate right and so it's for its
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it's never going to be triple digit but
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there are double digit impact investing
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funds for example generation capital
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which is a pool of public equities that
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do alternative energy is turning
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double-digit returns the Rockefeller
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endowment has a traditional investment
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in them and so there are some but most
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or not yes and there's a wide and
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widening pool of investors who are
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willing to take fixed income rates in
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order to have high social return and the
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impact investment as you know well also
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runs along a continuum so there's
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financial first with social second and
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vice
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versa so you can sort of mix the pie in
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whatever way meets your both social
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purpose and investment goals and I think
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people love that I so I do too and I
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particularly perhaps among the younger
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generations and I wonder if you also see
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this it but I but we see at least among
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Wharton students we see this that impact
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investing has gone from a sort of oddity
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to a really highly respected side
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pursuit and now to what people see is
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really a nascent or maybe it's just
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proto nascent industry and you know the
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students are actually paying attention
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like if they could actually get a job in
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this field absolutely and so we see
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surveys after surveyed JP Morgan and the
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gin the global impact investors network
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that we help to start surveys every year
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and they have a group of impact
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investors and so between 13 2013 and
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2014 the amount that was being invested
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by this group that's being surveyed went
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up 19% from about ten point six billion
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to twelve point seven billion or
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something in that range so it went up
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19% ninety-one percent of them said that
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they had met their financial objectives
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and 99 percent said that their
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investment had met their social
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objectives so we're seeing I think
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through the development of networks I
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think through the development of metrics
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and sharing data and more performance
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data and now coming out from older funds
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such as those that you worked on and
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others early in the game are really
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bringing more people into the field and
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young people are so excited about this
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and you know they see the world in need
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of change and they want to touch and
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feel it and if they can use capital to
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make that happen in a really
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constructive way I think it's very
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attractive
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I think so too so just as a closing
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question what's next in this field I
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mean what's going to be the next big
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jump or the next lever is it a public
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policy that needs to be built around it
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or what yes the next big jump will
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certainly come
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through public policy because right now
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ERISA requirements for example in the
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United States and some comparable types
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of legislation elsewhere prevent many of
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the pension funds from taking large
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positions and impact investing funds
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because it doesn't meet the hurdle of
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the financial return that they need to
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to address at one point the ERISA
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requirements were lower and then
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Congress raised them again about 20
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years ago so as this field matures and
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as government starts to see that maybe
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it can attract this kind of capital as
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the UK government saw in the development
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of the social impact bond which is
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really getting a private investor to pay
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for a public program like recidivism or
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health or whatever then I think public
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policy around all of this will change
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and that will have an absolutely
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accelerating effect on the field because
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it will unleash significant amounts of
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potential capital catalytic I think yeah
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so dr. Ruden thank you so much for
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taking time out of your busy schedule to
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come back to campus and join us for this
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interview and thank you so much so it's
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great to be here thank you Jacob
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you
