All Things Impact.

private capital & the public good

Brian WalshComment

Hi friends,

Welcome to the relaunch of All Things Impact, my project to explore the connections between the different ways private capital affects the public good.

Whether you work in philanthropy, finance, government, or the private sector, most likely, you are a person with an orientation towards improving the common good. While “impact” means different things to different people, I aim to share insights from a variety of fields and perspectives to better connect the dots between the innovations, initiatives, and ideas that interact to both benefit and harm people, communities, and the planet. I also share job listings, upcoming events, and other items of note. 

Quote of note:

“We are drowning in information, while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it, and make important choices wisely.”  - E. O. Wilson

Subjective impact: who gets to call a “green bond” green?

There is no Supreme Court or “High Council of Impact” (yet), that adjudicates or officially blesses an enterprise or investment as benefiting people, communities, and/or the planet. Impact - like risk, or even beauty for that matter - is in the eye of the beholder.

Bloomberg View’s Matt Levine, who writes the always delightful and enlightening “Money Stuff” newsletter, wrote recently about the inherent conflicts of interest in how so-called “green bonds” are rated:

"How do you decide if an investment is socially responsible? Well, I mean, how do you decide if an investment is good? You do research, you talk to the issuer, you figure out your list of criteria, and you do your best to determine if the investment meets the criteria.

But this is a lot of work and you may not have time for it. Especially if you are a bond investor. Bonds are meant to be boring safe investments, and so in fact many bond investors outsource even the question “is this bond good?” to ratings agencies for a letter grade: AAA, good, C, not so good. Similarly it makes complete sense that if you would want to invest in socially responsible—or environmentally sound, or whatever—bonds, you would also want someone else to do the work of figuring out what that means and which bonds fit the requirements.”

Levine then links to a Financial Times article which tracks the growth of third party verifiers (credit rating agencies, accounting firms, independent environmental consultancies, and research institutes) that judge how green “green bonds” are. These third party verifiers are paid by the issuer of the bond, so some are concerned about the same potential conflict of interest as we had with credit rating agencies before the financial crisis.

“It is just possible that the conflict is that institutional money managers trust third-party verifiers to tell them which bonds are green and which aren’t, and are shocked to learn that the verifiers are paid by the bond issuers and may have incentives to rate bonds as green that are actually brownish...

But there is another plausible alternative, which is that the bond managers want to be able to buy a lot of bonds and say that they are green, and the issuers want to be able to sell a lot of bonds and say that they are green, and the verifiers are helping both sides get what they want, which is a plentiful selection of certified green bonds. After all, if you are an environmentally conscious bond manager, and you are so environmentally conscious that no bonds are good enough for you, you might be an excellent environmentalist but you will not be much of a bond manager. Both sides of the market are biased toward preferring generous ratings. Investors would prefer to fool themselves. (This seems fairly clearly to have been the actual model of credit ratings in the financial crisis, where investors wanted AAA ratings to meet capital and mandate requirements, not because they thought AAA ratings guaranteed safety.)  

...The point is that lots of investors aren’t going to do their own work on every issue, and some won’t do their own work on any issue, and so there is going to be a market for third parties to do that work for them. And that market will reward ratings that are commercially palatable, probably more so than ratings that are “correct.”

...Surely there is a market solution here? If you worry that some environmental raters aren’t doing a good job, then why not hire someone to be a rater of environmental raters?”

Perhaps a High Council of Impact?

When - and when not to - measure nonprofit  impact

Writing in the Stanford Social Innovation Review (SSIR), Mary Kay Gugerty & Dean Karlan argue that the allure of measuring impact distracts from the more prosaic but crucial tasks of monitoring implementation and improving programs: 

“The trend toward impact measurement is mostly positive, but the push to demonstrate impact has also wasted resources, compromised monitoring efforts in favor of impact evaluation, and contributed to a rise in poor and even misleading methods of demonstrating impact. For instance, many organizations collect more data than they actually have the resources to analyze, resulting in wasted time and effort that could have been spent more productively elsewhere. Other organizations collect the wrong data, tracking changes in outcomes over time but not in a way that allows them to know whether the organization caused the changes or they just happened to occur alongside the program.

Bad impact evaluations can also provide misleading or just plain wrong results, leading to poor future decisions. Effective programs may be overlooked and ineffective programs wrongly funded. In addition to such social costs, poor impact evaluations have important opportunity costs as well. Resources spent on a bad impact evaluation could have been devoted instead to implementation or to needed subsidies or programs.

Much of such waste in pursuit of impact comes from the overuse of the word impact. Impact is more than a buzzword. Impact implies causality; it tells us how a program or organization has changed the world around it. Implicitly this means that one must estimate what would have occurred in the absence of the program—what evaluators call “the counterfactual.” The term sounds technocratic, but it matters a great deal in assessing how best to spend limited resources to help individuals and communities…

The challenge for organizations is to build and use data collection strategies and systems that accurately report impact when possible, demonstrate accountability, and provide decision makers with timely and actionable operational data. The challenge for funders and other nonprofit stakeholders is to ask organizations to be accountable for developing these right-fit evidence systems and to demand impact evaluation only when the time is right…”

They then offer 10 reasons not to measure impact, what to do instead, and offer four principles for a monitoring system that is right-fit for an organization:

  1. Credible: Collect high-quality data and analyze them accurately.
  2. Actionable: Collect data you can commit to use.
  3. Responsible: Ensure that the benefits of data collection outweigh the costs
  4. Transportable: Collect data that generate knowledge for other programs.


