Pope Francis may be only the world’s third-greatest leader (behind Theo Epstein and Jack Ma, according to Fortune), but his 2014 endorsement of impact investing was still a big deal.
Last year, the Vatican doubled down at a second conference to explore how the church and faith-based institutions can “harness the power of impact capital to attain and sustain their social mission.
Ascension Investment Management, which manages $29 billion on behalf of Ascension Health and other Catholic institutions, is beginning to heed the call. The investment manager is managing a multi-million dollar impact investment strategy, following an earlier $50 million mandate. One investment: an East African pharmacy chain to provide affordable, non-counterfeit drugs to low-income customers.
“Helping the poor is in the DNA of these institutions, so why not do it through investments?” David Erickson, CIO of Ascension told ImpactAlpha.
When Dave Chen, CEO of Equilibrium, a $1 billion sustainability-focused asset management platform, sat down with Ascension' St. Louis-based managers, he was “surprised and impressed by both the integration of impact and sustainability assets into their investment platform as well as the breadth and depth of deals they had sourced into their funds-of-funds.”
In 2009, Ascension brought in David Erickson as its first in-house investment professional to establish a new asset allocation philosophy, redefining Ascension’s Socially Responsible Investment guidelines.
“We saw interest from our institutional clients as well as compelling investment opportunities on the market,” said Erickson. “It was only logical to put the two together and create an impact strategy.”
In 2014, Ascension began its foray into impact investing with $50 million in commitments from institutional catholic faith-based investors. Within a year, the strategy had identified for investment six institutional-quality opportunities, diversified across issues and geographies.
Ascension is targeting investments that it believes have the potential to produce impact and competitive returns. Driven by Catholic values, Ascension views its impact investing mandate in terms of two categories: environmental stewardship and basic services, helping the very poor to get access to healthcare, education, housing and other critical goods and services.
Erickson sees no lack of institutional quality opportunities on the market. While not all managers in the portfolio have long track records, they have a history of making investments within their strategies and are on their second or third fund.
For example, one investment Ascension selected for the strategy is Goodlife Pharmacy, a chain of pharmacies in East Africa. The objective is to provide consumers with much needed access to affordable, non-counterfeit, quality drugs. The pharmacies are transforming healthcare delivery in Africa by providing integrated health services that include a wellness outlet, a diagnostics center and in the future telemedicine.
Erickson noted that looking at managers that might not market themselves explicitly as making impact investments but are doing highly impactful work significantly expands the set of opportunities.
“The key is to work closely with investees to ensure they target the right segment of the population to maximize impact and integrate proper impact measurement framework,” he said. For example, one of Ascension’s impact investments is in an operator that builds affordable safe housing for low-income communities in Latin America. Ascension’s job is to ensure the operator stays focused on this segment of the population.
Ascension is dispelling the myth that impact investing is not consistent with fiduciary duty. Erickson sees the misconception that impact investing requires a trade-off between returns and impact as the main barrier for institutional engagement.
“We have dollars to invest and want to put them to work to prove with our investments that impact investing doesn’t require a trade-off between return and impact,” says Erickson. “We want to set an example and enable others to engage”.
The performance of Ascension’s impact strategy will be especially critical for the sector, said Erickson. Because attractive returns will show other institutional investors that it is possible to make an impact and provide returns.
Another barrier that stops investors from putting money into impact investments is impact measurement, noted Erickson. For Ascension, the key here is to make sure that its impact managers are investing in companies that are inherently impactful. Setting “the perfect impact measurement framework shouldn’t prevent investors from allocating to impact.”
Continuing a trend
Faith-based institutions have been the bedrock of ethical investing for decades and are increasingly employing impact investing to align their investments with their missions.
United Church Funds, for example, is exploring development of an impact investment fund. Since 1970s, the pension fund has incorporated social and environmental standards in its investment process, and starting in 2001, the fund began to seek out investments that “offer fully competitive returns while also providing important social benefits.”
In February, the Church Pension Fund and Wespath Benefits and Investments each invested $30 million in Developing World Market’s impact fund, serving as anchor investors. The fund is backing 11 ventures through its $61 million Off-Grid, Renewable and Climate Action Impact, or ORCA note. This will help to bring other investors to the table to provide renewable energy finance loans to social businesses in the developing world while earning investors competitive returns.
Photo credit: Aaron Burden