Calvert Foundation’s ‘Accessible, Reliable’ Road for Impact Investing: CEO Lisa Hall discusses options for engaging investors
If you follow impact investing, even a little, you know the name Calvert Foundation. Its portfolio of investments, which is detailed in below, crosses borders, industry sectors and social need. And, as one of the first funds to offer an opportunity for retail investors to impact poverty, education, health and a host of other social issues, Calvert Foundation is at the apex of impact investing. As an organization, it has a lot to share in the way of knowledge and expertise, which is why I’m excited to announce that Calvert Foundation will be joining NextBillion as our most recent content partner.
For an overview on the nonprofit lender’s 17-year history and for a sense of what’s next for both Calvert Foundation and the broader impact investing sector, I spoke with President and CEO Lisa Hall.
Please join me in welcoming Calvert Foundation to the NB content partner team. We look forward to sharing their insights in impact investing, and many other topics, on NextBillion and on their blog here on NextBillion.
Scott Anderson: For those unfamiliar with Calvert Foundation, can you give NextBillion readers the thumbnail version: What is Calvert Foundation’s mission and how does it operate to achieve it?
Lisa Hall: Calvert Foundation is a nonprofit lender and a pioneer in impact investing, delivering social benefits to communities and a financial return to investors. What makes us unique is our accessibility to individual investors, with a minimum investment starting as low as $20. People can invest through our Community Investment Note and, in turn, Calvert Foundation invests in organizations around the world that empower people in low-income communities.
Currently, Calvert Foundation has nearly $200 million invested in more than 200 high-impact nonprofits and social enterprises serving all 50 states and more than 80 countries. Our portfolio includes a diversified mix of organizations whose missions cover a range of social causes and innovations, including affordable housing, microfinance, Fair Trade finance, small business development, and the establishment of essential community facilities such as charter schools, daycare centers and healthcare centers.
SA: What are the key criteria that Calvert Foundation uses in evaluating whether to invest in a business or a socially responsible initiative?
LH: Calvert Foundation has a range of social and financial criteria that we consider when evaluating potential investments. In addition, we have a rigorous credit risk scoring model, which has been refined and improved as we’ve expanded and grown our portfolio into new impact sectors. We are a later stage investor – we typically look for three years of operating history, a solid base of net assets, and a strong and seasoned management team. We are fairly conservative in part due to the nature of how we raise capital. As stewards of investment capital from retail investors, we feel a strong responsibility to prioritize risk management. As a result of the tremendous work of our risk management team, we’re happy to report a 100 percent repayment record to our investors over our 17-year history. We believe we are filling a critical role in the market, supplying growth capital to nonprofit organizations and social enterprises that have demonstrated success but are still unable to access commercial capital.
In terms of our social criteria for investment, we look for organizations that improve quality of life and human well-being for individuals living in low-income or disadvantaged communities. In part, we rely on industry initiatives like the SMART Campaign and the UN PIIF to evaluate a potential borrower’s commitment to social impact. We also collect social impact metrics on an annual basis for all of our borrowers to evaluate and benchmark social performance. For some of our new projects like the Women INvesting in Women INitiative (WIN-WIN), we have developed specific social performance indicators that all borrowers must meet. In the case of WIN-WIN, our stated goal is to support and empower women so we evaluate potential borrowers based on equitable gender representation in leadership and product and service offerings that target women (and especially low-income women).
SA: Give us a sense of Calvert Foundation’s portfolio; how are the investments allocated and what can you say about ROI.
LH: At any given time, we’re typically investing about 60 percent of our portfolio in the U.S. and 40 percent internationally. In terms of impact sectors, approximately 20 percent of the portfolio supports affordable housing developers and lenders, 35 percent is invested in Community Development Financial Institutions that finance community facilities and small businesses, and 25 percent in loan capital to international microfinance. In addition to these types of organizations, we invest a portion of our portfolio in social enterprises and Fair Trade co-ops.