Impact investing in publicly-listed equities

My friend Nikita Singhal, a Portfolio Analyst at the mutual fund ClearBridge, wrote a white paper last year making the case for public equities (shares in companies listed on a stock exchange that members of the public can buy and sell) as the cornerstone of an “impact portfolio”: 

"If we operate under the assumption that economies are built by enterprises, it then follows that enterprises are the agents of change and impact in the world. While large public companies may not be run with the primary intention of creating impact, by virtue of their size and complex stakeholder relationships across supply chains, distribution networks and communities where they operate, they have a social and environmental impact at every level. Investors who neglect to evaluate the positive and negative impact of their public equities portfolio may be neglecting the bulk of their capital’s impact. They may in fact find themselves in a situation, as do many foundations and endowments, wherein their investments are creating or fueling the very problems their grant-making and niche impact investments are trying to solve.

Not all social ills or environmental concerns can be addressed by large public companies. However, many globally relevant issues can be addressed by directing capital in the traditional public equities markets toward or away from the institutions that are central to those issues. Examples include environmental exploitation, renewable energy generation and labor rights. There is tremendous power in capital allocation. By driving capital into responsibly managed companies and away from exploitative ones, shareowners can drive change...

Not all companies’ products or services are inherently good or bad for the world. However large public companies often have a material environmental footprint due to their manufacturing processes or a large social impact due to their extensive employee base or long supply chain. In such cases, an analysis of how material such impacts are to a business can help determine the overall impact and financial performance of our investments….

The capital markets fulfill an important role by enabling companies to access capital from a diverse base of investors. It is this ability for investors to buy and sell securities in the secondary marketplace that creates liquidity and thus lowers the cost at which a company needs to raise capital (debt or equity). As more people gain interest in a stock, demand drives up the stock price. This increase in stock price reduces the cost of capital for the company since it needs to issue fewer shares to raise the same amount. Thus, by intentionally placing capital in the hands of a company, asset owners and managers can reduce its cost of capital, which can support future growth. In contrast, by reducing the capital available to companies that are net negative contributors to society, share owners can implicitly raise those companies’ cost of capital, making it harder for them to compete in the marketplace. Public equities, with their return potential, enable investors to make capital allocation decisions at scale, sending strong signals to the market about the companies and impacts they support…"

Curiosity and the belief that all people are of equal worth

The physician and New Yorker writer Atul Gawande recently gave the commencement address at U.C.L.A. Medical School, where he challenged these new doctors to guard their curiosity, which he sees as the beginning of empathy, and ultimately, equality:

“Insisting that people are equally worthy of respect is an especially challenging idea today. In medicine, you see people who are troublesome in every way: the complainer, the person with the unfriendly tone, the unwitting bigot, the guy who, as they say, makes “poor life choices.” People can be untrustworthy, even scary. When they’re an actual have to walk away. But you will also see lots of people whom you might have written off prove generous, caring, resourceful, brilliant. You don’t have to like or trust everyone to believe their lives are worth preserving.

We’ve divided the world into us versus them—an ever-shrinking population of good people against bad ones. But it’s not a dichotomy. People can be doers of good in many circumstances. And they can be doers of bad in others. It’s true of all of us. We are not sufficiently described by the best thing we have ever done, nor are we sufficiently described by the worst thing we have ever done. We are all of it.

Regarding people as having lives of equal worth means recognizing each as having a common core of humanity. Without being open to their humanity, it is impossible to provide good care to people—to insure, for instance, that you’ve given them enough anesthetic before doing a procedure. To see their humanity, you must put yourself in their shoes. That requires a willingness to ask people what it’s like in those shoes. It requires curiosity about others and the world beyond your boarding zone.

We are in a dangerous moment because every kind of curiosity is under attack—scientific curiosity, journalistic curiosity, artistic curiosity, cultural curiosity. This is what happens when the abiding emotions have become anger and fear. Underneath that anger and fear are often legitimate feelings of being ignored and unheard—a sense, for many, that others don’t care what it’s like in their shoes. So why offer curiosity to anyone else?

Once we lose the desire to understand—to be surprised, to listen and bear witness—we lose our humanity. Among the most important capacities that you take with you today is your curiosity. You must guard it, for curiosity is the beginning of empathy. When others say that someone is evil or crazy, or even a hero or an angel, they are usually trying to shut off curiosity. Don’t let them. We are all capable of heroic and of evil things. No one and nothing that you encounter in your life and career will be simply heroic or evil. Virtue is a capacity. It can always be lost or gained. That potential is why all of our lives are of equal worth.”

Job Postings:


Items of Note:

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Please send me any interesting content you would like me to share with this community - articles, research, posts, reports, job postings, upcoming events, and miscellaneous items of note, including things like this dog, who doesn’t understand that sometimes the only barriers are in our mind. (Content must be links; I cannot share attachments or PDFs.)

Until next time!

Brian Walsh
Head of Impact at LiquidnetFull bio.