Debra Schwartz, MacArthur Foundation
Please give us a bit of background on yourself, and how your organization plays a leadership role in the impact investing space.
I’ve been exceptionally fortunate to build my career at the intersection of finance – money – and mission. This has included a financial management role in the nonprofit sector, investment banking with a focus on public finance, and, for nearly 20 years, impact investing at the MacArthur Foundation.
The Foundation began its impact investing work 30 years ago and it has ranged widely since then, including everything from microcredit in its earliest days to sustainable agriculture, women’s health, arts and education, and community development. Our single biggest initiative addressed the preservation of affordable rental housing across the US. Today, we pursue a three-part approach. At its core is our continued strong support for the Foundation’s program priorities, including a new portfolio of climate investments. Second, we are leveraging our 30 years of experience to help build up the impact investing marketplace overall, making it more efficient, effective and inclusive. In practice, that means we make grants to support new products and platforms, as well market research, education and convenings that encourage collaboration and disseminate best practices.
Third, and finally, we are using a $500 million pool of impact investing assets to build new solutions to the capital gaps that hinder many high-impact organizations, enterprises and funds. We are providing “catalytic capital” that we expect to help unleash significant levels of new investment and achieve greater impact than we could with our capital alone.
What challenges do you see for the future of purpose-driven finance?
There is tremendous optimism in the market; the rapid expansion of commercial investment opportunities is evidence of that, as is data pointing to market-rate returns—something that 20 years ago, few would have imagined to be possible.
But, that enthusiasm—and even some of that research—creates a bit of a blind spot. There is a sense among some that investors can have it all, that they can always earn a market-rate return and achieve deep impact with no trade offs. While that is sometimes true, it ignores a huge segment of the market: organizations that need patient, flexible, risk-taking capital that is willing to accept a lower return when needed. This catalytic capital is vital for thousands of organizations that otherwise are not able to innovate, grow or sustain their promising solutions to poverty, health, climate, and other challenges. The impact investing sector, as a whole, cannot live up to its potential if we ignore this “missing middle”.
Where have you seen impact investing make the biggest strides in recent years?
The entrance of big name investors into the impact space is proving to be a powerful endorsement for this work. Impact investing is no longer little-understood market niche; It now attracts some of the world’s most prominent funds and investors. We’re already beginning to see the ripple effect throughout the market, as investors increasingly look to quantify their double- and triple-bottom-line strategies.
The other significant development in recent years has been the rise of blended funds. Once considered the province of government, these funds are now attracting private and philanthropic capital, and making investments that are responsive both to the needs of capital seekers and to the expectations of investors.
How well are companies adapting to the mainstreaming of purpose-driven finance? In what ways is impact investing making headway, and where is it lagging?
As a whole impact investing has made great headway, especially on the ESG front and in screening funds for impact opportunities. It’s quite encouraging.
At the same time, I don’t think there has been enough recognition of the opportunities that exist in segments that aren’t fully commercial—at least not yet. In particular, I think too many people overlook the power and value of investing in nonprofits. These organizations function like social enterprises and need creative financial structures to support their innovation, their growth and their sustained success. I think we still have a lot of work to do to build stronger bridges between the new generation of impact investors and the thousands of savvy, high-impact nonprofits that operate around the globe.
What will you be discussing at The Economist's Impact Investing event in New York on February 15?
The notion of catalytic capital is increasingly important. It’s clear that we need to move beyond an all-or-nothing view of impact investing, with pure grants at one end of the spectrum and profit-maximizing investments at the other. In between those two poles there is great potential for impact, as well as many opportunities for investors to earn a reasonable return. To meet the needs of this “missing middle,” we need to create and support models that significantly accelerate the flow of capital that recognizes their constraints and is tailored to their needs, providing financial resources that are patient, flexible and risk-tolerant.