The Future of Social Capital Markets Katherine Fulton October 2008

A convergence of forces Money seeking diversification Values driven investors and consumers Growing inequity and environmental crisis Track record of early success Openings for policy change Talent pushing new careers Investing for impact is now “ locked in” CAN IT TAKE OFF?

Will the promise of this moment be realized? Phases of Industry Evolution Disparate entrepreneurial activities spring up in response to market need or policy incentives Disruptive innovators may pursue new business models in seemingly mature industries Characterized by lack of competition except at top end of market Centers of activity begin to develop Infrastructure is built that reduces transaction costs and supports a higher volume of activity Uncoordinated Innovation Marketplace Building Growth occurs as mainstream players enter a functioning market Entities are able to leverage the fixed costs of their previous investments in infrastructure across higher volumes Organizations may become more specialized Capturing the Value of the Marketplace Maturity Activities reach a relatively steady state and growth rates slow Some consolidation may occur Impact investing today Impact investing in 5-10 years?

Disparate entrepreneurial activities spring up in response to market need or policy incentives

Disruptive innovators may pursue new business models in seemingly mature industries

Characterized by lack of competition except at top end of market

Centers of activity begin to develop

Infrastructure is built that reduces transaction costs and supports a higher volume of activity

Growth occurs as mainstream players enter a functioning market

Entities are able to leverage the fixed costs of their previous investments in infrastructure across higher volumes

Organizations may become more specialized

Activities reach a relatively steady state and growth rates slow

Some consolidation may occur

Segments of Impact Investors Solely Profit-Maximizing Investing Philanthropy “ Yin-Yang” Deals Financial Return None High Financial Floor Impact Floor Impact High None Negative Optimize social or environmental returns with a financial floor Impact First Investors Optimize financial returns with an impact floor Financial First Investors

Financial Return

None

High

Impact

A convergence of actions Create industry defining funds as a beacon for how to address specific social issue(s) Place substantial catalytic, risk-taking capital in mezzanine finance structures Develop impact investing network Set the industry standards for social measurement Lobby for specific policy / regulatory change Coordinated Leadership THAT’S HOW IT COULD TAKE OFF

How Big Could it Be? Impact Investing in 5–10 years? U.S. Philanthropy $0.31 Trillion Impact Investing has the potential to grow to ~1% of total managed assets, which could result in ~$600B of capital channeled towards social and environmental impact All Investing $61.90 Trillion Negatively Screened Funds + Impact Investing $2.71 Trillion

"I wouldn't give a nickel for the simplicity on this side of complexity, but I would give my life for the simplicity on the other side of complexity." — Albert Einstein

"I wouldn't give a nickel for the simplicity on this side of complexity, but I would give my life for the simplicity on the other side of complexity."

— Albert Einstein