ROME, Italy – There were several more nuns and priests in attendance than at a typical impact investing conference, but the third Vatican Impact Investing Conference, held last week, explored both where the field is headed globally and what role the Roman Catholic Church might have moving forward.
Using the convening power of the Church, the Vatican — namely the Dicastery of Integral Human Development — and Catholic Relief Services, brought together a veritable who’s who of thinkers, funders, and doers in the impact investing space.
As Rev. Augusto Zampini Davies, a theologian at the Dicastery for Promoting Integral Human Development, put it, this third iteration of the conference was more focused on action.
The Dicastery is considering how it can help educate church institutions, clergy, and congregations about impact investing and “try to connect faith to their portfolio,” following the guidance of Pope Francis in finding more ways to serve the poor, Zampini said.
“We need radical change in finance and economics,” he told Devex. “How can impact investing help structural change?”
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The conference attempted to begin to answer that question, in part by looking at how returns are defined, who the field is serving, what the risks are as it becomes more mainstream, and what metrics are needed to ensure that impact investing lives up to its purpose.
A returns continuum
The conference opened with Matt Bannick, former managing partner and current board member at Omidyar Network, framing one of the important conversations at the conference and in the field: What types of impact investments are out there, and what role do different investors have to play?
He laid out the returns continuum Omidyar developed, which ranges from commercial market-validated returns, to subcommercial returns, to grants at the other end of the spectrum. Investors such as the Rise Fund, the $2 billion impact oriented fund that has drawn investments from Bono, Jeff Skoll, and a number of pension funds, are looking for investments that will return at market rates — a 20 percent growth internal rate of return.
At the Rise Fund, every investment opportunity needs to meet a financial return, but they are also looking for “deep, rigorous, evidence-based impact,” said Maya Chorengel, a senior partner at the Rise Fund.
Rise has been working to create a metric for scoring impact before going into an investment. Settling on that system has not been an easy process, and is reflective of some of the broader challenges in defining impact today.
“We look for companies with a co-linear business model, where every unit they provide generates a unit of impact,” she said.
There is a concern, several people told Devex, that with an increased focus on market-rate returns in the industry, that the middle ground — where investors might sacrifice some degree of return in exchange for outsize impact — will be lost, or left without the funding it needs. While pension funds may not be able to make those investments due to their legal restrictions as fiduciaries, philanthropists, foundations, and other donors can and should be investing in the somewhat riskier, lower-return space.
“Are there investors willing to take higher risk, lower returns for impact? That is a conversation we need to have,” Bannick said.
One key concern that emerged was about “impact washing” or “impact dilution” as the group of investors interested in impact investing expands.
Several people cautioned that this broadening of the market may result in a lost focus on the actual effectiveness of investments, with investors calling themselves impact investors without much of a check on whether that’s what they’re doing, or how they’re measuring that impact.
“The impact washing risk is real,” Bannick said, adding that as investors demand “impact” products there is a temptation to take off-the-shelf investments, which may not have an impact focus.
It is important to differentiate between deep and broad impact that is concretely measured, and more vague investments, where it is unclear the level of impact measurement or the metrics used, said Charly Kleissner, co-founder of Toniic and the KL Felicitas Foundation.
Originally, impact investing was not thought of as an asset class, but rather as an investment approach where environmental and social returns must be measured, he said. Now, many products that position themselves as impact are not doing impact management.
There are challenges too, because some banks or financial institutions won’t disclose how they measure impact until a client pays fees, so more transparency is needed, Kleissner said.
The Global Impact Investing Network is thinking carefully about how it can support “scale with integrity” and make sure that impact remains central to these investments, said Amit Bouri, the network’s chief executive director.
One way to address some of the concerns about impact dilution is to build better assessment and management systems, something that experts in the field agree remains a challenge, they told Devex.
Evaluating “impact” is often expensive and difficult. For example, how would one measure the value of a year of education compared to a bed net or a health intervention, Bannick said.
“The GIIN sees its role as helping to clarify good practice in measurement and management,” Bouri said, and many mainstream financial institutions want to know how to do it well.
A proliferation of metrics, platforms, frameworks, and scorecards has added to the confusion, and perhaps more alignment will be necessary, particularly to improve data collection and shared learning, he said.
“The impact measurement and management arena is evolving dramatically right now,” Bouri said, adding that it is essential for growth that the systems become more sophisticated and effectively meet both investor needs and the needs of communities.
“I see a tremendous need to change business as usual,” he said, adding that he spends a lot of time thinking about how to accelerate progress. Although the Sustainable Development Goals and Paris climate agreement galvanized activity, the field is not making progress fast enough, Bouri said.
The Roman Catholic Church and Catholic organizations, including CRS, have been on a path of learning and experimenting with impact investing. Raising awareness and building capacity and understanding through training continues to be important, as does building social enterprises that are investable and mobilizing investment willing to take higher risk, said Sean Callahan, the CEO of CRS.
CRS plans to experiment more with impact investing, with the creation of funds, giving loans, and exploring other innovative finance solutions. The organization’s pool of private, unrestricted funds allows them the flexibility to make those kinds of investments and experiment, Callahan added.
CRS will be a “bigger partner within impact investing or innovative investing,” he said. The organization is particularly interested in finding ways to help social enterprises grow to a point where investors are willing to support them, while helping investors with resources to understand and be willing to take risks, Callahan said.
An example of how the organization will do that was announced at the Vatican conference. CRS, along with the Inter-American Development Bank’s Multilateral Investment Fund launched Azure, a new blended finance facility to improve water and sanitation services for underserved communities in El Salvador.
The initiative is designed to tackle SDG 6 — universal access to water and sanitation. It grew out of a CRS pilot which proved that people are willing to pay for water, and blended finance can help fill a gap where commercial finance won’t go to help rural and periurban municipalities improve their water systems.
While CRS is a part of the picture, many other Catholic organizations are also thinking about their role, including those that manage money — from that of a small congregation to large university endowments.
For some faith-based investors, such as the Oblate International Pastoral Investment Fund, there are definite challenges. Many of the investors managing those funds are relatively conservative and cautious, and there is often a disconnect between the investment committee and social or mission folks, said Rev. Séamus Finn, the chief of faith consistent investment at the OIP Investment Trust, which manages the financial resources of over 200 Roman Catholic-related organizations, institutions, and ministries.
The Most Rev. Lucius Ugorji, of the Regional Episcopal Conference of West Africa, talked about how his organization started investing in a microfinance bank in 2016, in part because we “just felt that grants wouldn’t be sufficient for us to build up very good schools, hospitals to take care of our people.”
The organization has tried for the last couple years to see how it can align its investments with social impact, an experience Ugorji has shared with bishops in the subregion.
Ugorji has already sent one priest to study the issue further, and is trying to educate more on social impact, finance, and business management so that they have the skills needed to understand the issues and manage the investments, he said.
“When I came here in 2016, it became clear to me you shouldn’t only invest to make gains, you need to have social impact, because the more you serve the poor and give them services, the more they depend on services,” he said.