Richard F. Chandler

Richard F. Chandler is the founder and chairman of the Clermont Group, an international business group with businesses in health care, financial services and electric aviation. He is also the founder of the social impact organisation the Chandler Foundation, as well as the Chandler Institute of Governance, a privately-funded, non-profit organisation established to support national leadership and good governance.

The Rise of the

Social Investor

Richard F. Chandler writes about the new generation of philanthropists.

The Search for Social Impact

I embarked on my philanthropic journey in the early 1990s, armed with as many dreams as questions. When I started, the needs were great, the problems complicated, and the possible investments and solutions voluminous. Over the last three decades, the non-profit marketplace has become vastly more sophisticated and populated, yet the challenge of resourcing social change has become neither simpler nor easier. We continue to face unacceptable levels of poverty, illiteracy, disease, and violence, while the historical stalwarts of the social sector – multilateral and bilateral institutions – remain handicapped by bureaucracy and handcuffed by conventional thinking.

Yet the social marketplace also brims with innovation and optimism. Many individuals and organizations are embracing dynamic methodologies and metric-driven investment models, while the bull market in philanthropy continues: in 2018, Americans alone donated more than US$ 410bn to charity, a third-consecutive record year.

The Innovators: Millennials, Family Offices, and Technology Entrepreneurs

This wave of financial commitment has been accompanied by the widespread conviction that these resources should be used to create maximum social impact. In this season of innovation, success is no longer measured by how much one gives or invests, but by what one achieves. Outcomes trump intentions.

This focus has given rise to a new generation wanting to make a difference: the social investors. To create outsized and enduring social impact, this new breed of investor is rethinking the borders and paradigms of traditional philanthropy.

Some social investors are embracing more strategic philanthropy, using their capital to address causes rather than treat the symptoms. They bring the dialect and tradecraft of financial investment and business management, recognizing that scalability and innovation depend on organizational structure, strategy, technology and systems, as much as passion and purpose. At the same time, financial investors are also converging into the space, pursuing environmental and social objectives alongside financial returns. Through impact investing these investors are bringing a greater awareness of social responsibility to corporate boardrooms.

From left: Former US Secretary of State John Kerry, Co-Founder of The Rise Fund Bill McGlashan, and former President and CEO of the Aspen Institute Walter Isaacson speak on stage during the Vanity Fair New Establishment Summit, California, 2017.

Whether making for-profit or non-profit investments – or a blend of the two – these social investors are converging around a common vision: moving from “charitable giving” to “social investing.” Variously called venture philanthropists, philanthropic investors, impact investors, or responsible investors, all embrace a common set of principles and practices. They take calculated risks, operate with market-driven discipline, and above all, they seek outcomes that are anchored in a set of values linked to environmental, social, and governance (“ESG”) principles.

From Charity to Metrics-Based Philanthropy

My philanthropic journey began when “checkbook philanthropy” was still prevalent. This approach focused largely on how much one gave rather than what one achieved. Metrics on how non-profits performed and the results they produced were hard to come by – and often non-existent. With advice from the legendary investor and philanthropist Sir John Templeton, my brother Christopher and I began our journey in effective giving. We launched Geneva Global in 1997, the world’s first philanthropic investment bank. We set out to answer, “Where would the incremental dollar of philanthropic giving make the greatest difference?” Geneva’s inception coincided with a shift in donors’ and foundations’ mindsets – a move from measuring inputs to focusing on measurable social impact. It became apparent that a business-like approach to philanthropy, anchored in performance evaluation metrics, could help their giving become more effective.

A False Dawn at the Bottom of the Pyramid

Alongside the rise in metric-driven philanthropy was a movement to find scalable solutions to challenging social problems. In 2004, the late Professor C.K. Prahalad published The Fortune at the Bottom of the Pyramid, which argued that companies could both make money and help to eradicate poverty by serving the world’s poorest people (those at the bottom of the economic pyramid, or “BOP”). Doing so would deliver both profits for the businesses that served the BOP – making the initiatives scalable and self-sustaining – as well as transformation for the communities where these businesses operated. Microcredit was among the first business models that seemed to live out this premise. Both Muhammad Yunus and the Grameen Bank he founded (which pioneered the concept of microcredit), were awarded the 2006 Nobel Peace Prize.

