All Things Impact.

private capital & the public good

All Things Impact: Living in the Age of the ‘Impact Enlightenment’

Brian WalshComment

Hi friends,

Welcome to All Things Impact, a newsletter of interesting things I've seen from across the spectrum of impact: effective philanthropyimpact investing (in the private markets), responsible investing (in the public markets) and a wildcard topic. For previous posts, to subscribe, and for more information, please visit All Things Impact.
Here are four links worth your time (plus job postings, items of note, and a calendar of upcoming events): 

1. Effective Philanthropy: Living in the Age of the ‘Impact Enlightenment’ 
I wrote a blog post for Alliance Magazine to highlight the Fund for Shared Insight's RFP on foundation openness (proposals due today!). Here's an excerpt:

During the 18th century Enlightenment in Europe, scientific rigor – with evidenced-based explorations for how the world worked – challenged superstitious beliefs. Reason, not tradition, came to dominate as the primary source of authority and legitimacy. This caused an explosion in the production of knowledge, with incredible insights discovered across a wide range of fields.
Today, in these early decades of the 21st century, I believe we are in the midst of a new epoch generating new knowledge and insights, especially among those seeking to advance the common good.  From governments tying payment for services to evidenced-based policies and successful outcomes, to institutional investors incorporating environmental and social considerations into their analyses of the enterprises and projects in which they invest, to nonprofits conducting rigorous evaluations of their interventions, we are in era that I call the ‘Impact Enlightenment.’
The opportunity to generate, share, and use data to make informed decisions has never been greater. We are benefiting from an explosion of digital technologies, distributed networks, big data (along with small and medium data), and global communication tools which enable real-time collaboration. Combined with advances in behavioral economics – the understanding that we humans are not merely utility-maximizing rational actors, but rather multidimensional decision-makers who operate inside of complex systems – and it is no wonder we are seeing so much innovation in the social sector. We are in an era of pay for success contracts, inclusive capitalism, impact investing, social enterprise, effective philanthropy, and data-driven decision-making.

The Fund for Shared Insight is an example of this transformation. We created the Fund for Shared Insight—a funder collaborative with diverse support from 30 different funders—to increase foundation openness. The more than 80,000 foundations in the US have nearly $800 billion in endowment assets and deploy approximately $45 billion annually in the form of grants to nonprofit organizations. More than this financial capital, foundations have significant knowledge capital: information about the communities and issues they fund. We hope to tap into this knowledge capital in the hope of adding to our collective knowledge of how we might advance the common good.

2. Impact Investing: Making Markets Work for the Poor
In a special supplement to the Stanford Social Innovation Review (sponsored by the Bill & Melinda Gates Foundation), former Hewlett Foundation President Paul Brest – along with David Bank and Dennis Price of ImpactAlpha – examine how the Gates Foundation uses program-related investments (or PRIs: loans, equity stakes, and guarantees made to advance the foundation's charitable purpose as opposed to generate income) to complement its traditional grant making. This whole report is well worth your read. 

Today, the Gates Foundation has allocated $1.5 billion to fund PRIs, of which it has committed $1 billion across 47 investments. Its PRIs have allowed the foundation to reach beyond the nonprofit sector to draw on the talent, expertise, and innovations offered by the private sector to advance its mission to “help all people lead healthy, productive lives.”

With its PRIs, the Gates Foundation has invested to scale up enterprises that serve the poor. It has guaranteed public agencies’ purchase of vaccines and contraceptive implants in order to convince large pharmaceutical manufacturers to boost their production and reduce prices for the benefit of those most in need. And it has made equity investments in biotech startups to induce them to focus on neglected diseases such as malaria and tuberculosis...

PRIs are not typical investments. The Gates Foundation’s PRIs, designed to accomplish the foundation’s charitable mission, are driven by program teams that include some of the world’s top experts in global health, global development, and education. Its depth of in-house knowledge gives the foundation a unique perspective on how market-based solutions can serve its beneficiaries’ needs. The program teams work in tandem with a team of investment experts and lawyers to negotiate term sheets and agreements, address the legal complexities involved in PRIs, and support the investments post-close.
The Gates Foundation’s influence—a combination of its mission, money, reputation, and willingness to take considered risks— allows it to negotiate especially favorable terms for the benefit of the poor. Its Global Access agreements with pharmaceutical companies and other investee partners, for example, provide preferential pricing for the foundation’s target beneficiaries. The foundation also reserves the right to withdraw its investment if the agreed-upon charitable purposes are not being fulfilled.

The Gates Foundation is treating its PRI process as a real-time experiment. Its hypothesis is that leveraging resources through collaboration with private investors and for-profit entrepreneurs can drive high impact. “We’ve been doing this for a few years and are starting to draw a few conclusions,” Sunderland says. “But we still have a lot to learn.”

(Disclosure: Liquidnet is an investor into ImpactAlpha through the Liquidnet Impact Fund, a donor advised fund managed by ImpactAssets)

3. Responsible Investing: does ESG remain mostly "a matter of compliance & labels"? 
Are "mainstream" investors  merely ticking boxes when it comes to responsible investing, or are they actually changing their behavior? Pierre Lenders of Responsible Investor reports on closing of Prius Partners, a company specializing in ESG (environmental, social, and governance) analysis. Here is part of the email blast the firm principals sent out announcing their closing: 