Calvert Foundation recognizes ROI as a mix of social, environmental, and financial returns. Our Social Impact Report details the homes built, jobs created, and lives changed as a result of our work. In that context, the financial return may seem modest depending on the interest rate environment, but it is an important part of our value proposition to the diverse community of investors that we serve. As a debt investor, our financial returns are based on the interest we earn from the loans we make. We’ve always been focused on providing affordable capital to the organizations that we invest in, and our investors understand that accepting a lower interest rate can translate into greater impact for the end beneficiaries of our capital. In fact, we have many investors who voluntarily choose a 0 percent interest rate with the knowledge that they are helping lower the cost of capital for the nonprofits and social enterprises we lend to. In the past when interest rates were high, our loans and our corresponding interest rates offered to investors were below market rate, but today with such a low interest rate environment, our returns tend to be consistent with other fixed income options.
SA: I know this question could constitute an entire interview, but how does Calvert Foundation approach impact assessment?
LH: On an annual basis, Calvert Foundation requests social performance data from every investee using a custom “Social Performance Measurement Report” template that incorporates industry-aligned metrics and best practices. Incorporating metrics from leading impact investing funders and thought leaders such as Impact Reporting and Investment Standards (IRIS), the CDFI Fund, and the Department of Housing and Urban Development (HUD) allows Calvert Foundation to collect well-defined performance metrics while limiting the additional reporting burden for investees.
Calvert Foundation then aggregates and analyzes the social performance data to determine the impact area (e.g. affordable housing, educational facilities) and estimated outputs (e.g. number of housing units) attributed to the Calvert Foundation investment in each organization. On an annual basis, the metrics for each sector are aggregated and combined with impact stories and photos in Calvert Foundation’s Social Impact Report (PDF).
Over the past two years, we have been working diligently to update and improve how we collect and use social impact data from our borrowers. Part of this process was reclassifying our portfolio into six dominant sectors: Affordable Housing, Community Facilities, Small Business, Microfinance, Fair Trade, and Social Enterprise. Another change was choosing more specific data points, consistent with the Impact Reporting and Investment Standards (IRIS) framework developed by the Global Impact Investing Network, to provide a common reporting language for impact-related terms and metrics. We are also active in industry-specific efforts to promote impact assessment like the Strength Matters Initiative for affordable housing and the Social Performance Task Force for microfinance.
SA: Can you walk me through a couple of key investments that you would call out as particularly successful in terms of both impact and return?
LH: To represent the domestic and international nature of our work, we’ll pick one from here in the US and one from our international portfolio.
Here in the States, we recently funded a $2 million loan to support the renovation and expansion of the West Berkeley Family Practice (WBFP), a community health center of LifeLong Medical Care (LMC) in Berkeley, California. LMC is a nonprofit community health center founded over 35 years ago that offers quality health and social services to people of all ages, regardless of their ability to pay. In Berkeley, the WBFP, like most community health centers, is the primary health services provider for the uninsured population and one of few dedicated providers for low income residents. West Berkeley has the lowest median income in the city of Berkeley and an estimated 32 percent of children in the area live in poverty. The WBFP currently serves 6,600 patients annually, of which over a third have no health insurance. The project that Calvert Foundation funded will allow WBFP to expand its facility from 12,000 to 20,000 square feet, increasing its capacity to serve 9,600 patients within five years. The clinic provides a holistic patient-centered care model, where patients can access primary care, mental health care, chronic care management, and wellness counseling all under one roof, regardless of their insurance status. (Above: Image credit courtesy of LifeLong Medical Care).
This loan is also one of the first loans funded under Calvert Foundation’s Women Investing in Women Initiative (WIN-WIN). Launched earlier this year, WIN-WIN aims to raise $20 million to invest in organizations and projects that create economic development opportunities for women around the world. The West Berkeley Family Practice is managed and led by women; most of their customers are women; and they provide critical services to increase women’s economic opportunity such as child care and reproductive health care. They are an excellent example of an innovative organization trying to meet the community’s needs in the most holistic way possible, and we are honored to be able to support their work.