The promise of deep social impact using a business approach attracted many philanthropists, including myself. Philanthropic capital was – and remains – finite, and profits promised sustainability. Social enterprises to help the BOP appeared to be a powerful, scalable weapon in the fight against poverty. The excitement would eventually give way to a sobering reality of the challenges. Microfinance, in particular, would be racked with negative reports and political backlash, from excessive interest rates to suicide among indebted borrowers in India. A 2015 study by MIT’s Abdul Latif Jameel Poverty Action Lab found that microcredit did not lead to transformative impacts on income or long-term consumption on average, although it helped households better manage financial choices. The large-scale businesses which have proven so effective at serving the middle class have faced greater struggles in sustainably reaching and transforming those at the bottom of the economic pyramid.

The Challenge of Inhospitable Marketplaces  

Despite the challenges, the goal of achieving both social and financial return lived on and sparked new innovations. Muhammad Yunus went on to champion the concept of “social businesses” that used a profit motive to achieve a social purpose. Former McKinsey executive Bill Drayton, philanthropist Jeff Skoll, and others helped champion the concept of social entrepreneurship that used business innovation to address social challenges.

My own experiences running low-cost healthcare and education businesses – across seven emerging markets from India to Indonesia – have given me a keen awareness of the challenges that come with operating in inhospitable marketplaces. Beyond the question of whether businesses can profitably serve the poor, there is also the reality of running a business hampered by endless red tape and rampant corruption. I learned that capitalism cannot work for the poor without the enabling conditions of effective government and a marketplace infrastructure that adequately facilitates business. [One of the most helpful things that the World Bank has done is to produce their annual “Ease of Doing Business” index. The link between marketplace infrastructure and economic vitality is self-evident.]

Rumi Education, a low-cost education business conceived by Richard Chandler to target low-income communities, brought to life the challenges of running a social enterprise in inhospitable marketplaces. Hyderabad, India, 2009.

Impact Investing: Shaping the Culture of the Financial Marketplace

Coined in the philanthropic marketplace – at a gathering convened by The Rockefeller Foundation’s Bellagio Center in 2007 – impact investing was initially conceived as an avenue for philanthropists to make their capital achieve sustainable outcomes. It has since emerged from the margins and is influencing the culture of the financial marketplace, which is increasingly asked to achieve social returns alongside financial returns.

The momentum behind this movement, and the sophistication of the investments, have all accelerated in the decade since. According to the Global Impact Investing Network, the value of the impact-investing sector increased by an estimated US$ 114bn between 2017 and 2018 alone, and now comprises US$ 228bn in assets under management. This allocation, however, pales in comparison to the US$ 23tn – or a quarter of assets worldwide – which were managed and invested according to ESG factors in 2018, proving that there is vast potential for further market growth.

Banks, pension funds, financial advisors, and wealth managers are now increasingly making investments according to a scorecard which includes environmental, social, and governance factors, in addition to return on investment (“ROI”). Even the private equity group TPG has entered the fray. It launched The Rise Fund – the world’s largest impact investment fund – which invests its US$ 2bn fund in a variety of socially
responsible businesses.

The dollar amount is only half the tale with impact investing. It certainly shows that socially responsible capitalism has made its way into the culture of the mainstream investment industry. But whether it can achieve transformative impact is another story. The Achilles’ heel of impact investing and the ESG movement is measurement. The subjectivity of the criteria – which are as diverse as climate impacts, job creation, employee diversity and so on – means that there is no simple measurement of impact that is as clean and elegant as ROI.

Impact Investing by the Numbers

Total Game Understanding in Development

While the philanthropic marketplace has made good progress zeroing in on impact, many actors are still overly optimistic in their ability to create the change they want to see.

