Supporting Innovation in Impact Investing
For over 20 years, Capricorn Investment Group has acted on the theory that impact investing—investments made with an explicit intention to generate measurable positive social and environmental impacts—can also enhance long-term risk-adjusted financial returns. Today, Capricorn manages approximately $9 billion in client assets and invests these assets through multiple partnerships to advance progress in areas such as climate change and income inequality.
“Capricorn is doing something different and innovative in the impact investing space,” says Peter Grunert, principal at Bridgespan. “We’ve seen a lot of big institutional firms set up impact funds, but those fund leaders often started out as finance experts and are just now climbing the impact investing learning curve. Capricorn’s thesis is that we need people who are impact driven at their core pushing innovation in the field.”
In 2019, Capricorn launched its Sustainable Investors Fund (SIF) with a plan to find asset-management firms with new and innovative approaches to addressing major environmental and social challenges in which to make early-stage investments. The goal, as Capricorn states in its 2021 Levers of Impact report, was for SIF to catalyze the growth and development of “the next generation of market-leading asset-management teams with environmental or social impact at their core.”
“With years of experience in impact investing, we have gained an advantage in recognizing market gaps,” says Mandira Reddy, director of investment analytics at Capricorn. “Launching new investment funds—especially impact funds—is not easy. By making early-stage investments in these firms, Capricorn acts as an anchor investor, which can help accelerate the firms’ progress.”
As an anchor investor, Capricorn gives the high-potential teams launching these new impact funds immediate credibility. At the same time, SIF is more than just a passive allocator of funds. “By taking an active approach and bringing our full skillset to the table,” Reddy says, “we are able to help these fund managers scale up their investment strategies in many ways.”
Through SIF, Capricorn has made investments in more than a dozen asset-management firms. Capricorn helps these firms make connections to other mission-aligned or impact-oriented investors and supports them in developing the operational infrastructure required to manage institutional capital at scale. This lets these next generation asset managers focus on what they do best: developing and executing innovative investment strategies. In addition, SIF is structured to support these firms by adding capacity in other areas, including impact integration, operations, and marketing.
“In collaboration with Bridgespan, we have also done a lot of work with the SIF firms around impact integration,” says William Orum, partner and member of the investment committee at Capricorn. “In these areas, we focus on helping the SIF asset managers hone their narrative and develop a credible theory of change backed by supporting data tracked through key performance indicators.”
Achieving Impact Through the Sustainable Investors Fund
Bridgespan Social Impact1 worked with Capricorn to articulate the impact thesis for SIF and test its credibility. “We helped Capricorn think through how they would assess the impact of the fund,” Grunert says. “We also codeveloped the impact framework that Capricorn uses to assess any potential investment they make through SIF, and we made sure that this framework aligned with both industry best practices and Capricorn’s own internal decision-making processes and culture.” Over the years, Bridgespan and Capricorn have continued to improve and refine that impact framework, which is now in its fifth iteration.
“When we tell the story of SIF 10 years from now, I’m confident we’ll see that the end result was to create a group of successful, impactful, and unique asset managers.”
—Kunle Apampa, Head of Client Solutions and Partnerships, Capricorn
Although SIF has only been up and running for a few years, Orum says that Capricorn is very encouraged by the impact the fund’s asset managers are achieving. “One of our theories coming into this was that SIF should be a highly diversified platform to enable different forms of impact,” explains Orum. “I think we have created a portfolio that is reasonably diversified in terms of duration, geographies, and impact angles, but is all connected by the same theory of using commercial capital to effect transformational change.”
Bridgespan Social Impact continues to share its expertise with SIF. For example, Orum highlights Bridgespan’s involvement in helping one of SIF’s asset managers hone the gender-equity component of its mission to bring responsible financial solutions to underserved communities.
More recently, Bridgespan’s work included interviewing all of SIF’s asset managers to collect key insights, which Capricorn published in Levers of Impact. “We don’t see these impact reports as marketing vehicles, but as tools for learning about metrics, narratives, and best practices that we can share with the entire impact investing sector,” Reddy says. “Our hope is to create a blueprint for what other managers can do. While we want to create impact through SIF itself, it’s even more important for us to influence the market.”
The Potential to Create Transformational Change
Kunle Apampa, Capricorn’s head of client solutions and partnerships, believes SIF will give Capricorn an opportunity to educate the investment industry on the fundamental role impact can play in asset management. “Rather than talk about impact investing, we want to be able to point to real, tangible examples and portfolios that demonstrate value-add, both from an impact measurement standpoint as well as from a financial returns perspective,” Apampa says. “I’m really excited about the potential for SIF to spark transformational change over the next few years in how assets are managed. If we can prove the value of SIF’s investment thesis, then this approach and philosophy can then translate to much larger portfolios.”
Apampa takes pride in the work Capricorn has done to help SIF fund managers scale and grow. “We have put in the time, energy, and resources to join on the ground floor and help our fund partners figure out the landscape and build their business,” he says. “When we tell the story of SIF 10 years from now, I’m confident we’ll see that the end result was to create a group of successful, impactful, and unique asset managers.”
1. Bridgespan Social Impact collaborates with asset managers and institutional investors who seek to generate market-rate returns alongside measurable social and environmental impact. It is a wholly owned subsidiary of The Bridgespan Group, a global nonprofit that strives to make the world more equitable and just.
Capricorn Investment Group was formed in 2000 as an independent investment partnership with Jeff Skoll, the Skoll Foundation endowment, and the Skoll Fund. Capricorn invests through three main channels:
Outsourced Chief Investment Officer (OCIO): A full-service investment manager for mission-oriented investors with long-term, multi-asset-class portfolios.
Sustainable Investors Fund: A private equity partnership providing seed capital to asset-management firms with innovative approaches to global issues.
Technology Impact Fund and Growth Fund: Venture capital partnerships investing in deep technology companies with climate solutions.