We’ve also recently invested in the Paradigm Project – an organization with a clever business model to leverage carbon offsets on behalf of the poor. In rural Kenya, women typically cook every meal over an open fire. This is difficult work that requires hours of collecting wood, subjects them and their children to severe health risks, and can drain a family economically and a community environmentally. According to the World Health Organization, every day over 2,500 women in poor rural communities around the world die from respiratory causes related to indoor cooking smoke. Cooking over an open fire is equivalent to smoking 40 cigarettes a day for anyone standing in the hut.
Paradigm Kenya is helping to deliver efficient, clean cookstoves that require less wood, reducing respiratory illnesses and increasing women’s productivity and safety. These cookstoves are also reducing greenhouse gas emissions and slowing the pace of deforestation. This is truly an example of an investment delivering environmental, social and financial returns.
(Paradigm Kenya is helping to deliver efficient, clean cookstoves. Image credit: Rodney Rascona – The Paradigm Project, all rights reserved).
SA: No one loves to talk about failure, but can you also discuss a few investments that did not succeed, and what the organization has learned?
LH: In late 2008 the “Movimiento No Pago” or Non-Payment Movement was growing among clients of microfinance institutions in Nicaragua. After the movement gained political support from the President of Nicaragua, Daniel Ortega, microfinance institutions across the country began to experience high rates of non-payment from clients who refused to repay their loans. Additionally, the global economic crisis led to a drop in beef prices and remittances in Nicaragua – two variables that negatively impacted bottom lines for many MFI borrowers. Calvert Foundation had over $2M invested directly in three microfinance institutions in Nicaragua at this time. As a patient impact investor, we were able to restructure our loans and recover $1.9M of the original $2M; the last payment was received this September 2012. Despite similar external factors facing all three of these MFIs, our two investments in MFIs that were NGOs were able to weather the storm over the next few years through restructured loans and working closely with Calvert Foundation and other investors.
SA:Obviously, Calvert Foundation is heavily involved in both developed and developing/emerging economies. On the emerging side, how does Calvert Foundation approach impact investing to help alleviate poverty?
LH: Calvert Foundation believes in the potential of entrepreneurship to transform emerging economies. In light of this, we’ve invested both directly and through intermediaries to support the growth of high performing microfinance institutions and social enterprises. We have had success partnering with other impact investors like Root Capital and Accion to leverage their deep knowledge of particular geographies and sectors. As a lender, we aim to provide flexible and affordable debt capital that meets the financing needs of borrowers in developing economies. For the kinds of organizations that we serve, we believe debt capital is an appropriate tool to encourage discipline and contribute to scale. Our traditional financing has been a good fit for microfinance institutions, Fair Trade organizations, and growth oriented social enterprises. We are currently thinking about other products that would be suitable for the marketplace, including lines of credit and short term bridge loans. At the same time, we’re exploring opportunities to grow our portfolio in markets like sustainable agriculture, water and sanitation, and technology, where we’ve historically invested in a limited capacity.
SA: This is both an exciting and daunting time for impact investors. Give us a sense of the landscape, what needs to happen for retail-side investors to really make an impact in socially responsible investing.
LH: Retail investors need more accessible, reliable, and convenient options to engage in impact investing at any sort of scale. We’ve been working to break down barriers to impact investing for years, but there is still so much to be done. For instance, our Community Investment Note is still the only true impact product on the market that can be purchased through a brokerage account. This has been absolutely critical in allowing us to scale our distribution and work directly with financial advisors that have a primarily retail client mix. The industry needs to develop new products across all asset classes that look and feel like investment products that financial advisors and retail investors are used to. We recently worked with several partners on the Gateways to Impact Report, which detailed both the significant interest and the apprehensions of mainstream financial advisors that are exploring impact investing. The report makes several recommendations including an industry-wide emphasis on education, infrastructure development, and efficiency gains.