Since 1980, more than 1 billion people have lifted themselves out of extreme poverty. Philanthropy has played a role in this tremendous success story, albeit not a leading one.

Private philanthropy and development assistance are valuable, but no country has become prosperous through aid and charity. Of those more than 1 billion people now free of extreme poverty, 800 million lived in China, whose development was powered by broader structural changes. This included policy reforms which created more vibrant marketplaces where businesses could take root and flourish.

Such lessons can illuminate a way forward for today’s social investors. Lasting solutions to the world’s major social challenges require holistic, multi-level approaches which engage government, business, and civil society. All pieces of the prosperity puzzle are important – when one is missing, the solution is incomplete. Communities, businesses, and government all have important roles to play in creating and sustaining inclusive prosperity. However, by recognizing the differences between the pieces, social investors are better able to fit them together, diagnose when one is absent, and realize their complementary strengths.

Philanthropy and Social Risk Capital

Notwithstanding the scalability challenges, philanthropy remains uniquely positioned to lead bottom-up, base of the pyramid efforts, providing risk capital and pioneering models to serve those beyond the reach of governments and markets. By providing basic healthcare, education, and skills training, philanthropic investments empower self-reliance and community well-being. According to a 2012 report by the Monitor Group (now Monitor Deloitte) in partnership with Acumen, “From Blueprint to Scale,” philanthropic support can play a catalytic role in helping innovative social businesses clear the “pioneer gap” hurdle, where few impact investors are willing to fund the early stages of businesses targeting the poor.

Is Governance the New Frontier in the Quest for Sustainable Prosperity?

History is clear: prosperity cannot thrive where there is weak governance, poor policy frameworks, or ineffective laws and legal systems. By building strong institutions and systems, creating smart public policy, and providing social safety nets, governments are the architects and stewards of societal platforms which deliver important public services. Governance initiatives are more fraught with complexity than delivering community programs and consequently attract significantly fewer philanthropic resources. But there are philanthropists – typically those familiar with the challenges faced in developing countries – such as Mo Ibrahim and Jorge Paulo Lemann who are leading the charge by focusing on improving governance.

Engine Room of Development: The Marketplace and a Vibrant Middle Class

A healthy and vibrant middle class is the engine room of prosperous countries. Middle classes are built by educated workforces and marketplaces which support and reward creativity, entrepreneurship, and risk taking.

Businesses not only meet market needs, they also create a virtuous cycle of employment, re-investment, and innovation. For example, Hoan My, the Clermont Group’s healthcare business in Vietnam, is the nation’s leading private hospital group. By providing quality, affordable healthcare to more than 3.7 million patients annually, Hoan My has raised national healthcare standards through a scalable private sector initiative.

Hoan My, the healthcare network owned by the Clermont Group, serves 3.7 million patients per year in Vietnam. Pictured: Hoan My Saigon, Ho Chi Minh City, November 2018.

Collaboration and Big Bets

The demands of a “Total Game” approach means that no one philanthropist or social innovator can expect to achieve outsized results by working in isolation. Fixing underperforming social systems or building business-friendly marketplaces requires a coordinated effort by all system participants.

An emerging trend to address social challenges through collaborative philanthropy harnesses the power of partnership. By pooling philanthropic capital and networks, a number of new funds are making big bets into projects and programs that go beyond simply fixing surface-level issues to address the underlying structural causes. They are designed and executed with cross-sector partnerships, involving both the government and the private sector, NGOs, and community groups.

Such collaborations have attracted big names and led to the investment of hundreds of millions of dollars. The Partnership for Higher Education in Africa, for example, concluded in 2010 and included support from the Rockefeller and Ford Foundations, as well as the MacArthur and Hewlett Foundations. Co-Impact, a collaborative of which the Chandler Foundation is a member, pools the resources and expertise of a network of results-oriented donors that include The Rockefeller Foundation, Bill and Melinda Gates, Nandan and Rohini Nilekani, and Jeff Skoll. Working with social change leaders, governments and the private sector, Co-Impact tackles the structural causes of poverty and disease, and is aiming to improve the lives of millions of people.

