Redefining Value for Investment Funds
Impact is an elusive word. For decades, companies have been asking themselves, how much is enough and which metrics qualify. The Sustainable Development Goals were created precisely to minimize this confusion by standardizing the language of impact by 2030, across 17 different goal areas. With COVID-19, there’s a heightened reliance on existing infrastructure, increasing the pressure for value generation by institutions big and small. At New Sun Rising, we’re using this time to infuse data and transparency into our funding process. Last month, we launched our pilot Crisis Mitigation Fund (CMF) to provide equitable funding for critical projects in areas of public health and operational support. The results were rolled up within the larger SDG umbrella.
Last month we called on businesses demonstrating critical need to apply for up to a $5,000 loan. But, instead of holding them to just the terms of financial repayment, they were given an option — repay at 0% over a period of time or create impact. Selecting the latter placed them into the loan forgiveness program called Vibrancy Corps. Members were asked to be flexible and commit 1–3 months to implement projects within their areas of expertise to address an identified community need. By proposing this option, we identify impact as a currency in itself. It’s the currency of community capital in the form of vibrancy — a type of shared value that outlasts financial capital by benefiting people and the planet. Each $5,000 loan had the potential to be converted into impact categories of serving basic human needs, public health and safety and operational and financial support. Flexibility was key and positive results were reasonably expected within 30 days.
The results? Within a week of launching the fund, 24 organizations participated with 71 applicants ranging from artists, refugees, food security advocates and more. The most common Sustainable Development Goals addressed were, zero hunger, health and wellbeing, and reduced inequalities. The funded businesses were found to represent regions with an opportunity index worse than 77% of Allegheny County. More details on the impact achieved by this portfolio can be found here.
In this model, combining geospatial and public data improved visibility into the challenges and opportunities of the region. While data improves visibility, conversation provides depth. Since its founding, NSR has engaged with definitive stakeholders in the region to understand issue areas in detail. Merging the breath of data with the depth of stakeholder insights generated value targets for the CMF. Engaging with stakeholders with common goals (ie. poverty reduction) ensured proper incentives were in place. Data tracking helped achieve accountability from top (funder and its stakeholders) to bottom (businesses supported). Rolling up value metrics into SDG targets has been helpful for standardizing reporting within the organization. Over the long term, this helps us better understand our own impact and frame it succinctly within broader regional or national agendas. While the SDGs aren’t an exhaustive list of impact measures, each goal area is broad enough to capture varying targets. Beyond transparency, data creates a common language for organizations to collaborate around. Ultimately, it catalyzes the creation of deliberate networks for value generation.
Value Creation during a Crisis
Some might be asking: shouldn’t funders be relaxing loan terms during a crisis? Absolutely! The Crisis Mitigation Fund does just that and more. By lifting the obligation for financial performance, funds can, without pressure, go towards surviving the crisis and strategizing for the long term. Owners can take this opportunity to engage with stakeholders and build strategic partnerships. We recognize that even during difficult times, firm assets should be put to use to generate value. As a non-profit in operation for over a decade, we understand the challenges of our region. By collaborating with our funded businesses, we improve the common understanding around these issue areas. The result is reduced waste and mission overlap. Simply lessening the economic burden helps businesses stay afloat, but doesn’t equip them and others like them to withstand future crisis. Similarly, this practice misses out on the opportunity to leverage existing community and business assets to generate shared value.
Trade Offs
Dollar returns and impact returns are different in that the latter produces long term positive externalities. Financial returns are not as far reaching, benefitting only the company and a close circle of stakeholders involved. Every fund has a different purpose. The ultimate decision for which return to maximize will depend on who the value is being created for. Funders should probe this topic on a regular basis. Individual businesses must be seriously aware of these tradeoffs as they decide to organize their resources and make management decisions.
In the long term, financial performance is the biggest indicator of business success. But, it’s an indicator, nonetheless. The goal of the Crisis Mitigation Fund is not to challenge this system. Rather, we aim to highlight an alternative method of infusing social impact data and transparency into financial decision-making. The results should inspire both public and private sector actors to improve collaboration. The implication of the pilot is clear — it’s possible to rigorously measure business success along non-financial lines if the goal is to generate communal value.
The long-term potential for the CMF is promising but yet to be determined. The standard use of data and measurement within the SDG umbrella can be replicated in different regions. However, each fund should be guided by its own goals. NSR proudly partners with organizations seeking to develop impact investment portfolios in their regions by adapting similar underwriting models.
While COVID-19 has been a catalyst for helping us reimagine the definition of value, we cannot continue to rely on a crisis to reinvent age old systems of inequity.
