Just weeks before the US Department of Labour (DoL) proposed to limit pension funds’ ability to invest in ESG-focused funds, rattling the responsible investment industry globally, the Tipping Point Fund on Impact Investing (TPF) announced new grants to help organisations develop public policy on issues like fiduciary duty and ESG.
The matter has been a “political football” for years, says Fran Seegull, Project Director for the TPF and the Executive Director of the US Impact Investing Alliance. She says the recent DoL announcement reflects the need for a better understanding amongst policymakers and regulators about ESG and impact investing.
B Lab, the NGO that certifies ‘responsible’ businesses as B Corporations, has received a grant from TPF to create a white paper on new fiduciary standards promoting increased accountability on how business operations and investment decisions impact stakeholders. Seegull says this will provide “a different kind of perspective on fiduciary duty” than the one implied by the recent DoL bulletin.
The Principles for Responsible Investment is also a grantee, and will develop recommendations and advocate for US policy that aligns financial regulation with consideration of impact in investment processes.
Seegull adds that, separately, the US Impact Investing Alliance plans to write a letter on the DoL move. “We have seen more and more money flowing into ESG funds. And during the Covid era, ESG funds outperformed non-ESG funds,” she says. “So, whether it’s the demand or the performance aspect, we think that this Department of Labour bulletin is really out of step with the reality of the market in the US.”
The TPF’s grantmaking on fiduciary duty and ESG came, fortuitously, at a crucial time for the topic, as many now seek to challenge the DoL announcement. However, it is no coincidence that the TPF has given out grants for policy work in the run up to the US presidential election in November.
Seegull says: “The group of eight grantees will start developing approaches to public policy that will position impact investing and those of us that represent private capital for public good really strongly in the next presidential term, no matter whose term it is.
“Our philosophy has always been that impact investing is something that has real appeal across the political spectrum. It is bi-partisan. So the idea with these public policy grants is to get the innovation cycle going now, so that by the time we have the inauguration early next year, there are some really robust policy ideas for the Administration’s consideration; and for Congress.”
The TPF has 11 funders, mainly foundations, who have donated $14.2m for its work.
“The goal is to help fortify and scale the impact investment field. We looked at a range of areas for potential funding, and which ones were best suited for grant capital versus functions which will be built organically by the market. We selected two areas for funding: public engagement & policy and data, metrics & measurement,” says Seegull.
Eight organisations have received grants ranging from $50,000 to $135,000 to start the policy work.
The Center for Strategic & International Studies, for example, has received a grant to hold a series of roundtable discussions and develop a policy brief with recommendations on how to foster micro-, small- and medium-sized enterprises through development finance strategies. Seegull says it will look at what the US can learn from other countries.
“We have always thought that there are places around impact investing and development finance where the practises in emerging markets are actually more sophisticated than in the US. And so we're always very eager to learn from those lessons.”
And, in the context of Covid-19, Seegull says grantee Opportunity Finance Network’s work on tax incentives and community development financial institutions is important.
“Community Development Finance Institutions are situated in low- to moderate-income communities and lend to small- and micro-businesses and underserved communities that the banks don't get to. So Opportunity Finance Network will use the grant to help develop some tax policies to incentivise private investment into community development finance institutions. We really believe that community revitalisation is essential to building back better from Covid-19.”