Greater Good Blog

Build Collective Knowledge to Advance Impact Investing

Cynthia Muller

To better serve the populations and causes that matter to us, impact investors need to build a stronger base of collective knowledge by sharing experiences and making better use of the data we have. Those were the key takeaways from the Independent Sector conference at which my fellow Arabellan Whitney Mayer and I spoke along with two of our colleagues from the Rockefeller Foundation. Arabella recently completed an evaluation of the foundation’s program-related investment (PRI) portfolio, and our panel discussion centered on the lessons we learned that could benefit the impact investing field. As foundations of all sizes increasingly incorporate different types of impact investments into their portfolios and wrestle with the difficulties of evaluating them in a rapidly changing field, these two takeaways struck me as particularly important for investors to keep in mind.

1. We need to better use our existing data about best practices.

Though the field is rapidly growing and changing, impact investing has actually been in practice for over 45 years. While we don’t yet have fully standardized measures and metrics for social impact, there are best practices for foundations of different sizes to use when developing impact investing strategies. Our Rockefeller colleagues pointed to some of the best practices that pertain to the big questions foundations face before making investments. For one, assessing your capacity and philosophy as a foundation—your risk tolerance, culture, and goals—is critical to selecting the right mix of investments. For example, understanding your risk tolerance can help you decide whether you should make impact investments out of your payout or endowment. The extent to which your internal teams work together might be the basis for deciding how much to integrate decision making between program and investing teams. Foundations are also often unsure whether a grant or a PRI is the most appropriate way to support an organization. Our colleagues pointed out that the first test should be whether the organization in question has a revenue-generating model; if not, any kind of impact investment is unlikely to yield returns.

2. By better sharing knowledge and experiences, we can set ourselves up for shared success.

An increasing number of hubs and forums create opportunities for funders and investors to learn from each other. But the more pressing point that emerged from our discussion is that we as a field need to do a better job sharing and assessing our experiences and data so that we set ourselves up for stronger transactions and collaborations. An excellent example is the case of the New York Acquisition Fund (NYCAF), which my colleagues Melanie Lei and Tia Subramanian wrote about recently. NYCAF, which Rockefeller helped to fund, was established to solve New York City’s specific affordable housing challenges. It was such a public success, however, that other foundations and investors recognized its strength, and have successfully replicated the basic model in four other cities around the country.

As a field, we still define impact and innovation in different ways. Impact investing is a fluid process, and foundations are still developing their practices. In this context, it is all the more important to share what we learn along the way, openly discussing both our successes and our challenges so that the field can move forward and deliver on its promise to the populations and causes we care about.

The Rockefeller Foundation’s report is the first public evaluation of a PRI portfolio by a major foundation, and it will be available in the coming months for other funders and investors to see what worked and, just as importantly, what could have worked better. We are excited to have been part of this work, helping Rockefeller set the tone for how we should share experiences and where we can realistically set our expectations with regard to social and financial returns and impact. Learning from this information will help impact investors collaborate to seed innovations, make better use of their resources, and ultimately broaden and deepen the impact we can have on pressing social and environmental problems.

Cynthia Muller leads the firm’s impact investing practice. She helps individual and institutional clients understand the field of impact investing, develop strategies, and structure investments to accomplish their social and environmental goals. She tweets from @cynmull.

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