Investor Spotlight: The Rockefeller Foundation

What is the Rockefeller Foundation's mission?

Our mission, given to us by our founder in 1913, is to improve the well-being of humanity. It is one that we have continued to reinterpret throughout our 100 year history -- we try to understand what that means in the context of our environment. Today, it means trying to build more equitable growth and greater resilience to this century's challenges, such as the impact of climate change or financial shocks. We think that adhering to this vision focuses us on work that helps more people achieve the benefits of globalization while mitigating some of its risks.

We held several global meetings in 2005 and 2006 to try to understand the new forces that were shaping the world. Because the foundation has a history of building fields, including the field of public health, we wanted to determine how we could draw from our history and the work that our predecessors did to respond to their contemporaneous global challenges in ways that would be equally innovative and transformational. As we looked at a vast array of significant global problems, it became clear that there weren't enough development and philanthropic dollars to solve all of them.

We identified the unleashing of private capital as the next transformational accelerator for social change. We feel particularly proud that in the past we've been the interface between innovation and making the investment that it takes to build fields, and impact investing has been a great extension of this tradition into the modern period. Innovating field-building in impact investing was an area that was in our organizational DNA.

From the start, we realized we ought to do a broad scan of private capital investing to see what, if any, social and environmental outcomes they were producing, how much capital they were investing, and what problems were hindering the flow of capital. We commissioned, along with a few others, the 2009 Monitor Institute report Investing for Social and Environmental Impact that then led to our formal impact investing initiative.

The Monitor report showed that the markets were fragmented, that there were no widely-accepted impact metrics, few platforms for intermediation, and that nobody had taken a hard look at what policy frameworks - whether global, national, or local - would enable this field to gain traction more quickly. In identifying those challenges, we felt that we could play, with others, a catalytic role in addressing some of these issues. We set out to help develop a platform that would share data, bring new ideas to the field, and aggregate investors -- if not to invest together, at least to share knowledge and best practices. Those ideas led to the creation of the GIIN and other industry infrastructure and tools.

When we talked to investors, we often heard that they knew how to do financial, but not social, due diligence. They didn't know how to assess impact, let alone their impact objectives, and didn't know how to put a probability on an investment's ability to achieve a double bottom line. We hoped we could use our knowledge and experience in measurement and evaluation to help grantees develop sets of standards that would accelerate this field. Our grants have led to the creation of the Impact Reporting and Investment Standards (IRIS), managed by the GIIN, to provide a set of metrics to track and measure organizational impact, and to the Global Impact Investment Rating System (GIIRS), managed by B Lab, to assess and rate the social and environmental performance of companies and funds.

The GIIN reaches thousands of people interested in impact investing; we couldn't have imagined that there would be that many individuals or entities that would consider themselves part of this space when we started our initiative. Every year, the GIIN gains new supporters, platforms, and information users, and its Investors' Council gains new members. I think we've seen tremendous traction. We've held convenings around the world that continue to stimulate interest, get the message out, and promote Rockefeller Foundation grantees. There's more money coming in as new investors enter, including family wealth funds, angel investors, and others, who are broadening the supply side. Part of that new capital is stimulated by the reports that we and others have helped to fund. Reports have helped analyze impact investing as an industry, whether and how to get big institutional investors engaged, and what role governments ought to play.

We've made PRIs into Root Capital, IGNIA, and Acumen Fund. We're trying to invest in funds whose social objectives align with our issue area. We're also investing some PRI money in green energy funds, to forward our climate-related and environmental work.

In terms of the grantees, our largest impact investing grantee is the GIIN, because we felt that this institution needed to get off the ground quickly and do all the work that it is currently doing. Forbes recently listed 30 great social entrepreneurs -- nine are Rockefeller grantees, and eight of those nine are specifically impact investing grantees. We think that we've been able to support "brains and innovation" in this field, as one of my predecessors used to say. We're looking for good grantees that are making an impact, creative and innovative, and taking appropriate risks.

This initiative has been so important to us because philanthropy is needed at early stages to take more risks and do what other sectors don't want to do or aren't able to do, because they work to a different timeline or bottom line. We think impact investing has benefited from Rockefeller and other philanthropies that believe field-building in this industry is critical to unleashing private capital. We are now examining trends and looking at new issue areas because we're committed to both deepening policy work and continuing to support market-building platforms as they mature so they're sustainable.

