Recently, I interviewed Ben Thornley, Director of InSight – the thought leadership practice in high-impact investing at Pacific Community Ventures (PCV). PCV is a preeminent San Francisco-based Community Development Financial Institution and growth equity manager deploying $60 million in three funds with the aim of creating quality jobs in low-income areas of California.
Ben is responsible for PCV’s policy research and non-financial performance evaluation initiatives, working with prominent institutions including the California Public Employees Retirement System (CalPERS), The Rockefeller Foundation, and The California Endowment. InSight assesses the social impact of over $1.2 billion of private equity investments by 40 individual money managers and $17 billion invested by CalPERS in California, across asset classes.
Rahim Kanani: Describe a little bit about how you came to work on issues of impact investing?
Ben Thornley: I started my career as a finance writer, editor, and executive at a small Australian publishing company that was ultimately acquired by Morningstar. We reported primarily on the pension fund market where, in Australia, a lot of innovation originates with a buy side linked inextricably to the union movement. The industry’s very unified and progressive policy agenda, and an active approach to investing in private markets and infrastructure, always gave it a strong flavor of impact.
Fast forward 15 years — by which time I had worked in the nonprofit sector, engaging Wall Street in international development, and with the Australian government in New York, in trade and investment — and my public policy graduate studies at UC Berkeley led naturally to a career that combines passions for research and writing, finance, and economic and community development.
Rahim Kanani: In that context, what kind of work are you currently involved in as Director of InSight at Pacific Community Ventures?
Ben Thornley: InSight is the policy research and impact evaluation consulting practice at Pacific Community Ventures. I have two primary responsibilities: advancing and growing the field through research on the role of government and best practices in impact investing; and evaluating the social and economic impacts of the investments of a handful of clients seeking financial returns and ancillary social benefits.
In the first area, my work has been supported primarily by The Rockefeller Foundation, leading to the creation of an active network of global research organizations and investors developing and advocating for innovative public policy.
In the second area, our most notable client is the California Public Employees Retirement System, on whose behalf we assess the social and economic benefits of over $17 billion invested by the fund in California, across asset classes.
Rahim Kanani: How do you go about measuring non-financial performance or success?
Ben Thornley: Primarily using a survey method. Once or twice a year we ask the companies in which our clients invest a range of questions related to job creation, job quality (in the form of living wages, health and retirement benefits provision), employee and management diversity, and community engagement. We marry the survey responses with data and benchmarks created using the size and location of the investment (income status, employee benefits statistics, job growth in the broader economy etc.) and, over time, the development of the client’s portfolio tells a compelling story of impact, at scale.
CalPERS invests in hundreds of companies using dozens of investment intermediaries, for example. After seven years of analysis for CalPERS, we know exactly which intermediaries are most successful in creating jobs, supporting women and minority entrepreneurs, or investing and generating paychecks in low-income communities.
Rahim Kanani: What are the limitations of this approach, and not simply within the confines of your work, but across the sector of double- and triple-bottom line investments.
Ben Thornley: We all know it’s difficult to make assertions about causality. The best we can do is present the performance of the broader economy — job growth and job quality benchmarks in similar sized companies, in similar industries, in similar places — and point to the difference the investments our clients are making. That is a sufficient level of analysis for our clients. The problem is that, even to do this rigorously, it is very costly in time and resources. And addressing the cost problem is a catch 22.
Investors are looking for an impact evaluation customized to the social and environmental benefits they care most about, thereby providing very real data with which to support strategic decision making. But because there is so much diversity in the non-financial impacts different investors care about (by sector, place, and beneficiary), it is very difficult to create the standardized processes and economies of scale necessary to reduce costs. There is also very limited data in the industry generally, particularly on social impact.
We would love to answer important questions, like “do the companies that deliver the greatest social impacts share anything in common”, but it’s still too early.
Rahim Kanani: As you look ahead, where is the field of impact investing heading?
Ben Thornley: I am about as bullish as I could possibly be on impact investing. There are new funds and innovative financing mechanisms and infrastructure providers launching constantly. The first generation of explicitly financially-driven impact investors are proving that, with the right approach, market-rate financial and social/environmental returns can be generated simultaneously (firms like Capricorn, DBL Investors, and Pacific Community Management). Work is underway to more efficiently connect established impact markets to socially-motivated, primarily high-net-worth investors, for example in clean and renewable energy or affordable and sustainable housing/development. Larger institutional investors are exploring opportunities to invest for impact in a manner consist with fiduciary obligations, for example in infrastructure. And there is a broader commitment from government to lay the foundations for growth, not least by supporting the needs of entrepreneurs and small businesses.
All of these developments will redirect tens of billions of dollars to impact investing in the next few years alone. In ten years, all investors – retail, high-net-worth, institutional — will have a menu of funds and opportunities to choose from, across asset classes, market-rate or more impact-oriented, offered by the most respected financial institutions, easily accessible, with fully documented social and environmental benefits. There is something very big happening.
Rahim Kanani is a writer, interviewer, advocate, strategist and entrepreneur for global social change. His articles, opinions, and interviews with global leaders can be found at www.rahimkanani.com. Interested in social sector event coverage, or have an idea for an interesting interview? Email firstname.lastname@example.org.