Best Practices in Impact Investing Emerge at Oxford

This post was written by Greg Payne, a second year Duke MBA student as well as a CASE and CASE i3 Fellow.

The overcast sky and 45’F weather in Oxford could not dim the excitement and anticipation of the Impact Investor project’s convening. Held on Wednesday, April 10, 2013, directly prior to the 10th annual Skoll World Forum, the three-hour interactive session featured preliminary insights from the third phase of the Impact Investor research project (a partnership between CASE, InSight at Pacific Community Ventures, and ImpactAssets) which, when completed, will include a compilation of case studies featuring best practices from impact investing funds around the world.

As the CASE i3 Fellow leading our work on this project, I welcomed nearly 80 session attendees representing the diverse and growing landscape of impact investors and intermediaries — from large philanthropies to small venture funds, banks, and government agencies focusing on issues ranging from sustainability to workforce development to poverty alleviation.

After warm welcomes from co-host Pamela Hartigan of the Skoll Centre at Oxford and project sponsor Vineet Bewtra of Omidyar Network, Cathy Clark of CASE and Ben Thornley of PCV kicked off the discussion with a review of the Impact Investor project’s progress over the past 12 months.  The project’s first two phases concluded with reports identifying the need for an in-depth study of the field and six dynamic tensions that appear to affect impact investing practice. Cathy and Ben then introduced two thought-provoking themes that are emerging from our in-depth research into existing impact investing funds:

  1. One concentrated on the differing objectives of limited partners when investing in funds, ranging from “mandate-driven” by policy incentives and “mission-driven” by explicit intent.
  2. The other considered how some high performing funds have integrated creative designs that nearly totally mitigate the risks to investors, aligning the fund’s strategy and structure into almost a kind of fund “safety net” for returns.

An expert panel reacted to the themes. Kieron Boyle of the UK Cabinet Office said the role of policy and government in the field is changing in important ways and he feels “both comfort and angst” about that. Ilse Treurnicht of MaRS Discovery District pointed out that we need to be careful that government involvement doesn’t slow this down and that we keep innovation on the table. Alex Nicholls of Oxford University remarked that the theme on safety nets discussed financial risk but that the kinds of social risks and returns funds take and create deserve further delineation. And Mildred Callear of Small Enterprise Assistance Funds responded that it may do a disservice to impact investing to overly manage all risk, and that the potential of the field is to make a spectrum of investments, even those with highest impact potential, investable. She also asked, “Should subsidies be used simply to lower risk or to amplify impact?”

Warmed up for in-depth discussion, the session attendees broke out into six discussion groups, each tasked with identifying key emerging issues in the practice of impact investing. Topics discussed included the challenges related to investing in early-stage ventures; the future of social impact bonds (SIBs); non-traditional fund structures; innovative deal structures; engaging high-net worth investors; and, lessons from community development finance.

As expected when you get some of the most engaged, influential thinkers and practitioners together, each group’s report raised issues that challenged the boundaries of how we think about impact investing, and what we may witness in future evolutions of the field of practice:

  • The SIB group, which included David Blood, co-founder of Social Finance in the UK, challenged the room to consider how SIBs could be used as an asset allocation tool for funds and investors to diversify and manage risk.
  • The non-traditional fund structures group, reported on by Jennifer Pryce of Calvert Foundation, asked if the field could start to match the financial vehicles better to the outcomes desired, instead of fitting one size fits all fund structures on every goal, or by using different kinds of capital as first loss layers.
  • The innovative deal structure group, as reported by Keely Stevenson of Bamboo Finance, discussed hybrid investment structures and asked if new blended debt and equity investment structures aren’t making things even more complicated and unwieldy for entrepreneurs.
  • The group exploring ways to engage more high net worth individuals in impact investing, reported by Amy Bell of JP Morgan, decided the field needs a “gateway drug” for investors to taste in order to become more used to the idea of investing for impact.
  • And the community development finance group, on their report led by Debra Schwartz of the MacArthur Foundation and Bob Annibale of Citi, kicked off a lively debate on how community development financing, which has been largely driven by both policy “sticks” and philanthropic subsidy, is, in fact, not a highly replicable model for other kinds of impact investing.

Katherine Fulton of Monitor/Deloitte closed the session by posing some thoughts about the landscape emerging now almost 5 years into the 10 year vision of the 2009 Monitor report. She noted that the word “policy” was forbidden in conversations back then, and pondered about how well we have come closer to knowing what can and cannot be accelerated by impact investing dollars and strategies. She also recognized the emergence and experimentation of a much broader set of tools for finance with a social purpose, but cautioned the group to be careful about inflation of expectations.

Oxford is a heady and inspiring place to be each April as the world’s social entrepreneurs converge to consider how to broaden and deepen real social impact.  On behalf of the Impact Investor project team, which will continue its research into emerging best practices in impact investing, we are entirely grateful for the insights and contributions of these field leaders to that pursuit!