The Power of Impact Investing: Putting Markets to Work for Profit and Global Good
The following is an excerpt from the book.
“Impact investing can be a powerful instrument of change.”—Judith Rodin and Margot Brandenburg, in the introduction
In The Power of Impact Investing, Rockefeller Foundation president Judith Rodin and Margot Brandenburg, two of the foremost experts in the field, explain what impact investing is, how it compares to philanthropy and traditional investments, where opportunities are evolving around the world, and how to get started.
For nearly 30 years, Ron Cordes made his living, and a comfortable one at that, in finance. He and his partners built an investment services firm with $9 billion in assets, 400 employees, and offices across the country. In 2006 he sold the business to a large investment firm for $230 million. But as he reached his fifties, he began searching for something to fill the next chapter in his life.
He and his wife, Marty, set up a family foundation (and were later joined by their daughter, Stephanie), but they found the prospect of granting money, in a way that could bring about real change, daunting. With modest foundation funds, Cordes was struggling to come up with grant-making strategies that would have a lasting impact.
He decided he needed to see the effect of poverty for himself. On his first trip to Africa, he visited a village in Uganda five hours east of the nation’s capital, Kampala. With the images of starving children so often seen on television fresh in his brain, he expected to be greeted by scenes of hopelessness and despair. Instead, he met a group of women whose entrepreneurial spirit inspired him to transform his approach to giving.
The women, widows who had lost their husbands in the Ugandan civil war, were recipients of small loans given out by a microfinance program Cordes’s foundation had funded. With the loans, the women had started raising chickens, selling clothing, and running a café. Rather than relying on Western aid, the women explained, they wanted to establish livelihoods and support their children on their own.
“That was a powerful moment for me,” Cordes said in a TEDx talk he gave in 2011. “It changed my whole perception of the way I was looking at the problem of poverty—I was looking at the poor as victims who needed us to create solutions for them instead of folks that were entirely capable of being the creators of their own solutions, if they were given just a hand up.”
Cordes also realized he could best tackle social and environmental challenges as he had once approached his entrepreneurship: by seeking solutions that would be self-sustaining and replicable and that could be rapidly expanded. Rather than launch his own initiatives, he saw that more could be achieved by putting funds into the innovative social enterprises being developed by others. As a result, since 2007, Cordes has dedicated much of his foundation’s financial resources to impact investments alongside its philanthropy.
Put simply, impact investments are intended to deliver both financial returns and social and environmental benefits. Although investing directly in socially motivated companies or projects, as Cordes has done, might require experience and knowledge, the existence of funds and other intermediary vehicles that pool investments in underlying companies means that anyone can engage in this form of investing.
The rise of impact investing comes at a critical moment. Catastrophic environmental trends have created an imperative to mitigate the effects of climate change. Alarming levels of global youth unemployment—with young people three times more likely to be jobless than older people—demand heavy investment to help vulnerable individuals launch careers or become entrepreneurs. Seismic shifts in the global economy have left insufficient public funding to tackle the world’s social and environmental challenges. In fact, it would be hard to overstate the extent of the tumult in which our world finds itself today.
If we are to have any hope of solving the increasingly dynamic, complex, and messy challenges of our time, we need more investors to take this dual approach to investing. We are not suggesting that impact investing replace charitable donations, government spending, or philanthropic grants. Rather, we need more and different types of funds to complement philanthropy and strategically leverage larger and more commercial sources of funding.
We live in a dynamic era of innovation, change, and new ways of thinking that could push our society in promising directions. As an investor, you can participate in this change; you have it in your power to contribute to a movement that is potentially transformative and overwhelmingly positive. This is the promise of impact investing.
For more on The Power of Impact Investing: Putting Markets to Work for Profit and Global Good, visit wdp.wharton.upenn.edu/books/impact-investing/.