PIPE: Impact investment’s next big opportunity

Impact investment continuously is informing and facilitating the ongoing transformation of many private firms and industries for the betterment of the world’s financial, environmental and social sectors.  This effort is based on an accepted and measured corporate environmental, social and governance (ESG) framework.

The next great challenge and opportunity for impact investment, particularly for family capital with impact return mandates or those beginning to explore this segment, is within the public sector’s traditional (physical/hard) and civic/social (housing, education, health and community equity) infrastructure projects.  

To realize these opportunities, impact investors now can collaborate on the transformation of the public sector and create a larger, viable impact investment sector. To create this transformation, current efforts of fostering an ESG-type of Public-Impact-Private Ecosystem (PIPE) for civil society are underway.

The transformation of civil society into an impact sector through PIPE represents a substantial global market.  According to the World Bank, the global need through 2040 for traditional infrastructure including clean water, sanitation and electricity is $97 trillion.  Of that amount, there is a global market opportunity of $18 trillion represented by the current estimated funding gap. The US alone represents the largest single funding gap of $3.8 trillion.  This funding gap and market opportunity does not represent the global needs for civic/social infrastructure. According to McKinsey & Co. that global need through just 2020 is $8 trillion.

PIPE provides significant benefits and participation for the following groups: 

• Public sector (cities, states and provinces)
• Family capital with impact return mandates
• Impact investors and funds 
• Technology and design solution providers
• Community engagement groups
• Developers and Project Sponsors
• Academic and research institutions
• Foundations

For PIPE, “convergence” is the game-changing proposition. Rapidly developing and intersecting trends are overwhelming public sector policymakers and communities alike.  These “convergence” trends result in:

• the unmet and detrimental impacts of climate change on environmental, economic, social, health and cultural systems;
• constantly changing and often confusing plethora of technology and design resilience/sustainability, Smart Cities, meta-data, and IoT proposed solutions to address challenges; and,
• growing inability for municipalities and communities to keep up with these developments and fund solutions, including the increasing pressure of climate and resilience impacts on communities’ ability to rely on municipal bond financing for traditional and civic infrastructure.

Therein, “convergence”, this often messy, technical, and complex new space, provides PIPE its unique opportunity and value proposition.  In the US, PIPE as a step-change transformative agent:

• allows a consistent investment framework, based on quantifiable and comparable metrics, to activate the $77 billion portfolio of impact investment funds and the $1.7 trillion in family capital in the US to meet the needs of the growing $3.8 trillion funding gap for US traditional infrastructure, as well as the greater funding gap for civic infrastructure;
• enables the public sector through active engagement with an impact investment ethos to understand, embrace and transform into a significant and responsive ESG-based civil society stakeholder; and,
• creates an investment benchmark for both impact investors and civil society decision-makers from which to act.

As with all journeys, PIPE’s first step, its framework development, is underway. The framework mandate allows cities, impact investors and family capital to pursue and reap financial, environmental and social returns on traditional and larger portfolios of civic infrastructure investments according to financially viable and socially needed impact-based decisions.

However, the framework’s initial hurdle for PIPE’s potential beneficiaries is ‘comparing apples to apples’. Currently, cities, impact investors and family capital do not have a common set of measurable or agreed upon categories; and, quantifiable and comparable metrics for those categories.

To overcome this hurdle, Atonix Digital, a technology subsidiary of the global Black & Veatch Corporation, has developed an impact convergence platform, with an associated Proof of Concept (PoC) pilot underway.

Atonix Digital is engaged in a data-driven systems-approach effort to enhance its investment and project management tools into a more robust impact convergence platform beyond its traditional large power and energy complexes and dive deeper into civil society investments needs.  The platform is based on proven current and in-process improvements for project origination, risk, return, and performance reporting. It will serve as a multidimensional digital scorecard to address convergence for the range of PIPE’s beneficiaries within the resilience/sustainability and smart cities/communities market in the US and across the globe.

The platform provides cities, family capital and impact investment funds as the first cohort with:

• quantifiable and comparable metrics and data; and,
• the ability to use this data to determine and demonstrate concurrently return on investments for the investor and a city’s major traditional and civic infrastructure projects and related investments from financial, environmental and social perspectives.

To capitalize on these benefits, the initial cohort of cities, family capital, impact investors and world-renown research institutions have been convened in a PoC pilot initiative to:

• develop, test and implement the categories and metrics areas to be measured to determine financial, environmental and social ROIs for traditional and civic infrastructure projects; and,
• provide test case opportunities for impact investors and family wealth offices to allocate investments to infrastructure projects within the pilot cohort cities to demonstrate the viability of the impact convergence platform as a financial, environmental and social investment decision tool.

The platform is both a convening and decision-making support tool.  This tool will be used in a larger PIPE opportunity – a resilience impact action tank.

The resilience impact action tank combines a policy and best practices “think tank” resilience impact institute with an “action tank”.  The action tank encompasses a portfolio of technical, design, finance and policy experts for cities and states. Its value proposition to targeted US and global communities, within the PIPE framework, is to assist them in creating a systems approach to address the challenges and opportunities associated with the rapidly changing physical, financial, social, political, academic, cultural, health and cultural environments.  

Therefore, by addressing the challenges and opportunities in this manner, it allows communities and strategic partners to envision project improvements and structure projects and investments accordingly.  

The action tank value further assists family capital and impact investors with the technical resources and deal flow into new investment markets previously served solely by the municipal debt market and managed exclusively by the public sector.  

To date, the public sector is often a high barrier to new firms with proven technologies that need a major portfolio of projects to scale – often times in markets controlled by the public sector. Today’s current public bid process precludes rapid technology advancement and inhibits the solutions and benefits inherent in innovative and disruptive technologies. The action tank special purpose vehicles allow access to services and technologies outside the traditional, lengthy and cumbersome public procurement process creating both time and cost efficiencies.  Moreover, it gives technology investors with disruptive emerging technologies access to prequalified markets.

Concurrent with the impact convergence platform, the resilience impact action tank is moving from concept to organizational implementation.  This advancement is a result of the collaboration and efforts of both thought and practitioner leaders in industry, finance and leading global research and innovation centres.  

We encourage participation from other potential PIPE beneficiaries in both the impact convergence platform and the larger resilience impact action tank. We look forward to exploring this journey with you.

The Authors

Paul J. Carroll

Principal, John Joseph Advisory LLC

Carroll has 25+ years of global, national, regional and local strategic private and public sector entrepreneurial executive leadership experience.  He is a thought leader and practitioner in transforming the challenges of climate and social change into financial, economic and employment opportunities for communities, impact investors and solution providers.  He is an alum of the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, DC.

Sheila English

Principal, LCCH, LLC

English has 25+ years of experience as a senior corporate, investment and municipal advisor.  Her experience includes investment, advising on the establishment of family offices, multi-million-dollar innovation and technology mix-use development projects, municipal restructuring and major capital projects.  Her public sector experience ranges from leading all capital projects and related budgets for the City of Boston, to the full financial and administrative restructuring as chief finance officer of one of the US iconic historic cities. She is an alumna of the Harvard Business School.