Unlocking Institutional Investment for Impact: An Interview with Ben Thornley

Released by InSight at Pacific Community Ventures (PCV) and the Initiative for Responsible Investment (IRI) at Harvard, Impact at Scale: Policy Innovation for Institutional Investment with Social and Environmental Benefit clearly demonstrates that institutional investors, such as pension funds and endowments, that invest in social outcomes are earning a competitive rate of financial return. These institutional investors, with a total of over $20 trillion in assets, are critical to building the momentum of impact investing and bringing this growing sector to scale.

One of the report’s authors is Ben Thornley, Director of InSight, PCV’s thought leadership practice in high-impact investing. At InSight, Ben is responsible for PCV’s policy research and social performance measurement initiatives, advising some of the country’s most prominent institutional investors and philanthropic foundations. Recently, I interviewed Ben about the challenges and opportunities facing policymakers to catalyze institutional investments in organizations that produce social and environmental impact.

Note: This interview is being posted in three parts. Stay tuned for Part II and Part III over the next few days.

Becky Slater: To begin, can you describe how you got involved in the field of impact investing, and what motivated you to research and report on the role that policy plays in scaling up institutional investments in impact?

Ben Thornley: I started my career 15 years ago as a reporter in the pension and mutual fund industries in Australia, and the thing that characterizes the Australian pension fund market is the major role that is played by industry funds, which are essentially union-affiliated funds. There was always a strong history, policy, and practice that demonstrated an awareness of the connection between the pension industry and the interest of the beneficiaries in Australia. Because of this, Australia was early into asset classes such as infrastructure and other areas of investment where there is a clearer connection between the investments that are being made by the institutions and, for example, economic development. That natural blending of financial and social considerations is also more prevalent in Europe, and it’s the perspective that I’ve always brought in my career to understanding institutional investors and the role they play.

When I graduated from public policy school at Berkeley a few years ago, I almost came full circle and found myself at Pacific Community Ventures, a place where there’s been a reinvigorated discussion of the opportunity to invest for both financial and social and environmental impact. My work here has aligned with the things I’ve been interested in my whole career and the opportunity I see for institutional investors, in particular, to make a significant contribution to addressing some of the most important social and environmental challenges that we face today.

Pacific Community Ventures has a history of double bottom line investing and thought leadership in the area, but over the past couple of years we’ve benefited from a growing interest in impact investing and, within that, the role of government and policy.

Governments are looking for ways to be more creative about stretching limited funds, and we find ourselves now at a point where there’s a lot of interest in the work we do and excitement around growing the market.

Becky: Impact at Scale outlines many roles that policy can play in accelerating impact investing practices and products. What are a couple of the most promising opportunities that you’ve come across for policy development to catalyze institutional interest and investment in social and environmental impact?

Ben: There are certainly specific policies we can talk about, which might include things like co-investments. For instance, in the US there is the Impact Investing Initiative created by the Small Business Administration, and in Europe they’re considering creating a fund to support the development of the sector. Through co-investment the government can essentially de-risk an investment and provide a greater assurance to private investors that an investment is sound. They can also bring more scale to an investment, where scale is a very real challenge that institutions face.

There are also multiple interpretations of fiduciary duty. Governments send a signal of what might be legally appropriate within the confines of fiduciary duties. In the case of the US, there are 20 states that have policies with respect to economically targeted investments. When a state legislates in that area and encourages or is supportive of a pension fund making these types of investments, it makes it easier for funds to do that and lets them know that that’s an acceptable thing to do.

Tax credits always play a significant role. The same is true for subsidies, tax credit guarantees, and the kinds of things that directly affect particular markets, say affordable housing or clean technology.

The main thing I would say, though, is that you really do need to look at it from the perspectives of both the suppliers of capital and the users of capital (or the pipeline of opportunities for institutions to invest in). Even if we look at more nascent markets – for example, in education or health care – they’re investments that in ten years or even sooner may be considered to be of institutional quality. And there may be a whole universe of entrepreneurs, fixed assets, community health clinics, and other kinds of opportunities for institutions to support those markets. The government needs to invest now to help develop capacity in those sectors, develop strong intermediaries, and help small businesses grow to become more investable by institutions. All this needs to happen concurrently.

Coming up tomorrow: Part II, where the conversation turns to policy for impact investing around the world.

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