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Impact Investing Experts Weigh In On Paul Tudor Jones' JUST Capital

Thursday, December 31, 2015
by Anne Field

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Earlier this year, hedge-fund billionaire Paul Tudor Jones II announced his plans to rate 1,000 publicly traded companies on how just they are–that is, how well they treat other stakeholders, like employees, society and the environment. To that end, along with such celebrities as Deepak Chopra, he started a nonprofit called JUST Capital Foundation. I polled some impact investing/social enterprise experts for their take on what was one of the more ambitious impact investing efforts announced in 2015.

First, more background. The plan is for JUST Capital to survey thousands of individuals for their opinions on what constitutes a just company and come up with the key attributes and factors needed to rate businesses. “We know what our founders think ‘just’ means, but we didn’t know what most Americans think it means,” says David Melancon, chief marketing officer.

The goal: to have an impact on everyone from consumers to investors and, therefore,  on how companies behave–a bit like certified B Corporations, only the companies aren’t using a third-party created system to rate themselves, as B Corps do.

To that end, Just Capital surveyed more than 40,000 Americans and came up with 10 key factors essential to a rating system. (So you know, they include employee pay and benefits, employee satisfaction and fair hiring, product benefit or harm, human rights record, governance and profitability, environmental impact, customer satisfaction and value, community relations and charitable giving, corporate ethics and honesty and U.S. job creation).  Of course, there are other rankings  done for investors, but this one will be free and publicly available; the first is expected out in September.

Jay Coen Gilbert, cofounder, B Lab. ”Any effort to shine a light on ‘just companies’ has the potential to help accelerate the culture shift to redefine success in business. Efforts that attract significant funding and celebrity attention have both high potential and high risk. One risk is in how ‘justness’ is measured and whether what is measured is verified by a third party so that any resulting list or ratings is trusted by investors, consumers, workers and policy makers and useful to help them make more informed decision. If JUST Capital gets this right, for those focused on large publicly-traded companies, they can make a real contribution.”

Nancy McGaw, deputy director, Aspen Institute Business & Society Program. “I think it’s always good to give people tools to evaluate companies on something besides stock price. We’ve relied too much on how stocks have tracked over time and there’s so much more to business excellence.  His factors do seem to get beyond some of the superficial considerations in business, like how much money do they give away and employee volunteer hours, things that are easy to measure but don’t give you an indication of how the company actually operates.”

“But it’s a very difficult undertaking, because it’s so complicated. Companies are complex organizations and we have to respect the fact they’re complicated. Each of the factors is so multi-faceted. Take environmental impact. There are so many ways to measure it, from water usage to air quality. Still we can’t just say, this is too difficult to do. We have to try to give people a sense of how companies operate and how much they contribute to our well-being over the long term.  If there is real viability behind the ratings, I think it could be impactful.”

Marc J. Lane, founder, the Marc J. Lane Wealth Group. “This is another example of seeking to leverage the power of the marketplace to drive positive social change. The thesis is the ranking will incent more just corporate behavior. And clearly companies that are accountable to stakeholders, in addition to financial shareholders, have a lower rate of employee turnover and get better customer loyalty, with implications for profitability and share value.”

“But I think the selection and weighting of screens means they’re painting with a broad brush, a generalized approach. What the certified B Corporation does may be more effective, because it comes from within: Management of the company is signing off on this, saying this is what we are and what we want to be and we want to lead by example, as opposed to having an outsider look in. The other thing is they have a high bar here. Maybe there will be some internal improvement in their practices, but in terms of achieving a more just society, that’s something else.”

“It’s an  imperfect approach, but it should be applauded. The more information, the better.”

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

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Reprinted from Anne Field's December 31, 2015 editorial which appeared on Forbes.com. 2015 Forbes.com LLC™ All Rights Reserved

 

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