Over a decade ago, JPMorgan and the Rockefeller Foundation, together with the Global Impact Investing Network (GIIN), published a report claiming that impact investment was an emerging asset class that would reach between $400 billion and $1 trillion in assets under management by 2020. Many thought this was an ambitious prediction – but fast forward, we now see how those doubts were misplaced with markets hitting $715 billion in assets under management in 2020. Against the backdrop of the reckoning of 2020, our lens on impact dollars has become tremendously important. But is there far too much sensationalization of impact? How do we stay grounded on metrics that really matter? We talk with Karen Wawrzaszek to unpack this.
In this episode, you will learn:
1) What it means to have lived in poverty, and how you can channel personal scars into purpose
2) Impact washing and this moment in time
3) The triple threat of inequality
4) How do we measure impact – is doing no harm, good enough?
5) Key investment trends arising from the rise of millennials and environmental, social, governance (ESG)
About Karen Wawrzaszek
Karen is now Washington Regional President for BNY Mellon, moving swiftly over from her previous role as the lead for Impact Investing at Sullivan Bruyette Speros & Blayney (SBSB). But that truly does not capture the full impact that she’s been making in the world, for the past 20 years. Karen is an expert on socially responsible and impact oriented investing, having led impact initiatives for two privately held family offices, including being Managing Director of Rockefeller Capital Management. She’s also the chair of the Meyer foundation and founder of the Pomona society, a collective of women in impact who come together to affect systemic change for women and families in the District of Columbia.
Transcript of Episode
SC: Karen, thanks so much for joining us. How are you today?
KW: I’m doing great. And Sarah, thank you so much for having me. It’s exciting to have this conversation and, to see so many listeners interested in it. So thank you for doing this.
SC: No, of course it is my pleasure. When I was thinking about who the first perfect guest would be to really set the tone for what Billion Dollar Moves is all about! I thought about you because not only have you done some billion dollar moves in your own life, but also in impacting so many lives, and that’s really what it’s about.
So let’s start with the first part here. We want to dive deep, and really dive in into also your personal journey. From the outset, not many would have guessed that you have a deep personal connection to your mission and that has impacted the way that you’re thinking about the work you do. So tell us a little bit about what got you here. And even your moment in poverty, if you don’t mind?
FROM PERSONAL SCARS TO PURPOSE
KW: No, absolutely. I think like everyone probably listening, we arrive at our work and our vocation, a lot of it through lived experience, right. And so my story really started as a child and losing my parents early in life and kind of setting in motion a very deeply impoverished childhood. And what that informs you, when you’re going through something like that is you see better than most where the systems are broken.
And so throughout my life, whether it’s the education system that we’re dealing with today and public education, or whether that is the healthcare system, whether it’s food insecurity, whether its workforce, and how do you engage in mainstream economy, when you are growing up in such a way that you can’t access anybody to help you do that.
And so, so for me, I was really fortunate that I loved mathematics. And so I went down a journey educationally in finance, that kind of launched me to where I am today, and had the really good fortune, because of the way I grew up very independent, very much a caretaker of my family. I kind of stepped in as a child parent of my siblings. And in doing so, you become so resourceful. And not only are you trying to solve your own needs in Maslow’s hierarchy, but you’re also really, really concerned about these the siblings that are around you that you feel personally responsible, responsible for, as though they’re your own.
One of the things that I think is lost on on our society and how we think about solutions for the poor is we aren’t living in those experiences. And so we’re not proximate and I kind of call this proximity for for change, right? And, and so if people who are living in poverty tend to become very alienated from how the rest of the economy is really working, and as time goes on, the longer you’re living in such a state, the harder it becomes to re-engage with the community.
And so just through my own lived experience, I became deeply passionate about giving back as I kind of launched a career in finance. I have always been, I would say, in parallel to my professional career growing this community activist work, philanthropy work that was really centered around children in poverty, and women that are oftentimes the only caretakers of those children. But I would say in fairness, it really starts with my love of trying to fix the youngest humans among us, and help them so that we have a different future state.
