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Investing for Impact

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Venture capitalists in Silicon Valley know a good opportunity when they see one. And this week, investors and entrepreneurs flocked to San Francisco's fourth annual Social Capital Markets (SOCAP) conference to explore how the invisible hand can lend a helping hand.

In the world of finance, ROI -- "return on investment" -- rules the day. But there is a new kind of investor nowadays seeking a different kind of return. We call them impact investors, and they seek to put markets to work for millions of people around the globe -- from the Tenderloin to the slums of Mumbai -- who struggle with hunger, homelessness, disease, and environmental degradation.

Until recently there were not many opportunities for socially conscious investors -- either institutional or individual -- to pursue financial returns and the greater good with the same investment. But that's all changing, thanks to the emerging field of impact investing, and the impact investors who are building a new kind of marketplace in which financial and social returns are closely linked.

As SOCAP participants know all too well, for-profit capital markets hold more than $100 trillion in opportunity. So this week's conversation keyed on simple, but powerful questions: "How can we tap into these enormous private capital resources that are looking for places to invest? Can we catalyze the markets to invest in solving social challenges?"

The response to these queries has been extraordinary. One survey of just 42 investors showed approximately 2,200 impact investments last year worth nearly $4.5 billion. And these impact investors are incredibly diverse: private equity and public pensions, foundations and major corporations, retail investors, governments and community banks

At the Rockefeller Foundation, we're focused on unlocking more of this innovative form of financing. Like any new industry, impact investing needs common tools to assess what does and doesn't work, and facilitate and implement new ideas. So over the past five years, we've committed our philanthropic dollars to help build the critical, long-term platforms, networks and capacity that will accelerate the field's forward momentum and benefit millions of poor or vulnerable people.

We've brought together institutional investors like TIAA-CREF and J.P. Morgan to create the Global Impact Investing Network, a forum for identifying and addressing systemic barriers that hinder the industry's efficiency and effectiveness. The GIIN Investors Council now has 50 members, ranging from banks to pension funds to family offices. Likewise, we've supported the development of objective, credible standards for measuring and communicating the social impact of these investment funds and the companies in which they invest, including rating over 250 such companies.

Closer to the ground, the Rockefeller Foundation has helped build demand for these investments, for instance, seeding a social stock exchange in Singapore and cultivating the small and growing businesses that have the potential to become a potent engine of economic and social change in the developing world. Many of these projects have involved exciting new types of public/private partnerships, with governments, foundations, nonprofit organizations and private investors rethinking how they leverage capital.

One of the most innovative of these public/private initiatives is called a "social impact bond," which uses philanthropic and private capital to scale proven, effective social services (e.g. prisoner re-entry programs) that save the government enough money to repay investors down the line. Because investors are only repaid if the program succeeds, social impact bonds allow cash-strapped governments to experiment with evidence-based, outcome-oriented solutions to social challenges without putting taxpayers' money at risk.

On the West Coast, the Rockefeller Foundation is working with state governors and treasurers to develop a tri-state infrastructure exchange that will streamline the planning, financing and construction of vital projects. This will allow big institutional investors like CalPERS to fund a toll road or alternative energy plant and reap a 10-15 percent return over the next several decades -- filling potholes as well as pensions.

At this stage of development, we've reached an unprecedented opportunity to transition from piloting programs to changing lives. With federal and state budgets tight, with more investors than ever eager to align their investments with their values, there's never been a better opportunity to bring our markets and our morals together in service of a better world.