4

Evolving Values and Priorities Among Business Investors

The second panel discussed why and how values and priorities are changing in the capital markets, and how investors who supply funds and those who use investment capital interact. Maurice Jones of Local Initiatives Support Corporation (LISC), an organization that uses capital to support community revitalization projects, provided perspective from the demand side of the relationship. Lisa Williams of Goldman Sachs shared her perspective from the capital supply side. The session was moderated by Lisa Richter of Avivar Capital. (Highlights of this session are presented in Box 4-1.)

USING CAPITAL TO DRIVE CHANGE

In 1968, the Ford Foundation originated the use of “program-related investments” for charitable purposes, Richter said, because it believed that grants they had made to organizations in low-income communities were not leading to improved conditions in those communities. She suggested this was one of the first examples of values beginning to change among business investors in the United States. The idea was to provide investment capital (through loans) that would allow organizations in low-income communities to participate in the capital markets. Around the same time, Richter continued, groups of religious women were also using their resources to invest in their communities. Nuns invested in both grassroots lending efforts and voted their shares to push corporations to divest from South Africa and support the dismantling of apartheid.

People were starting to look at where money was going and the impact of those investment choices on communities.

Five decades later, the fields of impact investing, socially responsible investing, or most recently, sustainable and responsible impact investing, have expanded beyond community development to encompass environmental preservation, asset building, education, and the application of technology across education, health, finance, and other sectors. Over the past decade attention has been paid to how these investment tools can be applied to drive improvements in population health, Richter added. In addition, community development financial institutions (CDFIs) have been created to leverage capital to drive change in underserved communities. One example of a CDFI is LISC.

DEMAND SIDE PERSPECTIVE: LOCAL INITIATIVES SUPPORT CORPORATION

LISC was established 40 years ago as one of the first recipients of a program-related investment from the Ford Foundation, Jones said. Like others in the field at the time, the initial focus of LISC was to provide local

neighborhood-based community development corporations with access to capital so they could revitalize abandoned real estate and “catalyze a market for housing in those neighborhoods.” In the 1990s, he continued, LISC recognized that addressing housing was not sufficient to revitalize neighborhoods. LISC evolved beyond housing to invest in broader aspects of community development such as financing small businesses, entrepreneurs, schools, and community facilities. The role of LISC, Jones explained, is to be the first capital investor in a disinvested community, taking a first loss position so that more traditional financial institutions will follow and stack capital (e.g., philanthropic, corporate, government). To date, LISC has invested $20 billion in disinvested communities, which has leveraged an additional $60 billion from other investors. Richter expanded on the concepts of first loss position and capital stack. This means, she said, that LISC is willing to bear more risk (i.e., take more of the potential losses) than the follow-on lenders. By providing this type of credit enhancement or risk mitigation, LISC can attract significant investor capital from other lenders, which, stacked together, can help to drive change at the scale needed.

Community Development in Rural Versus Urban Communities

Richter asked Jones to comment on the differences between rural communities and urban communities with regard to community development. A key difference, Jones said, is that it can be more difficult to attract investment capital for rural communities due to the relatively low population density. Another difference is that there is generally less infrastructure and less technical capacity among neighborhood-based groups in most of rural America to support the project work and produce results. In addition, there are often fewer incentives to attract capital to rural areas. As an example, Jones mentioned the Community Reinvestment Act, which requires banks to extend credit to help those in the communities in which they do business. Jones noted that this currently means localities where banks have a physical presence, and many low-income areas are devoid of bank branch offices. Lastly, he suggested that government capacity to handle sophisticated financial transactions is generally weaker in rural areas than urban areas.

Jones emphasized that even though community development is more challenging in rural areas than urban areas, it is still being done. LISC works in 2,000 rural counties in 44 states and has a $450 million outstanding loan portfolio. Another challenge, Richter said, is that many communities, both urban and rural, do not have a local CDFI like LISC.

Connecting Community Development and Health

Richter reiterated that increasing attention has been paid over the past decade to the association between health and community development. She referred to the data discussed by Adams (see Chapter 2) and the county health rankings developed by Kindig and colleagues,¹ which indicate that at least 70 percent of population health outcomes can be traced to community factors (e.g., the built environment, socioeconomic factors, access to and quality of care). “If we don’t build communities where people can make healthy choices,” Richter said, “we can’t expect to realize that vision of population health.” She suggested that this acknowledgment of the association between health and community development gave new meaning to the work of LISC and other CDFIs, and she asked if it impacted LISC’s strategy or approach to measuring impact.

LISC recently announced that it would invest $10 billion over 10 years in underinvested and disinvested communities, Jones said. These new investments will be directed toward improving health metrics. Since its inception, he said, LISC has partnered with financial institutions, but moving forward, the values and mission of LISC are more strongly aligned with the health sector. LISC has hired staff for a health care team and will work closely with health care partners. The first partner is ProMedica in Toledo, Ohio. Jones said a $45 million social determinants of health fund has been established that will be used over 7 to 10 years to address social determinants of health in uptown Toledo, including housing, economic development, and workforce development. ProMedica had observed disproportionate use of emergency department services for conditions related to social determinants of health by residents from this area. Jones noted that, in general, there can be a 10- to 30-year difference in life expectancy between low-income Census tracts and more affluent Census tracts. Metrics assessed will include the numbers of housing units revitalized and jobs created, as well as hospital readmission rates and metrics that can inform ProMedica’s operations. Similar partnerships are now being established with other hospitals. Jones said the hospitals have an understanding of the health and wellness needs of the residents, and LISC has the established relationships with community-based partners that are essential to progress of the initiatives. He emphasized the importance of building relationships and trust and taking the time to understand the needs and aspirations of the partner health care organizations.

