Judith Rodin Discusses Impact Investing in a Post-Pandemic World

As capitalism rapidly changes, how can private capital better link purpose and profit? Judith Rodin, philanthropist and former president of the Rockefeller Foundation, joined SIPA on February 10 to discuss the answer.

Rodin is the co-author of the very recently published book, Making Money Moral: How a New Wave of Visionaries is Linking Purpose and Profit and serves as an adjunct scholar at SIPA. She was joined in discussion by Dean Merit E. Janow and Keiko Honda, an adjunct professor and senior research scholar at SIPA who focuses on environmental, social, and corporate governance, known collectively as ESG.

Rodin spoke about the motivations behind her book, trends in impact investing, and the challenges of measuring impact.

Making money moral, Rodin said, happens when the world of finance meets the world of impact. When she and co-author Saadia Madsbjerg first started working on the book, impact investing was a rapidly growing sector. More and more, people were realizing that making a profit and making an impact were not mutually exclusive. 

Two main trends underpin the writing of the book and the rise of impact investing, said Rodin. The first is conscious consumerism, which increasingly influences consumer behavior these days, especially among millennials. Consumers pay attention to business practices before making decisions, Rodin said, and they’ll avoid spending their money on items like sweatshop-made clothes or companies that cause environmental degradation.

In addition to more careful consumer choices is the growing opposition to the traditional notion of shareholder primacy advocated by Milton Friedman and others. Throughout the past decade, people have begun emphasizing the importance of taking into account a broader group of stakeholders, including workers, communities, and the environment. As this concept of responsible capitalism takes hold, Rodin said, her book helps contextualize and showcase the most promising investors and strategies.

One major concern in the impact investing field is the lack of standardized metrics for measuring performance. Not everything deserves the impact label, said Rodin, and the primary purpose of the ESG label is signalling and screening. To her, ESG signals a commitment to social responsibility, and screens out companies that partake in damaging activities. But in the future, monitoring the effectiveness of the investment will be critica. Honda echoed this sentiment and agreed that there is a need for a clearer definition of “impact”. While there has been an explosion of sophisticated metrics, Rodin said they are proprietary and thus don’t solve the challenge of standardization. 

The conversation then turned to future changes in the impact investing field. The pandemic, Rodin said, has escalated our awareness of the connections between health, the economy, and the environment. Rodin expects the environmental aspect of ESG to expand to include water issues and biodiversity as well as climate. A focus on worker health and safety will grow within the social sector, and the governance question will be whether corporate leaders take a stand.

Rodin also sees a growing role for NGOs with on-the-ground experience to partner with investors and companies. The expertise held by NGOs could be invaluable, especially through sharing resources and conducting research like community assessments. One example is that of UNICEF, which has often partnered with corporations for social impact.

An audience member asked whether there are downsides to emphasizing rigorous measurements of impact. Could it cause companies to avoid investing in difficult problems? Rodin responded that the goal is not to turn profit for every social or environmental goal, it’s more to make corporations understand that there are opportunities in impact investing. But impacting investing will not replace philanthropy or development aid, said Rodin, and clarifying the difference between what is and is not investable is important.

Rodin closed with thoughts about the COVID-19 pandemic’s impact on the investing field. The effects of COVID, as well as the many movements for social justice in 2020, have really highlighted the view that financial markets cannot outrun social and environmental risks. Rodin believes that these trends will accelerate the transformation of capitalism. Companies will have to consider resilience, and individual recovery plans won’t be enough—transit systems, healthcare systems, and more can affect a corporation’s operations and that interconnectedness is becoming more obvious. 

“We need to recognize that crisis is the new normal,” Rodin said. While fixing problems and mitigating impacts is important, resilience and adaptation cannot be abandoned.

—Aastha Uprety MPA ’21

Making Money Moral: How a New Wave of Visionaries is Linking Purpose and Profit

February 10