In April 2015, heads of the world’s leading development institutions issued a joint statement calling for a paradigm shift in how the world finances social impact. They recognized that achieving the Sustainable Development Goals (SDGs) would require mobilizing capital far beyond what is available through traditional development assistance and philanthropy. The Bretton Woods II initiative is helping to face this critical challenge using groundbreaking analytics, advocacy, and financial tools to channel part of the $25 trillion controlled by long-term asset holders toward social impact, sustainability, and good governance. Bretton Woods II is reframing the value proposition around impact investing by demonstrating that properly targeted investments not only generate competitive risk-adjusted returns, but also reduce broader exposure to long-term risks and volatility. As a result, the key question for large asset holders is no longer whether they can afford to make investments in social impact, but whether they can afford to miss opportunities for investments in social impact. New America, the platform for the initiative, is a nonprofit, nonpartisan civic enterprise that enables collaboration among the public, private, and civic sectors to find solutions to major challenges.
The Right Thing to Do, The Smart Thing to Do
Pension funds, endowments, and sovereign wealth funds are too big and too diversified to hide from volatility. Norway’s sovereign fund alone controls an estimated one percent of all stock markets worldwide. Due to their diversification and multi-decade time horizons, these large financial actors are particularly vulnerable to the costs of volatility. At the core of Bretton Woods II is a realization that large asset holders with long timelines can increase their overall risk-adjusted returns by adopting investment strategies that help address root causes of volatility. The initiative is creating a new business model for strategic capital ownership that goes beyond identifying individual investment vehicles that maximize profit and minimize risk, and instead focuses on deploying capital to shape a landscape that will allow for higher risk-adjusted returns over the long run. The initiative aims to unlock at least $250 billion in new resources to address challenges such as climate change, disease, bad governance, and weak infrastructure.
Bretton Woods II provides the architecture for partners in the private sector, government, civil society, and international financial institutions to advance three objectives:
- Deploying a percentage of the assets controlled by pensions, endowments, and sovereign wealth funds toward social impact investments that address root causes of volatility.
- Leveraging the investment strategies of long-term asset holders to incentivize higher standards of governance and accountability. This creates a multibillion-dollar push for reform and helps address a key driver of volatility.
- Pursuing regulatory and tax changes that encourage financing for social impact, including recommendations developed by the G-8 Social Impact Investment Task Force and National Advisory Boards on Impact Investment. These changes are helping to move resources toward projects that provide broader benefits to society.