These kinds of collaborations also help address an inefficiency across the philanthropic marketplace – fragmentation. Funders are understandably governed by their own agendas and ideologies, and spend time and resources finding opportunities to invest in. Meanwhile social change leaders, even highly successful ones, have to piece together disparate and often insufficient funding. It is not difficult to see that this fragmented landscape is inefficient – one simply has to imagine what a global investment team with a shared consciousness could achieve, versus one that does not regularly share its ideas and learnings. It is no accident that the great periods of creative flourishing and entrepreneurial innovation – from Renaissance Florence to Silicon Valley – have all been clustered in areas where ideas, capital, and talent could all collide and collaborate.

Co-Impact will be a testament to the power of collaborative social investing.
Richard F.Chandler

Hedgehogs and Foxes

The rise of the social investor highlights a widespread harmony of approach and vision in the field, underscoring a shift in focus from the traditional notion of “giving” to “social investing.” There is growing recognition that large-scale social impact requires innovation, collaboration, and a results-focused mindset.

A fragment survives from the ancient Greek poet Archilochus of Paros: “The fox knows many things,” it reads, “but the hedgehog knows one big thing.” The hedgehog, as the Pulitzer Prize-winning Yale professor John Lewis Gaddis describes, has one grand vision from which it does not deviate, while the fox is more attuned to risks and changes in circumstance, constantly adjusting and adapting. Mr. Gaddis argues that the best generals, politicians, and leaders have been guided by a clear purpose yet adjusted to circumstances as they arose – that they have been both hedgehogs and foxes, in other words. It is not a stretch to say that the best social investors will be as well.

A Vision for the Social Investor

of the 21st Century

Thinks BIG and Bets Big

Today’s social investor is an ambitious dreamer who wants to leave their mark on the world. They are motivated by audacious goals which create epic stories and leave lasting legacies.

Thinks Long Term and Adopts “Total Game” Approaches

A “total game” approach to the prosperity puzzle requires working holistically across the prosperity ecosystem. The question becomes how can bottom-up, community-focused initiatives be reinforced – and accelerated – by top-down governance ones? How does one go about investing in stronger national governance, influencing policy, and developing marketplace systems, regulations, and infrastructure? How can the power of technology and the creativity of the marketplace be better harnessed to efficiently deliver public goods, build stronger middle classes, and further prosperity for all?

In the pursuit of impact, social investors will use both non-profit and for-profit models, with accountability for resources and outcomes. For example, the Omidyar Network describes itself as a “philanthropic investment firm,” providing grants while also making commercial and sub-commercial investments.

Collaborative Partnerships

Reinventing and re-energizing social systems requires the participation and commitment of the leaders and organizations involved in those systems. In healthcare, for instance, meaningful solutions require the input of private-sector companies and public-sector officials; they must account for education and legislation, infrastructure, and culture. Social investors embrace this kind of collaboration not only in how they design programs, but also in how they fund and then implement them.

Context and Culture Sensitive

An approach that works well in one community or country may flounder if transplanted to another. Social investors are wary of one-size-fits-all solutions, which fail to account for ground realities and cultural environment. This is a truth echoed by one of history’s great strategists, Sun Tzu. In The Art of War, he cautions that even the most well-equipped and well-prepared general who is “unaware of the nature of the ground … has gone only halfway
to victory.”

Balanced Scorecards

As impact investing matures, social investors will develop scorecards to measure a range of social and financial outcomes.

While results matter, it is values that drive purpose. The responsible investing trend which is influencing the financial investment industry is also being adopted by foundations for their endowments. In 2017, the Ford Foundation committed US$ 1bn of its endowment – slightly less than 10% of its total – toward impact investing.

Richard F. Chandler

Richard F. Chandler is the founder and chairman of the Clermont Group, an international business group with businesses in health care, financial services and electric aviation. He is also the founder of the social impact organisation the Chandler Foundation, as well as the Chandler Institute of Governance, a privately-funded, non-profit organisation established to support national leadership and good governance.

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