Progress Pledge/Bretton Woods II

The ProgresS Pledge is the cornerstone of the proposed Bretton Woods II framework for encouraging impact investment, development financing, and civil society support. The Pledge has three main components:

1) Signatories dedicate at least 1% of their assets or profits to social impact investment, development finance, or civil society support.

2) These resources are focused on countries that adopt basic standards of accountability, transparency, and citizen engagement with the goal of encouraging better governance.

3) Signatories support regulatory reforms developed by the G-8 Social Impact Investment Task Force and National Advisory Boards on Impact Investment. These changes eliminate red tape around impact investment and incentivize asset holders to direct resources toward projects that provide broader benefits to society.

Context

Pension funds, charitable endowments, and sovereign wealth funds control over $25 trillion in assets worldwide. As investors, these groups share two key attributes: first, they have unusually long time HORIZONS. Pension liabilities extend across decades, and endowments and sovereign wealth funds are often designed to operate in perpetuity. Second, the holdings of these investors span every region and sector. They are too big and too broadly diversified to hide from market volatility. When the world economy prospers, their assets grow. Conversely, when world markets falter, it undermines the ability of these investors to realize their long-term financial objectives.

Asset holders in these groups derive significant benefits from reductions in market volatility. A $1 investment that returns 8% annually will generate $46.90 over 50 years – $1 from the original capital, $4 from the 8% return, and $41.90 from compounded returns. However, long-term investment gains drop off sharply in a volatile market. The same $1 invested at an average 8% return in a market with a standard deviation of 20% will only produce $18.42 over 50 years. Due to the effect of volatility drag, the return from compounded growth is only $13.42, less than a third as much. Despite the fact that large asset holders clearly benefit from reduced volatility and related improvements in the investment climate, they rarely use their assets to influence these variables.

Role of Social Sector Actors in Reducing Instability

The work of civil society can play a key role in reducing root causes of market volatility. For example, health clinics in poor countries reduce outbreaks of infectious disease and organizations that work to reduce conflict and corruption help address sources of political instability. In recent years, innovative civil society organizations have started using financial instruments that were previously reserved for actors in the private sector. For-profit impact investments in projects such as clean power generation in poor countries or health infrastructure are playing an important role in creating an environment that is conducive to stable, long-term economic growth. Large asset holders stand to derive significant financial benefits if civil society organizations can leverage new resources to improve governance, reduce conflict, and tackle other root causes of market volatility.

Supporters

Dr. Tomicah Tillemann, who previously served as Senior Advisor to Hillary Clinton, John Kerry, and Joe Biden, directs the initiative from the New America Foundation. The Pledge has drawn support from a broad range of leaders and experts at organizations in civil society and the private sector including Bono's ONE Campaign, the United Nations Foundation, the Center for Global Development, the Aspen Institute, the State Department, and the World Bank.

The Pledge

The Project Pledge, developed brings together large asset holders around three goals designed to address this opportunity: 1) Investors will dedicate at least 1% of their assets or profits to social impact investment, development finance, or civil society support.

2) These resources will be focused on countries that adopt basic standards of governance, accountability, and citizen engagement. CalPERS, the largest non-federal pension fund in the United States, has pioneered similar guidelines. A version of these rules would be developed to serve the needs of a broader array of investors. This effort will create a multibillion-dollar incentive for good governance and citizen engagement grounded in successful principles in use by the Millennium Challenge Corporation.

3) Providing support for regulatory reforms developed by the G-8 Social Impact Investment Task Force and National Advisory Boards on Impact Investment. These changes will eliminate red tape around impact investment and incentivize asset holders to direct resources toward projects that provide broader benefits to society.

A large consortium of organizations working with the New America Foundation have joined the effort to build out the analytical case for impact investment, assess potential returns from different impact investment strategies, and develop metrics for gauging impact. The partners are working to demonstrate that asset holders have both a vested interest and a fiduciary obligation to pursue impact investments that reduce market volatility, improve governance, and advance Sustainable Development Goals.