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Gayle Peterson

Area:

Social Finance

Speciality:

Poverty Alleviation

Expertise:

Wealth creation strategies to alleviate poverty

By Gayle Peterson

Impact Investing from the Heartland: observations from the TBLI Conference

I grew up in Chicago (aka Windy City, City of Big Shoulders, and home to Barack Obama) and recently returned home to participate in the TBLI (Triple Bottom Line Investing) conference on impact investing hosted at the University of Chicago Booth School’s Gleacher Center on 23 January.

Chicago was a good choice. Not only is it home to the two world-class business schools that co-hosted the event – Booth and Northwestern University Kellogg School of Management. It also has a long history of creating world-changing innovations: the first sustained atomic fission chain reaction (under the University of Chicago football field), the Ferris Wheel, the skyscraper, the vacuum cleaner, the zipper, the hot dog, the ubiquitous Twinkie, and – no wonder – the first open heart surgery. It is also a hub for innovators in philanthropy and finance.

Two opening plenary speakers, – Irene Pritzker of IDP Foundation and Debra Schwartz of John D and Catherine T MacArthur Foundation, represented Chicago’s best and brightest thinkers offering new social change models. Pritzker and Schwartz offered compelling insights about what is needed to accelerate impact investing in financial markets in a positive way both at home and globally.

Transform traditional aid

Pritzker, an Australian by birth but now a Chicago native, is founding member and president of the IDP Foundation. IDP focuses its energies and investments on education as a way to conquer the world’s greatest challenges. As Pritzker explained, she and the foundation believe strongly that traditional aid has often failed and new market approaches must be tried. Guided by this philosophy, IDP launched its Rising Schools Program, which taps microfinance to transform poor schools in Ghana. After a successful pilot in 105 schools and an initial enrolment of 27,000 children in 2014, IDP hopes to scale up the programme to 580 schools and 150,000 children by 2016.

Build local capacity through trust

Rising Schools uses microcredits as financial and social change instruments to support everything from school fees and tuition to school buses. Also at the core of its success are non-financial tools – trust building, permanent on-the-ground staff who are Ghanaians, and a commitment to building capacity long term. These aspects of the impact investing equation are often missed and are as important as any component of the deal sheet or social return on investment.

Overhaul traditional finance

In addition to advocating transformational reform in education, Pritzker is also calling for an overhaul of the traditional financial system. Specifically, Pritzker and IDP have used her own wealth advisers and managers to model a new direction for the finance field. Unlike most foundation investments, 80 per cent of the IDP Foundation corpus is mission-aligned, with an additional portion earmarked for impact investing funds. Pritzker emphasized that these mission-driven investments are making money, providing needed capital for socially responsible companies, and yielding powerful social returns.

Bully and drag towards innovation

Pritzker described her ‘bully and drag’ strategy to get her financial team to step up and find investments that yield multiple returns. She debunked the notion that there are inadequate products for the pipeline and felt that marketplaces just need to re-label many products – including municipal bond and social impact bonds.

Be committed to social change and creatively repackage

Debra Schwartz, director of impact investing at MacArthur, buttressed Pritzker’s advice with her discussion of MacArthur’s 28 years of experience in the field. She pointed to the foundation’s deep involvement in harnessing mainstream capital and making flexible money available to investors and non-profits. She also emphasized the importance of packaging deals creatively with what is available. For example, Schwartz said that in partnership with 23 banks the foundation has provided affordable housing and offered $200 million in an impact pool through the use of municipal bonds.

Caution: do no harm

At the same time, Schwartz cautioned investors not to jump at any deal and label it impact investing. Deals can cause harm if you focus on financial returns and don’t understand the dynamic social change issues at play when confronting complex issues. Schwartz was clear that the foundation’s mission is driven by social change and believes the field can achieve financial and social returns with wisdom.[i]

In the end, the overarching messages of these two mavens in impact investing were: We can make money work for social good through collaboration, enlisting communities as partners, and cajoling traditional financial sectors. Equally important is ensuring that pioneering investments and ideas stand the test of due diligence and build on the deep track record and experiences of foundations and their private and public sector partners. It is about connecting the dots and taking action.

[i][i] More information about the strategy and lessons learned from the MacArthur Foundation’s impact investment will be found in a forthcoming case study developed by Gayle Peterson’s consulting firm, Partners for Change.

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