And that’s really where I became so passionate about how I could weave in my profession into community work. And I’m a little bit different than others in the finance profession, in that I very much have gray areas between, how I think about capital, and where I’m allocating it, whether that’s capital and time capital, and, real money, the way that we think about it, and what’s the highest and best use for in our societies, capital and my personal capital, and I kind of developed, advisory techniques that help the other stakeholders make decisions around some of those same things.
So it’s been a really rewarding journey. And I’m a long way from done. And every, every year, we have interesting things that present that are and can be catastrophic to broader to broader society. And then how can I lend expertise and propel some of these ideas forward. But that’s how it came to today. And the work that I do.
SC: I love it, truly a testament for how resourceful you are and women are, I mean, part of my, my professional life is really about fueling women led innovation through venture capital and the funds that invest in them, because we really do see it as we see how resourceful especially in this time of a pandemic, right and COVID-19, where women have been, so just disproportionally hit. A 31% decline in venture capital funding in the first three quarters last year.
Just even looking at your story, I’ve seen so many personal stories like this, where women are just so resourceful, and, part of this sort of success story of why they also outperform because the good news, bad news is they’re underfunded. Because they’ve thought about cash management, thought about the resources around them, they’re able to push that a lot further in terms of runway and in terms of what’s next, and I’m glad to see that story in you as well. And, from being in poverty to then leading Rockefeller Capital Management, and then doing what you are now with some of the wealthiest families and foundations. I mean, that speaks very favorably for what you’ve done. So congratulations on that, Karen. And so, so thrilled to have you on as the first guest.
THE END OF IMPACT WASHING, OR IS IT?
Now, let’s turn to today’s topic, the end of impact washing, or is it? But for many of us who are tuning in as well, who might not be practitioners like you let’s set the stage for the topic here. What does impact mean? And why are we talking about impact washing? Is this misappropriated as a term. What are your thoughts here?
KW: Yeah, I love kind of the theme of our talk, because it’s really front and center and what I call a bit of sensationalism right now. And first I do want to call out that we are having this show in the month of Women’s History Month. And there is so much wrapped in this month around women and equal pay, and we’re 50 years from that decision and that legislation, but yet 39 years out from actually achieving it. So that’s that’s an almost 90 year gap, right? So kind of tuck that away.
But one of the things that I think last year unveiled more than any other time in history, is this perfect storm of kind of women’s inequity, racial inequity, corporate behavior, who the good actors are and corporations that can help solve community problems, and then really deep political fractures, right, that divided people and so we kind of came and then and then we saw kind of the healthcare inequity kind of exposed, front and center.
And so all of those were such sensational topics all of last year and still now, and the term ‘washing’ really comes from the kind of the origins of it around ‘greenwashing’. So if we think about environmental investments, about climate action, or think about renewables or think about the environment broadly, there has always been suspicion around it.
Is someone who’s overseeing that investment or that idea, really doing it or is it really just a veneer? If you unpack what they’re actually doing, what is the company actually doing? Are they actually moving the needle? Are they actually measuring the change the impact that they’re having?
And even if they’re trying to not do more harm, right, that’s a measure.
Like look, I’m going to stem the bleeding, right. And that’s also a measure.
So where we’re at in this moment in time, around washing and impact washing, take all of those themes. And if we kind of think about impact, what it means.
Let’s take education, for example, because that’s kind of near and dear to me, is we have right now a public school crisis in America, and then kind of call it America, since we’re with global listeners here. But we’ve had children out of school for more than a year. And for every trimester, a learner is not learning equals about 3% of future wages lost.
So if you think about, and that’s significant, that’s about 1.3 trillion in future GDP not earned. And so if you think about, okay, what can I do today, to change that story, that future story? And what kind of investment does that look like? And the impact you’re having is closing that metric, right? So we want to close the metric that is this future GDP loss, or this future learner unable to succeed in, in workforce, and on a livable wage, or better than right. And so that’s, that, to me is a clean example, because it really speaks to the human element of impact, a little bit different than, say, environmental impact.
What we’re trying to do in the environment is reduce pollution, carbon footprint we have. We have, a set of goals that the world has come together around to decide what I call impact themes. And there are 17 of them so that we can all arrive at a similar outcome, set forth by the United Nations, they’re called the Sustainable Development Goals. One of them is to eliminate global poverty. This is something very near and dear, another is to create equality and education. And so every country comes to these goals with different degrees of severity and trying to achieve them.
