Philanthropy

Five Things We’re Excited about in Impact Investing

March 30, 2015  • Program on Philanthropy and Social Innovation

The Aspen Institute recently co-hosted the impactDEALS Forum with i2 Capital Group, an impact investing advisory firm based in the Washington, DC area. The event brought together investors and entrepreneurs to discuss how impact investing is delivering improved social and environmental outcomes in the education, health, environmental, and conservation finance sectors. Here at the Aspen Institute, Ascend and the Program on Philanthropy and Social Innovation are committed to advancing impact investing as a tool for social change. Impact investments come in many different forms, but seek both social and financial returns. The forum, part of an ongoing series on market-based solutions, highlighted several trends we’re excited to share:

1) The focus is on value creation and problem solving

The social entrepreneurs and impact investors around the table didn’t refer to themselves as such. Rather, they were “educators, techies, investors, and innovators” who leveraged their businesses or capital to drive social change. Above all, they were problem solvers. They had identified gaps in the market or inefficacies in a value chain, and responded with companies or catalytic capital that fundamentally improved the industries they disrupted or the systems they influenced. For example, Evolent Health aims to tackle inefficiencies in care delivery and rising health care costs. The company works with health care providers to transition to value-based care models, reduce waste and cut costs. When social investors and companies take this approach—when they see themselves first and foremost as problem solvers—”impact investing” and “social enterprise” are no longer a niche investment thesis or a “social strategy.” Rather, these concepts become universal tools, and their best characteristics continue to provide lessons for companies and investors across all sectors and industries.

2) The relationship between government and investors is maturing

Private-public partnerships continue to gain popularity. Matt McKenna, Senior Advisor to Secretary Tom Vilsack with the U.S. Department of Agriculture, confirmed this trend and shared his vision for how the public sector can advance this relationship by functioning as a “clearinghouse”: he highlighted investable opportunities, such as building out the intermediary infrastructure to mediate the inflow of private capital. In 2014, for example, USDA launched the Rural Business Investment Company, a $150 million fund that works to facilitate private equity investments in agriculture-related businesses. McKenna emphasized the role of the private-sector not only for its capital but also for its “thinking and imagination,” noting the need to incorporate a private-sector mindset while leveraging the agencies’ advantages of scale and its ability to set standards.

3) Policy and innovation go hand in hand

Private-sector innovation helps move policy to practice—seeding and testing new solutions—while policy creates the enabling environment for market-based solutions to succeed. For example, StraighterLine, a for-profit company, is driving down the price for general education courses by offering them online at around one-fifth the cost of in-college enrollment. The company guarantees transferable credits for its courses, while providing postsecondary institutions with a steady pipeline of potential students at low recruitment costs. So while President Obama’s recent proposal for tuition-free community colleges has the potential to increase educational access for low-income and non-traditional students, for example, innovative companies such as StraighterLine help establish best practices, fill public sector gaps, and “seed the ground” with cost-effective solutions

4) Independent research is helping us get closer to better, standardized measures of impact

Traditionally, socially-driven funds and companies self-report their impact using an array of metrics and measures. In the effort to “mainstream” impact investing and social enterprise, however, standardized and independent reporting from organizations such as Boundless Impact Investing has begun to build investor confidence and drive new opportunities for collaboration.

5) Social outcomes are driving economic returns

For-profit companies have become some of the most powerful change agents in addressing social and environmental issues, while nonprofit service providers increasingly measure and structure transactions based on the economic impact of their interventions. For example, major agricultural producers have become some of the most active investors in addressing climate change, which risks destabilizing their businesses and their bottom lines. Alternatively, nonprofit service providers have begun to “monetize” their interventions through Social Impact Bonds and other forms of Pay for Success. Social and economic returns are fundamentally intertwined. And while many in the field have understood this convergence for some time, we are seeing increasing progress as investors take on innovative financing mechanisms and more entrepreneurs embrace socially-driven operating models.

Learn more here:

impactDEALS Forum Sector reports:

Selected essays from The Bottom Line: Investing for Impact on Economic Mobility in the U.S.:

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