In the News

Marc Lane's Take On Impact Investing Trends

Monday, March 9, 2015
by Anne Field

https://wealthgroup.securesites.net/marcjlane/clientuploads/Logos/forbes_logo_300x300-290x290.jpg

The highly prolific Marc J. Lane,  a Chicago-based attorney and active advocate for social entrepreneurship and impact investing, just published The Mission Driven Venture: Business Solutions to the World’s Most Vexing Problems, his 35th book. I recently talked to him about his take on important trends in impact investing:

Anne Field:  What is your goal for your latest book?

Marc Lane: I’ve identified specific individuals whose personal stories attracted them to deal with a social issue and they elected to do so using business principles, yet they encountered impediments. The book recounts how they overcame those impediments using various legal and strategic tactics and ultimately were successful in a way that is replicable. My hope is these stories will be more relevant to an audience than an abstract discussion and will inspire people to see if this might be the right approach for them.

It invites a more collaborative, less siloed approach to social innovation drawing upon all of the stakeholders who are necessary, from investors and nonprofits to government.

Field: Can you talk about the importance of measuring impact?

Lane: As measurement of social performance becomes more sophisticated, it also becomes a management tool for social purpose businesses to make better decisions, to know which programs are working and which are not, and for those that are not, which should be tweaked or abandoned, and which programs can be scaled up and replicated.

That kind of empirical information also becomes inspiring to impact investors who are trying to understand the value proposition for them.  Is this thing real? Can they expect a social return on investment?  Can they also expect a financial return? Is it worth deploying the capital into these ventures?

When you tie that to what’s going on within the corporate world, we  find the needle is moving in terms of companies increasingly understanding that when they involve themselves in social issues, it actually improves their bottom line. For example, when companies make decisions that are accountable to shareholders, as well as employees, their community, the environment, customers, they build brand equity, have less employee turnover, create greater customer enthusiasm and ultimately see profits increase.

Impact investing can mean a lot of things–investing in funds, projects, social impact bonds. You can do this as a partner, as a passive investor. You can do it terms of performance-based returns. You can have a lot of different risk-reward profiles for different investors with different risk tolerance, time horizons and capital. The whole trick here is to engage the investment community. That’s where the money is. And we need to be ale to create the appropriate value propositions to attract private sector investors to ventures that will drive positive social change.

Field: What about the role of philanthropy?

Lane: Philanthropy is changing its face. Historically, it was just about writing checks and keeping your fingers crossed. Today, more foundations, for example, are looking at mission-related investments, at program-related investments, sometimes into an emerging social enterprise form like an L3C or Benefit Corp. But they see their role as much more strategic, where their investment can be leveraged to attract private sector capital.

Field: What are some noteworthy examples of social entrepreneurship?

Lane: The Evergreen Cooperatives are a series of worker-owned cooperatives in distressed area of Cleveland. Typically you create a business and beat the bushes to find customers. They did it the other way around. They knocked on the doors of place-based institutions and identified what needs of a recurring nature they had. And they created a worker-owned cooperative to address those needs. Initially they had a green laundry and employed people who would become self-employed within the cooperative, folks who would operate and own a laundry and would do the linens for those institutions–universities, hospitals and the like. Then they did a hydroponic  garden delivering products to those institutions and other businesses. And they employed people, gave them self-respect.

Another is Muhammad Yunus’ model, where women receive very small loans for the purpose of creating their own one-person businesses that are enough to keep their family together with food and clothing. That type of peer-interaction involves empowerment through micro-loans, without which they never could have launched those businesses. And that has had a revitalizing effect throughout their communities. A tiny number of dollars has spurred enormous economic development in Bangladesh and beyond.

 

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf

The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.

A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.

The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.

If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.

Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.

Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.

Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.

- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf

Send this page to a friend
 

Announcing Marc J. Lane's 35th Book:

The Mission-Driven Venture: Business Solutions to the World's Most Vexing Social Problems

More About The Book
Our monthly newsletter