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Q&A: Social enterprise, philanthropy and impact investing - Judith Rodin, Rockefeller Foundation

by Astrid Zweynert
Wednesday, 15 May 2013 18:19 GMT

Judith Rodin, president of the Rockefeller Foundation, participates in a panel discussion at the Clinton Global Initiative, in New York, September 23, 2009. REUTERS/Chip East

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LONDON (Thomson Reuters Foundation) - There may not be enough money to solve the world's increasingly complex problems, but capital is gravitating towards investments that have a positive social or environmental impact. Impact investing has gained traction in the philanthropic community in the past few years, with hundreds of new funds set up. The market is forecast to reach $1tn in investments in the next 10 years. 

As part of a series of interviews with social finance experts, Thomson Reuters Foundation spoke to Judith Rodin, president of the Rockefeller Foundation, which prides itself of having coined the term impact investing in 2007. The $3.6bn New York-based philanthropic organisation has invested $140m of its endowment in impact investing related projects.

Now in its centennial, the foundation aims to advance inclusive economies that expand opportunities for more broadly shared prosperity and build resilience by helping people, communities and institutions prepare for, withstand and emerge stronger from acute shocks and chronic stresses. The foundation focuses on four areas: advance health, revalue ecosystems, secure livelihoods and transform cities to address the root causes of emerging challenges and create systemic change.

This Q&A is an edited version of an interview held on the sidelines of the Skoll World Forum on Social Entrepreneurship 2013.

Q: How can social entrepreneurs help solve big social and environmental problems?

A: We have seen that with strategic intervention and a lot of innovation those problems become tractable over time. I think that social entrepreneurship is a critical part of that ecosystem but it is not sufficient. It acts to innovate, to break down traditional ways of thinking, to forge new paths and that of course is what philanthropy at its best is funding to enable. So, we fund social entrepreneurs, we have always in our history bet on people. But we also fund necessary transformations within governments, necessary transformations within other system actors because ultimately you have to leverage the whole system to catalyse change when the problems are that intractable, so is a lovely and critical part of the ecosystem but it alone will not catalyse all of the change that is necessary when you have these big, thorny, huge problems.

Q: What is needed to make this ecosystem efficient in bringing along systemic change?

A: We have the privilege of being able to fund all the elements of the ecosystem, so sometimes we fund governments to do things, sometimes the government is our funding partner, sometimes we fund the private sector to do something and sometimes the private sector is our funding partner. I think too often people think of this in 'either or' terms. It’s all of the above, depending on what the problem is. Obviously, with some types of problems a certain set of actors is more critical than another set of actors. So, the wisdom and experience of being able to know which actors are necessary to catalyse change in the system is important. 

If you look at civil society and the NGOs, in early iterations they tried to work around governments, and what we’ve seen over time that they recognize that working with government and trying to directly get government to change certain things is a critical part of what will make them successful and catalyse change. I think we’re at a moment in history where we’re learning that they’re seeing that if they can’t move government, they’re going to remove government and we’re seeing those kind of actions, a lot of those activities are funded by philanthropy and other kinds of actors. It's a very dynamic moment in this ecosystem in which were seeing new actors emerge, we’re seeing old actors act differently and a lot of change occurring.

Q: What role do corporations have in this changing ecosystem?

A:….we need some way to really promote the concept that corporations are responsible for more than just shareholder value, they are responsible for more than just the next quarterly earnings.  They’re so many great corporate voices now – I think of Paul Polman at Unilever and others – who are really thought-leaders in saying corporate social responsibility is not something off to the side in some assistant vice-president’s office, this is the core of our business and we not only think of our employees and our customers, we are also thinking of the people we source from. I think that is what stakeholder value means – we just have to think of a better term…We are on the cusp of a real corporate evolution.

Q: How do you ensure sustainability of the projects that you fund?

A: We work extensively in Africa on food security. Our interventions are in multiple countries and along the value chain, from improved seeds...water management, soil fertility to developing the output markets more systematically. But all along that value chain you really need to think about sustainability and it’s the only way to really get, whether it’s water, sanitation or poverty reduction or environmental sustainability these interventions require some model that allows it to continue when the funder leaves...We don’t go into something where we don’t have an exit strategy because it keeps us laser-focused on sustainability in from the outset and really trying to understand what it will take and often funders don’t think that way, exactly do the opposite…we pat ourselves on the back, say ‘we’re philanthropy we’re in it for the long haul', and that’s lovely and important to be there, but sometimes then you don’t think sufficiently what kind of capacity and sustainability building you need to do along the way, so that an exit strategy doesn’t turn things on their heels.

Q: Could you give an example?