And so you and I, as investors, and capital allocators have an opportunity to say, Okay, what can I do then to contribute to this, this deadline, this looming deadline of the year 2030, where we should have parity on some of these inequalities. And so that when we’re talking about impact, that’s what we’re trying to get to, we’re trying to have this really big impact that we arrive at a place where there is greater economic participation, where there’s a better, more highly quality, higher quality health care distribution, we’re seeing the we’re seeing kind of America’s broken healthcare system today. And just how we’re distributing a vaccine, something a little bit straightforward, but somehow, we aren’t really managing that in a way that is very scalable.
So there’s impact to be had there. And then how who, who were the people that were really suffering through the pandemic, because we came into the pandemic. And it was such on equal footing, right in in a variety of our communities across the country, but largely disproportional, and I think you hit on it, disproportionately affecting women. And listeners may not realize that in the December unemployment numbers, the net jobs lost or 100%, owned by women.
And so that’s a setback to 1980 women entering the workforce, right, and the numbers of getting more and more women into the workforce. We now we took a few steps back. The impact we need to have is squarely our charge and who we fund, what does that look like and how we can actually bring more capital to the table to support what those unemployment numbers largely then it’s about, it’s usually about 50% Believe it or not, that ultimately goes to a place of I’m going to start my own business, I’m not going to re enter the workforce in the way that I was before. And I’m going to start my own business. And we’re going to see a lot of that springing to life here in the next year or two.
SC: Yeah, thanks for that, Karen. I think it’s interesting that you touch on a few points. But one thing I did want to pick up and you spoke about this, I believe on a Mission Forward as well, in terms of where we are, which I thought was quite a sticking point there that that left me really rethinking a lot of the work that we’re doing right, even in the venture capital space.
You talked about on that podcast, a little bit about the war on poverty. And the fact that, when this was a concept that was brought to life in the US, I believe it was in 1964 19% was the number right of Americans living in poverty. And now more than 50 years later, 2 million nonprofits later, where the sole purpose is tied to breaking the cycle of poverty, the gap has actually widened.
And it points to the fact that, doing no harm, it’s not good enough. And, especially now, and it would be remiss for me not to even mention, the moment that we’re in with the rise of, of hatred against Asian Americans, and just the rise of racial reckoning, the perfect storm of everything right now.
And investors are sort of sitting there, doing sometimes I think, it looks like more of the same. And my question is to you with with this as a backdrop right, of poverty being one of the goals that you work on. And of course, there are many other goals that we’re talking about here, that 17 SDGs. Where has investing in impact investing gone wrong here. And where are we going?
KW: Yeah, it’s, it’s interesting. And I talked on that podcast, I call kind of a triple threat, right? If we think about what we all need to kind of succeed, live healthy, productive lives, at centers around education, workforce and health care, right. And we’re at a moment in time where we’re deciding what of those things are necessities and should be borne by all and what are those things are personal choices worn by you?
Right, and where we have inequities, and especially in the education space, and then also workforce is really around. And this is where I think impact investing has gone wrong. And we have, and this is where impact washing is kind of coming in, is we have about 500 billion right now, that is an allocated to I would what I would call impact investment funds. Those look to be private offerings, right. So when I say that I want to separate from the kind of public markets and the theme around environmental, social and governance and what we call in the in the practice ESG. And so we’ll separate those out for a minute. And where the great influence where we’re impact investment hasn’t gotten the traction that it should have, or should have by now is largely Who’s Who are the stakeholders at the table? Right? So a lot of those funds originate with what looks like the same legacy, private equity and or hedge or venture capital funds. I would challenge anyone and then think there’s plenty of statistics.
That’s about a night like if you took an average, an average ownership group of impact fund, you might see eight men, two women, right, that are part of that. And then this the the odds look even worse, if you’re a person of color, having a stake in an impact fund.
So there isn’t this relatable body governing that capital. They have. There’s big, great ideas, but there isn’t the relatable person at the table that can lend the voice of what’s happening in the community.
What are you trying to solve? And do you have the person is that that lived experience in the room helping to challenge why something may or may not work. And so you, you end up having, some that survive, and we’re getting in there and then some shut down and close and don’t get the traction, some of the issue too.
