Two moments stand out to philanthropist Jean Case when she considers the divide between the detractors and devotees of impact investing. A comment from venture capitalist Marc Andreessen at a conference where compared impact investing to a houseboat, which he said is neither a good house nor a good boat. And a Yale School of Management discussion, where a business school student likened impact investing to brunch, which he called than breakfast and better than lunch.
It is a myth that investors must sacrifice profits for purpose, said Case, the CEO of the Case Foundation and chair of the National Geographic Society, who talked with Devex at the Global Entrepreneurship Summit where she spoke about those two perspectives.
Here is what she had to say about what she sees as some of the most promising developments in entrepreneurship and impact investing, as well as the limits of data-driven decision-making.
You were at the 2015 Global Entrepreneurship Summit in Nairobi, Kenya. How did that experience help shape the work you have done in the year between GES 2015 and GES 2016 here in Silicon Valley?
We took the opportunity of being in Africa to look across the entrepreneurial ecosystems of three different countries — Kenya, Ghana, and Nigeria … We were super inspired by some of the solutions coming forward from young entrepreneurs from places you might not necessarily have expected ... Africa for us was such an aha moment in our inclusive entrepreneurship because what we find is when you bring people in who have lived different problems, they’re going to come up with different solutions, new solutions, that people aren’t thinking about because they’re not living those problems … For too long, innovation has really served pretty much the convenience of those who already have a lot of conveniences. And so I think this beautiful sort of perfect storm of impact investing and bringing a more inclusive focus to entrepreneurship will serve new markets and bring new innovations.
You’ve said you have a love-hate relationship with data. What do you mean by that?
Like everyone, I wish I always had data to guide me in my decisionmaking. I love it when there’s good data to point us in the right direction. But the bottomline is if we’re chasing innovation, and we are at the Case Foundation and we are at the National Geographic Society, the bottom line is, sometimes you have no data at all to guide you. And we say you have to be the data in that case. And we think if people looked at their portfolio or their investment of time or money and thought about it that way, it might inform where they go with their investments …
So data can be a powerful tool, and I think it’s important to know what data you have in your toolset, what you can use to guide you and inform your business model and inform your market opportunity. But where you don’t have it, be transparent about it and make the case that all entrepreneurship really is about risk taking and you’re going to go out there and demonstrate the data as you go for it.
In October 2015, the United States Department of Labor clarified guidance about the Employee Retirement Income Security Act of 1974, allowing pension fund managers to consider environmental, social and governance concerns in addition to a financial returns when making investment decisions. That was one of the policy proposals made by the the U.S. National Advisory Board on Impact Investing, which you are a member of. Can you break down the significance of this change and any impact you are seeing at this early stage?
This sounds a little geeky when we talk about it. It’s like, pension funds, what? ... Normally you’d say who cares? But it actually turns out they’re huge movers of capital into investment spaces … What we had learned was that out here in Silicon Valley when people didn’t really know yet what venture capital was — it was brand new decades ago — pension funds were restricted from making venture capital investments. And as a result it was a fledgling industry. There wasn’t a lot of heat around it et cetera. When the ERISA laws changed, and pension funds were allowed to come in, it truly created a hockey stick. And because [of that] huge amounts of capital flowed into venture [capital] … And so of course we said, ‘Wouldn’t it be a beautiful thing if we could see the same kind of trajectory for impact investing?’
Right now it’s still pretty early days … We need some new funds to be developed that can take in the size of capital that pensions generally invest. Remember when a pension fund is investing it’s investing $50 million or north of that and there, today, isn’t a lot of capacity in the marketplace … I know of several world class financial folks who are quickly working to put together some financial solutions to really become sort of a conduit for the pension funding.
I don’t think we expected the policy change to come so quickly. You know it was less than two years ago when we announced at the White House what our policy recommendations were. We would have never said it would come in 18 months. And so as a result the market is actually catching up with the opportunity. And I don’t necessarily think we’re predicting the same fast hockey stick for impact investing that we saw with venture capital but we don’t even need to be anywhere close to that and it could be really transformative in this space.
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