Markets can harness innovation and capital for public good.
Fifteen months ago, under the United Kingdom’s Presidency of the G8, Prime Minister Cameron announced the formation of a Social Impact Investment Taskforce led by Sir Ronald Cohen to advance the impact investing market worldwide.
Today, we’re proud to join the Taskforce in announcing the release of their report, The Invisible Heart of Markets: How Impact Investing is Harnessing Innovation and Capital for Public Good. This represents the most comprehensive initiative to date to define what is needed to create a global policy framework to accelerate impact investing, building on the recommendations the U.S. National Advisory Board set forth in its report this past June, entitled Private Capital, Public Good: How Smart Federal Policy Can Galvanize Impact Investing — and Why It’s Urgent.
The Taskforce report comes not a moment too soon. Supportive partnerships with government can make or break industries and asset classes.
Take, for example, the dynamism of the U.S. venture capital industry, which I see every day on my commute from San Francisco to our offices in Silicon Valley. None of the VC industry’s success would be possible without significant policy changes in the late 1970s, ranging from clarifications to ERISA to a safe harbor rule. Venture capital investments went from virtually zero to more than $5 billion in just two years.
Luckily, many of the policy changes recommended in The Invisible Heart of Markets require little in the way of new spending or new legislation. Some small tweaks to modernize regulation could make a world of difference.
Foundations, for example, are the ultimate mission-driven financial institutions, but most only focus on grant making as a means to impact. Foundations should be able to think flexibly about how to align their endowment with their mission, and take early stage risk on socially impactful for-profit start-ups that may extend the reach of markets to the disadvantaged. Small changes in government guidance could make a huge difference in encouraging foundation trustees to look at a broader set of tools they have at their disposal.
Pension funds, similarly, sit on trillions of dollars in assets. Governments can unleash billions of these dollars towards impact by simply clarifying that pension funds can – and should – take environmental and social risk factors into account in their investment decisions, especially as they affect long-term financial performance.
The last fifteen months have been an incredible journey. We are proud that Matt Bannick, our Managing Partner, served as the U.S. private sector representative to the Taskforce
We have learned a tremendous amount from our global colleagues -- from the use of unclaimed assets to fund impact investing intermediaries in the U.K. (Big Society Capital, a provider of wholesale capital for impact investment, was endowed using £400 million of unclaimed assets held by banks) to the tradition of co-operatives in France. And we’ve been excited to share policy innovations in the United States, such as the low income housing tax credit, which has catalyzed nearly $100 billion in private investment capital since 1986 in low income communities.
Smart governments are increasingly realizing the value of unleashing the power of business for good. We see today as a milestone in the effort to catalyze a global market in impact investment.
We hope you’ll join us in this effort. Please comment and share the report within your community via email, word of mouth and social media, using #ImpInv, #ImpactInvestment and @ImpactInvestUS.