Building an Impact Economy

Cathy Clark
Founder and Director, Columbia Business School, Research Initiative on Social Entrepreneurship

We’ve all heard the impressive numbers – JP Morgan reports a potential market for impact investing of up to $1 trillion, the Monitor Institute predicts $500 billion.

It’s exciting to consider the potential of impact investing and witness the momentum that has been building around this field.

Recently the White House signaled that they also see impact investing as a powerful force and a critical part of the domestic policy agenda. I was lucky enough to be invited, along with about 150 investors, philanthropists, entrepreneurs, executives and policymakers on June 22, 2011 to the White House’s first convening, in collaboration with the Aspen Institute, on “Building an Impact Economy in America.”

The “impact economy” has been defined by the Aspen Institute as the “twin forces of supply and demand, impact investing and social entrepreneurship, that are driving systemic change in the US and around the world.”

The goal of the meeting was to start to work with Administration officials to understand how to remove barriers, streamline regulations and target existing government resources to support the building of the impact economy.

During the day’s discussions, some critical ideas emerged:

1-Embrace a new world view that acknowledges and supports the ability of the private sector to influence social and environmental problems. This needs to be emphasized though political messaging, and from the very top.

Bill Daley, President Obama’s chief of staff, said at the event that the impact economy is, among other things, about doing more with less, essential during our economic recession. It is easy to see this as a good hook for our times.

2- Encourage the building of a transparent legal framework around corporate forms dedicated to impact. Once these frameworks are established, we can use procurement and other state and federal programs to support certification models as they emerge.

3- Unleash institutional capital markets by modifications to some of the major initiatives and policies already in place.

Expand and refine the CRA (the Community Investment Act), enlarge ERISA to include a safe harbor for ESG (environment, social and governance) considerations to allow pension funds to include impact investing as part of their portfolios. (As Lisa Hall of the Calvert Foundation pointed out, even if limited to 1% of pension fund portfolio, this alone could unlock billions of dollars toward impact investing). Help foundations use program-related investments (PRIs) and mission-related investments (MRIs) better by having the Treasury department provide better and more current examples of good use. Consider allowing nonprofits to access debt products, like Small Business Administration (SBA) loans.

4- Support the development of impact metrics, as standards emerge around what an “impact” company is or what an “impact” investment vehicle is (and is not).

Then use these definitions and standards to refine and build the policies mentioned above. Make regulations as simple as possible for maximum stimulation of the market.

If you are interested in learning more about the event and my comments, a longer blog post is available on the CASE blog.

And I’m interested in asking the Social Edge community:

What do you think should be done by government to expand the impact economy?
Many other countries have been more proactive about developing policy to encourage both social entrepreneurship and new forms of investment (the UK, especially). Is the timing right for the US to take an active role, and how?
What specific policies in other countries can we learn from?
What are the biggest barriers and concerns you have about how the impact economy will develop without federal intervention?
Where should the government play a role and where should it stand back?

Join Cathy Clark, Adjunct Associate Professor of Social Entrepreneurship at CASE at Duke, in the conversation.

Jeff Mowatt

Closing the distance

Cathy, As you may know here in the UK government focus is on devolving power to communities, and yet as many including myself point out, they’re confused about it in that they’re trying to implant a bottom up concept, top down. We then begin to see dissent as large unpublicised contracts begin to be handed out.

I’ve not yet been convinced that impact investing is the way to do it, above all because it’s yet to demonstrate proof of concept.

There’s considerable distance between policy makers and ractitioners, on both sides of the pond I believe. Just recently, for example, I responded to the Director of Aspen’s Business and Society Program, when the subject of a ‘single bottom line’ was brought up. Speaking of bottom lines and ‘Shared Value’ Judith Samuelson writes:

"These concepts certainly sell books, but they confound business people trying to figure out what to do."

http://www.huffingtonpost.com/…/going-long_b_880771.html

Well perhaps many of them don’t, but it does beg the question – where’s the investment for those that do and are acting on it?

My greatest concern about an impact economy is that once more we’re measuring social progress in monetary terms and that the money will follow the easy targets.

Government should stand back where they are lacking in knowledge and experience and block those that have from participating.
- Cathy Clark
  
  Closing the distance
  
  Thanks, Jeff, for your comments. I have been following with some interest the development of the Big Society Bank in the UK, and some of the controversy surrounding it. Alex Nicholls of Oxford gave a great presentation at our research colloquium at Duke in June about how that project has changed in ideology from conception phase to near execution. I remain optimistic that some of the "top down" approach that you mention will still have a great deal of positive impact. A good link to info on that (for others) is here:
  
  http://www.cabinetoffice.gov.uk/…/big-society-bank-launched
  
  I think there’s so much going on in the US already, it’s almost hard to keep up! GIIRS was launched last week, ImpactAssets was launched about a month ago, Jed and Anthony are about to release their new book, the buzz for SOCAP11 is building. The Impact Economy may very well be upon us. It’s clear that there are some who are still asking questions about shared bottom lines and values, but there are an awful lot who are operating at the intersection without worrying about these definitions too much!
  
  The most common reaction I’ve gotten to this post informally seems to echo yours, and it’s from social entrepreneurs. Basically they’re saying, if this impact economy/impact investing stuff is so great – where’s the money?
  
  I think this will always be a refrain by entrepreneurs, unfortunately, but is a loud one now because the hype is so large and the infrastructure is still largely unbuilt. The linkages, systems, markets, assistance orgs, etc, are just emerging. That’s why the government stepping in is such an interesting opportunity. Thanks again for your post!
Andrew

impact metrics

Hi Cathy

I’m a student in the UK writing a graduate research project on impact investments. Reading through the fascinating blog entries posted over recent months,I wonder how the Social Edge community anticipate the future shape of impact metrics.

You mention building standards to determine what an ‘impact’ company is. Are these standards aimed at addressing the needs of potential investors, social enterprises or the ultimate BOP beneficiaries? Are they likely to be constraining for social entrepreneurs? Will performance indicators dictate the direction for developing businesses? Is there a risk that chasing investments leads to unsustainable business models?

I love to hear what contributors consider to be the primary objective of an impact measurement system.

thanks – Andy Hirst ah7822@my.open.ac.uk