Despite many declarations of intent, integrating ESG concerns within mainstream portfolio management is happening rather slowly. Because of its origins, ESG remains mostly a matter of compliance and labels. It is an explicit, integrated part of investment policy only within SRI allocations, and further progress from here depends on ESG proponents’ ability to demonstrate that it is not just there to satisfy some ethical agenda but that it also works financially. Therefore a prerequisite for a larger scale impact is a valid framework to conduct such assessment, encompassing products which are not explicitly SRI labelled. And asset owners need user friendly and reliable tools to help them ascertain how effectively asset managers proceed to integrate ESG across any of their products. Such tools, we believe, should not be “coffee for everybody” but allow starting from the asset owners’ concerns and preferences. They should answer two separate sets of questions about the investment style of managers or passive solutions under consideration, in just a few comprehensive dashboards and indicators:

• Is enough attention paid to the ESG factors that are deemed to matter? Is there a preference for companies that already behave well on specific factors, or for companies improving their behaviour on others, or is there no evidence of any of such two biases? (independently from financial performance)

• Is there an acceptable rate of avoiding financial losses related to bad or deteriorating E, S and/or G behaviours, and/or enough evidence of being able to benefit financially from positive or improving ESG behaviours, at least along material factors?

As evidenced by the choice of topic for the “great debate” at the upcoming June RI Europe conference, this issue is now coming to the forefront. Ranking and rating of all mainstream funds based on ESG metrics might indeed help, or make the problem worse if left to dogmatism, unduly homogeneous and backward looking calculations. We believe it will all depend on how credible and sound the framework will be in the eyes of the mainstream community, and what will be said about how ESG factors interact with security prices will need to make perfect financial sense to them as investment professionals, and not just from a marketing angle. 

4. Wildcard Topic: there's no such thing as free will
Stephen Cave writes in The Atlantic about the nature of free will: many scientists believe it's a myth, but perhaps we are better off as a society if everyone believed in it anyway. 

The 20th-century nature-nurture debate prepared us to think of ourselves as shaped by influences beyond our control. But it left some room, at least in the popular imagination, for the possibility that we could overcome our circumstances or our genes to become the author of our own destiny. The challenge posed by neuroscience is more radical: It describes the brain as a physical system like any other, and suggests that we no more will it to operate in a particular way than we will our heart to beat. The contemporary scientific image of human behavior is one of neurons firing, causing other neurons to fire, causing our thoughts and deeds, in an unbroken chain that stretches back to our birth and beyond. In principle, we are therefore completely predictable. If we could understand any individual’s brain architecture and chemistry well enough, we could, in theory, predict that individual’s response to any given stimulus with 100 percent accuracy.
This research and its implications are not new. What is new, though, is the spread of free-will skepticism beyond the laboratories and into the mainstream. The number of court cases, for example, that use evidence from neuroscience has more than doubled in the past decade—mostly in the context of defendants arguing that their brain made them do it. And many people are absorbing this message in other contexts, too, at least judging by the number of books and articles purporting to explain “your brain on” everything from music to magic. Determinism, to one degree or another, is gaining popular currency. The skeptics are in ascendance.
This development raises uncomfortable—and increasingly nontheoretical—questions: If moral responsibility depends on faith in our own agency, then as belief in determinism spreads, will we become morally irresponsible? And if we increasingly see belief in free will as a delusion, what will happen to all those institutions that are based on it?
…[University of Haifa Philosophy professor Saul] Smilansky advocates a view he calls illusionism—the belief that free will is indeed an illusion, but one that society must defend. The idea of determinism, and the facts supporting it, must be kept confined within the ivory tower. Only the initiated, behind those walls, should dare to, as he put it to me, “look the dark truth in the face.” Smilansky says he realizes that there is something drastic, even terrible, about this idea—but if the choice is between the true and the good, then for the sake of society, the true must go.

5. Job Postings

6. Items of Note

  • Fund for Shared Insight RFP on increasing foundation openness proposals are due by Friday, May 20, 2016, at 11:59pm pacific time
  • Guggenheim Partners has launched its PROPEL10 application, through which the firm will invest up to $100,000 each in up to 10 high-performing, early stage non-profit organizations using innovative solutions to address enduring social problems. The application deadline is May 31, 2016 at 5:00PM EST. 

7. Upcoming Events
May 25 A discussion of PRIs with philanthropy leaders (Stanford) Impact Investing, Philanthropy
May 25 Venture Jobs Prosperity Conference (Rochester, NY) Impact Investing
June 1-2  Impact Capitalism Train Stop Tour (Philadelpha & DC) Impact Investing
June 7-8  Social Innovation Summit (DC) Various
June 13 GrantStation Forum on Philanthropy (NYC) Effective Philanthropy
June 23 – July 2  Aspen Ideas Festival (Aspen, CO) Effective Philanthropy
Sept 6-8  PRI in Person (Singapore) Responsible Investing
Sept 13-16  SOCAP (SF) Impact Investing
Sept 26-28 Exponent Philanthropy Conference (Chicago) Effective Philanthropy
Sept 26-28 ANDE Conference (Lessburg, Virginia) Impact Investing
Oct 9-14  Opportunity Collaboration  (Cancun Yucatan) Impact Investing
Oct 18  High Water Women (NYC) Impact Investing
Nov 3-5  Net Impact (Philadelphia) Various
Nov 9-11  Sustainable, Responsible, Impact Investing (Denver) Responsible Investing
Nov 16-18 Independent Sector (DC) Philanthropy
Dec 7-8  Global Impact Investing Network (Amsterdam) Impact Investing

That’s it for this week. Help me spread the word about #AllThingsImpact to your friends and colleagues, who can sign up to receive this newsletter at All Things Impact. Please also send me any job postings, items of note, upcoming events, or compelling links you discover in your own journeys across the web (even things like this French bulldog puppy inside of a watermelon).

Until next time, thanks for reading!

Brian Walsh
Head of Impact at LiquidnetFull Bio.