And so just take lack of diverse lack of diversity, no different than in the corporate world, and especially in my space in finance, and lacks huge diversity in the upper ranks. Right. And that’s not lost on anybody here. I would suspect listening to the call. But if you if you take lack of diversity and you take the past 20 years where in some of the impact funds you don’t have, I would say policy supports so in in investment land a lot of times Till up until I would say the recent five years, you really had silos of who was going to oversee the capital and how that got influenced.
An impact investment entrepreneur wouldn’t so much be out talking about, okay, what are the policy supports? And what are those levers because I can’t actually succeed, or scale without certain policy supports, and whether those are federal supports or, or local municipal supports.
And I don’t mean tax subsidies in this way, what I mean really is legislation and governing bodies not getting in the way of improving something that we believe is a complete violation of how we should be living as people or how the planet should be continuing to breathe. Right. And right now, we have this wonderful moment in time where we actually have a more supportive administration. And is, as you saw quickly, we rejoined the Paris treaty agreement, we have also started to kind of bring back into legislation or opinions about who can and can’t invest in environmental social governance themes as institutional buyers.
So that is, that’s what I mean, there has to be there has to be an acknowledgement there, there really is a partnership between private enterprise and public policy. And I think that is, I think after last year, I think that the kimono is wide open, right? That, okay, there is a role to play the stakeholder umbrella is much larger than just the shareholder who made the initial investment, seeking just one, simple return, right? We actually announcing stakeholders throughout the employee ranks throughout the who, who even partner with in other vendors as a as a public Corporation. So all of those voices now are coming to the table and saying, Okay, now we need to be a little bit more transparent. And that’s been to the Washington comment, and a lot of the regulations that are coming out right now or opinions, I should say, from the SEC, and then also kind of bolstering what says the which is the sustainable Accounting Standards Board have laid forth as to, okay, there has to be, there has to be metrics that we’re going to be held accountable to. And there have to be transparency to investors that are buying into these kinds of ideas and themes. And that’s going to improve all of all of the capital inflows, I think, absolutely.
ENDOWMENTS AND STAKEHOLDER ACTIVISM
SC: Karen, I just want to, dig a little deeper here as well, and sort of layer it on in the context of endowments. What you’re talking about here is in some of the roles of the different parties, so not just the more the Warren Buffett type approach, which is, it’s you’re in it for the shareholder.
But now what we’re seeing and I’m also a Young Global Leader of the World Economic Forum, one of the popular things that are coming up is thinking stakeholder activism. And the fact that you’re in must do more. Part of my work is also speaking with pension funds, and a lot of them are really thinking hard about, wait a minute, money managers don’t reflect the beneficiaries that we are in business for right to support. David Swensen, Dean Swensen, who’s part of Yale’s $32 billion endowment who goes on to influence I want to say, a group of more than $100 billion combined.
So those who followed suit in his type of model, which again, has pros and cons, and there’s a lot of debate around that. But the fact that even at that level, they’re demanding a lot more, are you seeing this at your level with your work and endowments and foundations as well, in terms of, where does the investment go? And what does this mean, with regards to the practicality of stakeholder activism here?
KW: Oh, absolutely. Because if you think about, especially in private foundations, another kind of tax exempt silo, much like the endowments, and you have you have this requirement set forth by the IRS that, 5% kind of has to go out into by way of grants to achieve your mission, right, whatever it is. And if I take the foundation that I oversee, and an investment chair for, that’s a very clear mandate as to where that 5% goes and who you’re going to influence in the community, how you’re going to meet the objectives and in the, in the work I do with that foundation is around racial equity.
Right and then what happens to this other 95% of us a much bigger, much bigger pool of capital much bigger, lever to pool to actually have a voice and system change. And that’s, that has up until more recently, been siloed as two separate objectives, two separate agendas, right. And now what you’re seeing is wait a second, I’m actually invested in things that are antithetical to what I’m distributing out the front door by way of grants.