A: There is a long history of the World Bank funding rural electrification projects all over the world, and not many of them, by their own analysis, were sustainable after their funding ran out, so we’ve been working with 100 villages in India, all of them off the electrical grid to build what we think is a virtuous and sustainable cycle. The concept was (based on) a real estate concept in the US that if you build a mall, you always need an anchor tenant, a sort of big department store that is going to be there and then will attract the little retail outlets around it. As we watched the cellphone tower penetration in India, we said why couldn’t those that were building the transmitting stations and power stations for the cellphones be the anchor tenant if they could guarantee a certain amount of usage on a 24-hour basis, than you could build this in and then the villagers who only needed 20 percent of the remaining would have a sustainable model because you'd have a guaranteed anchor tenant.

We added to that we would try to get them to commit to using sustainable sources of energy rather than diesel and so we also had the villagers build little companies that started to produce alternative energy depending on what their environment was, so some were biomass, some were solar, so we were doing job creation to support the anchor tenant at the same time that we were doing rural electrification. The data that we have from those 100 villages shows tremendous capacity for sustainability, tremendous environmental impact because they were getting off diesel in these cellphone towers and fewer rural villagers are leaving for the big cities because they're finding economic opportunity locally, so it's a real virtuous circle that gets created when you start thinking about your exit strategy from the beginning instead of at the end.

Q: South-east Asia is often cited as the next big hub for Impact investing. Which regions are you focusing on?

A: In south-east Asia tens of trillions of dollars is the estimate of significant personal wealth and in so many places outside of the OECD countries the whole notion of impact investing has not yet caught on. What we’ve been trying to do at Rockefeller is pick a couple of places where there is both massive wealth and potential receptivity to both learning about impact investing and developing an appetite for investing in current funds. We’re building specific funds that are relevant to that region. We've held sessions now in Sao Paulo, Hongkong, Bangalore and Cape Town, and they have been extraordinarily well attended, both by extremely high net-worth individuals or those who manage their wealth, by small funds that really want to learn how to become impact investment funds. 

We want to get them from thinking beyond just the double-bottom line to thinking about the impact that the double-bottom line is going to have on social and environmental outcomes as well as and that's why the term has meaning. We found that this really has great resonance among a lot of those wealthy individuals, many of whom have thought that they had to do their charitable good works on this site and their money investing on this site and are really captivated by the notion that they could accomplish both sets of goals, not with all their investments, obviously, because there is not that potential but with significantly more of their wealth than they thought perhaps was possible. We’re in those four regions helping to build the infrastructure to catalyse opportunities. In Singapore, we have a grantee that we’re funding working with the government to build a social stock exchange, which would  be the first in the world where enterprises that are delivering double bottom lines would be listed and evaluated just as on a traditional stock exchange and rated depending on the level of risk. 

Q: Can Social Impact Bonds become a finance tool for development?

A: The Social Impact Bond is priced based on empirical evidence of the success of the intervention. It's not to pilot new ideas, that it's not what it's structure is for. Regardless of where it's used - It can be used anywhere but it is only priceable and made as a bond if there is an evidence base against which the actuaries can price the bond. That makes it really, really interesting because often what is happening you have these really terrific interventions that are happening in small ways in places all over the world by an NGO, usually a non-governmental actor, but they usually never have the resources to go to scale, so what the bond does is take a proven intervention, give it the resources to take it to scale, government is paying out the bondholders and government – because it’s priced against the evidence base – is doing it only when they recognise that they get a more effective outcome at lower cost for government than if they were doing it themselves. So it is truly a triple win and they aren’t that many of them where a great social service is provided, an NGO gets to go to scale and government saves money and the private investor has a double-bottom line investment.

Q: How can impact investing be broadened to include retail investors?

A: The first social impact bond that is open to retail investors was launched in the UK in February and that’s to advance a well-proven intervention for youngsters at risk. It involves housing interventions and support interventions and that’s open to retail investors. Bonds maybe one mechanism for the retail investor. Many of the impact investing funds want to open to retail investors but there isn’t yet (in many countries) the regulatory framework that would enable that kind of fund sale, like a kind of mutual fund, to the retail investors...There is a lot of good working going on now around that issue but that is the limiting factor that there is no mutual fund, or fund of funds, that has the regulation around it that allows it to retail.

Judith Rodin has been president of the Rockefeller Foundation since 2005. She was previously president of the University of Pennsylvania, the first woman to lead an Ivy League institution, and provost of Yale University. She is the first woman to serve the Rockefeller Foundation in its 100-year history and has been credited with reshaping its focus to meet the challenges of the 21st century. The foundation works to advance inclusive economies that expand opportunities for more broadly shared prosperity and to build greater resilience by helping people, communities and institutions prepare for, withstand and emerge stronger from acute shocks and chronic stresses.

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