Innovative Finance

Problem-solvers need more than good intentions. They need capital. They need strategic, long-term vision. And they need people on the ground, close to the problems, to help them separate the signal from the noise.

Innovative finance has the potential to activate trillions of dollars in private assets to address humanity’s most urgent problems—like how to feed, educate, and house 7.5 billion people; how to transition 195 countries to renewable energy; or how to make communities around our planet resilient to the brewing climate crisis.

While governments and nonprofits do their best to meet these challenges, the scale and complexity often demand strengths that are essential to the private sector: Time-tested methods. First-hand experience. Resources.

In the language of finance, the world has trillions of dollars in liabilities, but only billions of dollars in assets from governments and the nonprofit sector. Private and institutional investors command the capital necessary to research, develop, and ultimately bring powerful solutions to scale.

New and innovative financial instruments are joining the field of impact investing, to empower investors who have a broader sense of what it means to plan for tomorrow, whether through green bonds, impact securities, or socially active exchange-traded funds. More and more, investors are integrating environmental, social, and governance (ESG) criteria into their decision-making. How, for instance, does manufacturing affect energy conservation? What kinds of impact are media companies having on consumer privacy? Do health care providers prioritize employee safety?

To help investors answer these questions, the Sustainability Accounting Standards Board (SASB) has standardized 77 metrics to measure and model the interactions between private enterprises and public goods. Not only do ESG criteria lead to multiple bottom-line returns, but moreover, the value judgments that determine a company’s ecological footprint, retirement policies, and board diversity help companies differentiate their brand and attract employees who want to make the world a better place. Socially conscious investors are taking notice and investing accordingly.

In addition to following ESG standards, some companies are also seeking B-Corporation certification. Now recognized in 33 U.S. states, this designation is reserved for companies who demonstrate their commitment to solving major public issues. From making carbon-neutral products, to raising standards for just working conditions, to helping formerly incarcerated individuals get back into the workforce, B Corps are leading a culture shift across the private-sector. In the B Corp community, making a profit isn’t the only purpose, but is part of a higher end.

Dr. Rodin’s continuing work in this area is based on her belief that while investors want to be wealthier tomorrow than they are today, many investors are also expanding their sense of what true wealth means: The world we leave for our children should not just be richer, but safer, cleaner, and healthier too. Instead of splitting the difference, new financial tools are helping investors achieve leverage between value and values.

Click here to watch Dr. Rodin discuss her book The Power of Impact Investing.