We're evolving from the current impact investing initiative to these next phases of work. We're going to focus more intentionally on the demand side of capital in our next stage of work. We made a conscious decision in this first phase of the initiative to focus on the supply side and intermediation of capital, excepting our funding of the Aspen Network of Development Entrepreneurs and some of the social entrepreneurial funds that received PRIs. One clear trend is that there aren't enough demand side entities able to utilize an accelerating source of capital supply. We will work with social entrepreneurs, small to medium enterprises (SMEs), and large corporations that are employing new ways of working. For example, some companies are implementing hybrid value chains, where the end of their value chain is intentionally collaborating with an SME or a non-governmental organization to accelerate a social outcome. We want to catalyze innovative financing more broadly.

The current investor base is fantastic and we need to keep them being effective. In our next phase of work we're also going to try to accelerate funds and investors in the developing world, and we're likely to announce work that goes intentionally into the developing, rather than the developed, world. In addition, unless more big institutional investors enter the market, we don't think the field will get sufficient traction. To bring in institutional investor capital to the market, we'll use our evidence base, influence, and the influence of others who are developing evidence bases about the industry. However, it's not going to happen without policy work, so the next phase of what we do will also focus on policy.

Initially, we will focus our efforts in the U.S. We supported Social Finance to launch the first piloted Social Impact Bonds in the U.K. and were one of the investors in the bond offering. Social Finance has now come to the U.S. and is a grantee here as well. We believe that we need to stay involved in this work for a while to make it extremely clear to the governments developing these bonds that they are not experimental instruments, but are for well-tested social programs on which actuarial analyses can be done to appropriately create the bond. We want to make sure that the enthusiasm doesn't lead to the wrong kind of bond structures that eventually make people conclude that social impact bonds don't work.

We are looking to further use policy to develop the market. For example, in the U.S., current policies mandate or allow state pension funds to make economically-targeted investments (ETIs) in social or environmental areas that also have financial returns. That policy framework is unleashing a lot of investment capital, and will be moving to encourage these types of policies in order to catalyze even greater investment. As outlined in the recent report by Pacific Community Ventures and the Institute for Responsible Investing at Harvard, to whom we've just made another three year grant, policy work will be important. The report states that government policies have to focus on enabling policies, those are, policies that are targeted at the asset owners themselves, credit guarantees, safe-harbor provisions that support those institutions, or policies that are integrative. We're looking to find ways to build social impact into conventional investment vehicles, through policy such as performance standards or tax credits that would allow for the achievement of public purpose, regardless of the investors' motivation.

Internally, in all of the foundation's future traditional philanthropic activities, we will seek to intentionally build in an impact investing component into our issue work. That's going to be interesting experimentally, to see the opportunities and the rate-limiting factors. To get leverage, we may enter some public/private partnerships. For example, we just funded the three governors in California, Oregon, and Washington to create the framework for a Western governors' infrastructure bank to catalyze capital. Since the governors can't give an investor a return on investment if they only have a one year budget and no capital budget, we want to see if they can develop capital budgets in those three states with five year budgeting. We hope they can do things that would attract investment capital in new ways and have that kind of innovation continue. That's more of what we'll be doing and asking others to do with us. We will bring our ideas about innovative financing and economic growth, which work together because growth is capital-intensive.

I think that other actors need to support the market-building platforms to create a sustainable market. If these tools are going to get traction and sustain themselves, they can't be supported by philanthropy forever. For example, what business model can help social and environmental performance standards get financial support? Moody's rating agency started as a nonprofit, and for better or worse has developed a for-profit model. Whether that's the direction that the impact ratings go or not, industry actors should be figuring out how to distinguish between what services to sell and what should be offered as public goods.

In addition to GIIRS, other ratings systems are developing and I think a challenge for the next generation is going to be how the field can test all these various ratings systems against each other in order to determine how best to measure and assess risk on the social side. We also felt that we should help aggregate larger funds to create more robust intermediaries, because there was a sense that no one entity wanted to put the kind of infrastructure in place that could source many deals. There were people doing it but their scale was small. So a continued challenge is, how do we start to help investors scale?

Again, we think the policy and regulatory frameworks have to change. Right now there aren't sufficient incentives aligned with the needs of impact investors.

Our original assessment of the industry found that nearly a trillion dollars is potentially available for funds that mandate a double bottom line mandate. We assess our success through the amount of leverage we get from our investments. We have spent about USD 40 million on both grants and PRIs up to this point, and want to ensure that that this funding is leveraged in an additive way to accelerate the unleashing and unlocking of all of this potentially available capital. Thus, we will actually measure the amount of capital in the market over time. We can't take credit for it all - it's about our contribution, not our exclusive production of this outcome. But, we think that billions of dollars will have to be demonstrably available over the next 20 years in order to declare that this initiative was a success.