So I’m a practitioner who really firmly believes in looking at the entirety of it holistically, and saying, okay, can you actually have some influence on the investment piece, that you can create mission aligned investment programs, and that’s very much happening. And where you just have to think about, okay, who is the governing body that you’re reporting up to, in private foundation land a little bit different than endowment and 401k and benefit corpse, through the Orissa kind of a recent legislation that now they are asking because they have other stakeholders, like you said, if you take even a university endowment, you’ve got students now kind of writing the schools and demanding the overseers of the endowment to be investing for the future as it relates to and I’m a good example with the environment.
One college I was working with they they were getting so much pressure, the the governing body over the endowment wasn’t really there looking at the the absolute return and traditional financial sense, and not this other lens of impact. And they didn’t start to actually kind of change their thinking, until the next generation and the student body, we’re approaching them and saying, Wait a second, you’re investing the endowment, all these things that are actually destroying and in, going against what we’re trying to achieve with regard to, in this case, climate change and global warming. And that that’s that un University came to me and we start thinking about, okay, well, what, how can you re situate your portfolio?
How can you allocate this capital in a way that supports also what the mission is for this university? And what the student body is expecting to kind of leave a legacy around? Yeah, this capital.
So that’s a big ‘Yes’, that’s also the reason that you’re seeing more products being created that need more oversight, so there isn’t the washing? And so I think that’s what’s getting a lot of attention right now is, how do you actually oversee all the product creation and so that all these governing bodies that have to do due to conduct due diligence on each of these ideas, is able to actually understand them? Right, that they they can they can actually point from Okay, my dollar did this started here. And this was the goal, and I made this kind of progress. And or this is patient capital, right. This is like, longer than 10 year runway kind of ideas.
ESG & MILLENNIALS
SC: Yeah, Karen. One of the key points you brought up is the demands of working with the college endowment and how the students came out and said, we demand more from the investments that you’re making and climate, of course, being front and center of ESG. And, in sort of reflecting on some of the trends that we’re seeing here, going to the why part of why impact investing and why this matters, right? Millennials are the largest consumer market today. And the older Millennials are at their prime spending age and their attitudes towards sustainability is just unmatched.
Morgan Stanley reports that, at least in the US, and I think we’re seeing this in Asia as well, that millennials tend to purchase from sustainable brands twice as much. And we’re most likely I think it’s three times more likely, you know, choose to work with a company that has sustainable practices. So that’s one trend.
The other one is, further to I guess what David Swensen and the Larry things of the wall are talking about is, and this is the part of ESG that I want to unpack with you a little bit is 80% of assets are now allocated to ESG assets under management are allocated to ESG, globally, and this will climb to about 40% in the next five years. So, you know, when people ask me why, why should I think about sustainability? And my simple answer is, well, if you can shut yourself off as a company, you’re looking for capital, and if you can shut yourself off from 40% of capital, then fine, don’t do anything. But it’s still a conversation. So where are we in this? ESG?
And, again, an area that I’m passionate about is gender seems to be left behind in the conversation on climate and all that. So can you talk to us a little bit of what you’re seeing in the market from an ESG standpoint here?
KW: Yeah and that’s exactly right. So Larry Fink has been a really part of the Business Roundtable.A group of CEO leaders, what led by Larry Fink have have come out in that roundtable and he publishes this in his annual letter, I’m really calling on corporations to take some responsibility to consider the role they play in stakeholder capitalism. And then that’s leading to some traction around, how do we reimagine what capitalism should look like for everyone to participate and more more equally. One of the things to this statistic, the USSIF, which is the United States sustainable investment forum that is headed by Lisa, they do some fantastic data tracking and, and just the inflows. So to your point how much is invested in a fund that identifies as ESG, right.
And so they don’t have to do all three of those things, the E/S and the G, they can just do one and they might, they would qualify for that. That grew four times, four times larger in volume, from 2012, to 2020.
So just to kind of show the proliferation of funds that are standing up and saying, hey, we are an ESG, themed fund, what was really interesting as you unpack it, based on it, and really the call to action that Larry Fink and others have have expressed in kind of corporate sustainability and the role that corporations play throughout their verticals, right are a company may not identify as an ESG company.
