Driving change through impact investing
The report looks at our distinct approach to impact investing and explains the theory of change that underpins our strategy.
All investments have an impact in the world, positive or negative. Are there ways to use endowments – and not just their proceeds – to support their charitable purposes? Chief Executive Kieron Boyle discusses our approach.
Foundations are increasingly asking themselves probing questions about how best to achieve their mission. One strand of enquiry has been to focus on the endowments whose proceeds support their charitable work. The idea itself is very simple: all investments have an impact in the world, positive or negative. Are there ways to use endowments – and not just their proceeds – to support their charitable purposes? Indeed, is there a responsibility to?
Over the past year at Guy’s & St Thomas’ Foundation, we have been asking exactly this question of our own nearly £1bn endowment. We recently wrote a paper setting out some of what we’ve learnt so far and how we have come to structure our approach. Our model is just that – one model – but hopefully it prompts useful questions for other’s own thinking.
There are three key ideas that frame our approach.
First, we have decided to run our impact investing activities from our endowment, rather than from its regular proceeds. The reason for this is scale. We are a permanent endowment, which means we keep the majority of our resources in investments. By testing whether we can deploy significant investments through an impact-lens, we are really asking ourselves whether we can deploy all of our investments in this way.
Second, we have centred our efforts towards our mission. We are an urban health foundation and our work focuses on the social realities of health. This means we are investing in sectors such as housing and employment that go much wider than healthcare alone. We have also been attentive to the inverse gradient in health – namely, those who most need care are least likely to receive it – and set the centre of our target to be underserved urban communities.
By testing whether we can deploy significant investments through an impact-lens, we are really asking ourselves whether we can deploy all of our investments in this way.
Our model is just that – one model – but hopefully it prompts useful questions for other’s own thinking.
Third, we have taken a portfolio approach to our impact investments. The common factor is that all our investments have a financial return commensurate with their risk. In practice, this has generated two broad types of investment. One we would describe as ‘impact managed’, where our input is supporting established funds to increase the depth of their impact. The other we would describe as ‘catalytic’, where our capital is helping newer funds or models get off the ground. Both have value.
We are in the early stages of our journey, and have learnt that it takes time, ambition and resource. But these are all quantities that foundations have in good supply.
There is, perhaps, an orthodoxy: that endowments are somehow separate from the organisations whose missions they enable, rather than one of their most powerful tools. This often combines with a worldview that the most efficient route to impact is through a charitable grant. In our experience, neither of these is necessarily true. Rather, impact investing allows us to access a different type of impact than might otherwise be open to us through traditional means.
In this light, and as with an increasing number of foundations, we see impact investing as an important complement to our ability to affect change in the world. Of course, it is for each organisation to decide whether this approach works for them. Our only advice is to give it a go – future generations will be unconvinced by the reasons we didn’t.