In summary, Richter said, LISC functions on the demand side, working to raise capital and redeploy it to address social determinants of

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¹ For more information, see https://pophealth.wisc.edu/news/population-health-institute-measures-us-health-county-health-rankings-roadmaps (accessed June 23, 2021) and http://www.countyhealthrankings.org (accessed June 23, 2021).

health. In this regard, she said, “access to capital is itself a health determinant.” The flow of capital is often unseen, and therefore is not often thought considered. However, the effects of capital investment can be powerful, and she said the partnerships being created by LISC have the potential to amplify the effects of capital investments for health.

SUPPLY SIDE PERSPECTIVE: GOLDMAN SACHS

Lisa Williams of Goldman Sachs shared insights from the work of helping institutions in aligning their capital with their values. Two considerations include the nature of the organization and its intent. The clients for impact investing services range from high net worth individuals to institutional offices, and they work toward a spectrum of impact and returns. Some clients, such as family offices, have a geographic focus in maximizing their returns, Williams noted. Interest areas for others may include environmental and social goals, and for some institutions, their stakeholders want to know that the capital that finances businesses or other investments is aligned with the population being served. Williams offered pension pools as an example, adding that if they are for food industry workers, the investors would seek alignment with the employees’ work. The perspective in shaping the entire assets of an institution goes beyond the philanthropic, and includes attention to asset allocation (e.g., bonds, stocks, private venture), Williams noted. If the goal is a more healthy and equitable community, what might investments look like?

Williams said on the public market side,² investment proximity to impact may be most important. Investors may not want exposure to tobacco or fossil fuels, and the high-level themes for investing will be health and well-being, for example, in companies that are transitioning to value-based care. On the private market side, there are growing investments in traditional companies that are creating innovations around health. For example, Williams said, administrative burden and poor coordination of care lead to waste, so investors look at businesses that transform how health care is done. That could include companies looking to automate “low-value” tasks to enable more clinician time with patients. In the domain of affordable housing, the opportunities are found in looking at specific populations in need of affordable housing, such as people with intellectual disabilities, and “asking how to create safe, quality housing and do that in an institutional way, and working with hospitals to facilitate this.”

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² That is, publicly traded as opposed to privately held companies.

Measuring Impact and Progress

During the discussion period, Williams responded to a question about quantifying impact by noting that qualitative examples and progress are needed because investors tend not to allocate capital by providing metrics to report on, but rather “ask what are key pieces that tie to the business” and how do they increase revenue, and how can progress be measured? Another important step, she added, is to communicate with people making the investment decisions, and to incorporate community voice wherever possible, perhaps through grant makers.

Cathy Baase asked whether the focus is on upstream versus downstream investments in health. Williams responded that some investors are interested in specific diseases, but some focus on technology to improve information sharing, logistics, and care. Richter added that there are health sector funders who are looking at upstream opportunities from housing to small business, who have a people–place–planet focus, who recognize that climate risk is human health risk, and who acknowledge that sectors such as education have a high impact on health later in life, therefore underscoring the importance of investing early in the life course or early in the disease course.

Jones commented that LISC partners with investors are helping to develop supermarkets, and engaging in efforts to develop housing, supermarkets, and financing for federally qualified health centers.³ Paula Lantz of the University of Michigan commented on several years of research on pay-for-success financing—private and third (i.e., philanthropic) sector capital is raised and government pays it back if metrics for success are met—to address population health and social determinants of health issues. Lantz remarked that the model has promise and has had some success, but her research has also highlighted pitfalls. Jones responded that the private sector needs the bridge financing that pay-for-success models offer. In her response, Williams noted that fundamentals of a project could change over a few years, as stockholders and relationships evolve over the life of a bond—these are “very bespoke projects and hard to put into an easy Excel model.” However, Williams added, pay-for-success financing is an important instrument and public–private partnerships are needed to maximize its potential.

Abhishek Pandey of New York University Langone Health asked how investors handle the long time needed to get answers to some questions or to observe outcomes of interventions. Williams answered that there

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³ For example, LISC partners with Morgan Stanley and The Kresge Foundation in the $200 million Healthy Futures Fund, which finances the development of federally qualified health centers. See http://www.lisc.org/our-initiatives/health/healthy-futures-fund (accessed June 23, 2021).

are constructs to help address that, such as fund lives that are 10 years or longer, including evolving evergreen funds, requiring people to be comfortable with their capital being locked up for a longer time line, and have a longer time horizon. What is needed in those cases, added Williams, are midterm metrics and other innovative structures to help mitigate the uncertainty associated with long time lines. Jones noted that it is hard to invest in early childhood because we do not know outcomes for 10, 20, even 30 years. Foundations can use program-related investment dollars to model successful interventions that can be scaled. Jones shared the example of LISC’s $15 million fund for affordable housing, which includes among investors philanthropy, for-profit entities, and hospitals. Although the affordable housing issue probably will not be fixed in 15 to 20 years, progress can be made. Jones called this “patient” capital, adding that demanders of capital have the opportunity to orient or familiarize those supplying it with the idea that needs to be done over the long term, and thus help bring in new investors.

Mary Pittman of the Public Health Institute asked how investors deal with gentrification that displaces people who have lived in a community for a long time. Jones answered that anti-displacement tools are available, such as the creation of a housing fund in the Bay Area. The key, he added, is to implement investment and anti-displacement measures simultaneously.

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