But they certainly have a lot of they have CSR teams, corporate social responsibility teams that are checking a lot of boxes that could qualify them to meet a lot of the sustainability criteria. And so there’s that intersection happening. So that dynamic is happening across the s&p 500. There’s an organization and I think, hugely, that pulls the American people to your point on millennials, and kind of what they what they think that the highest needs are and who might be responsible for satisfying those needs. And overwhelmingly all Americans not to end up the poll came in on that about 70% of the Americans that were polled, said, Yes, corporations have a responsibility to play here. They can help close the wealth gap, they can help close income gap, they can help improve diversity throughout leadership ranks, they hold the power, right. And so it’s not just about figuring out what the next entitlement programs should be in this country.
I don’t believe that’s the answer.
I think it’s about how do we actually use the capital markets to benefit all with more voices in that conversation, I think we’d be better in the future. We can only you can only grow the entitlement pie so big, right? Because it has to be funded from something. But that’s where you’re seeing and just a funny story, I was buying some new school shoes for my son, and the ones he picked out. And he picked out because they had a sign on them that said that the shoes were made, it’s Adidas makes some it’s a certain line of Adidas. That says that this is made entirely from ocean recycled ocean plastic. Right. So that so the next generation is very much aware of their role and the footprint Pun intended that they want to leave.
SC: Yeah, well, Karen, we could go on and on. But this is a short Power Hour, while 30 minutes and then we’ll go on to clubhouse very shortly to open it up. But let’s get practical here. You advise your clients from the wealthiest family offices to the endowments and foundations to do the right thing, right to invest their dollars and skill, skill impact in a meaningful way.
And today, I was on a separate room on clubhouse where there was a bit of a debate on the fact that is, unfortunately, for certain parts of impact, you can’t activate that to get market returns.
And then another leader that said that eventually we’ll get to a place where impact investing isn’t even a thing because everything that we’re investing in has to tie in with impact. So how do we do this? How do we design for impact? Practically what what are the billion dollar moves here that we can take? I mean, we’ve got VCs, I see VCs, I see some senior leaders on the call here that are leading the charges in different ways. But how can we design for impact and do that at scale?
KW: Oh, I think it will first. I do agree with that. I think if you do you have to make investments that are not in ignorance of what the policymaking is doing, right? So if you’re looking at an investment and all the policy wins are against you, it might not be successful by any metric plan. Otherwise, the big moves that you can make. And if you think about where the, especially in the venture capital world where you think, where you see the business growth sector happening, and basically, Latin women, black women, those are the largest by headcount, new businesses forming in America, I get behind some of those ideas.
I would start to actually put money where you think the system needs changing. those particular groups have not had digital legislative, legislative headwinds, and banking regulations, we’ve had over the years have not had access to capital in the ways that other other individuals have other other white folks have had. And so I would get behind those ideas, those are going to be big billion dollar moves. And they there will be success from that, and especially coming off of the end of the unemployment numbers, specifically targeting women, because they were the caregivers, teachers, hospitality workers, they covered most of the sectors that were battered last year. And so there’s going to be a big sea change of power and where those women start to come back into the workforce.
And so supporting companies that hire women, so whether you’re doing this from a consumer perspective, or whether you’re doing this as an investor in a company, look at who they look at who they’re who their client, their their, their customers are with their employee makeup, what they look like, what their boards look like. So really kind of put your money where your mouth is, if you actually believe that we all have the power to succeed that fund those ideas, right? Like, fund them, just as you would have found, just as we would have funded a similar idea owned by someone that doesn’t look like us, right. So there’s going to have to be a little bit of a leap of faith for some people. But I think that’s where I’m very conscious of who I, what companies I shop with and make purchases from, and what brands website I love is no chain.
And so I look at know, the chain, you can have a great deal of influence and not supporting organizations that are doing the harm. And those are easy consumer ways. And then the investor ways are actually are actually to back some of these impact things that are actually right behind the system change. Great.
SC: So playing a role in sort of pushing your influence as a consumer. And as an investor, I guess from an LP GP standpoint, as well, trying to move the needle here. And I think that’s what a lot of the folks on the call and that are watching are really trying to do. So with that. Karen, thank you so much. I think we really tried to jam in as much as we can on impact, where we are just opening the kimono, running through a lot of key trends here from the rise of millennials to ESG and just how important that is in moving forward.
Thanks so much Karen for running through all that!