Perspectives on Corporate Responsibility
Impact Investing: A Look Back to Pave a Path Forward
By Lata Reddy, Vice President, Corporate Social Responsibility.
Twenty-five years have produced several important lessons learned that can collectively shape more effective future investments.
Impact investing possesses enormous potential to direct much-needed capital to the most pressing issues our society faces, including education, affordable housing, job creation, and training – all of which are often more acutely felt in urban environments.
Prudential Financial was founded more than 140 years ago with a clear purpose: to give working families a way to protect their financial well-being. For more than 40 years, impact investing has been essential in delivering on that purpose. We formalized our impact investing program in 1976, and since that date we have invested over $2 billion in organizations that advance our mission of creating opportunities for financial security. We presently hold more than $500 million in active investments, with a commitment to build a $1 billion impact investment portfolio by 2020.
As we reflect on the 25 years since the founding of Living Cities, which Prudential helped lead, there are important lessons learned that collectively shape even more effective future investments.
Increased access to capital: When I first joined Prudential in 1997, there wasn’t a single mainstream banking institution on Broad Street in our hometown of Newark, NJ. Today, nearly every major national lender has a presence there, making reasonably priced credit available to borrowers who fit their standard profile. There are still massive holes in the market— particularly for non-traditional projects and borrowers—but it is undeniable that access to capital has made considerable gains, and some institutions are becoming more creative to address identified gaps. One example of this creativity is the Newark-based City National Bank of New Jersey (CNB), one of the ten largest African-American led banks in the country. CNB suffered significant losses during the recent financial crisis, but finished a successful recapitalization in 2015, motivated in part by the bank’s desire to serve emerging underserved communities, including immigrant populations. Prudential invested in the recapitalization because we believe that banks with their roots in local communities are a critical part of the necessary financial services landscape.
A higher-capacity system for building affordable housing: When the Low-Income Housing Tax Credit was created in 1986, the federal system for providing affordable housing shifted away from fully publicly controlled programs to an array of incentives designed to catalyze private action. This has created an incredibly robust array of skilled practitioners and effective implementation systems across the country working to make affordable housing a priority. At Prudential, we’re committed to using our capital to finance projects that connect housing to broader economic opportunity. For example, we’ve invested in the redevelopment of Newark’s iconic Hahne & Co. building, which will include 64 income-restricted apartments adjacent to over 75,000 square feet of retail space (including a Whole Foods) and 50,000 square feet of educational space via Rutgers-Newark.
Better metrics: As the impact investment sector grows at a rapid pace, there is a growing need to focus on rigorous impact measurement. The creation of the Global Impact Investing Network (GIIN) and B-Lab, organizations dedicated to building a framework of metrics and standards around impact, raised the profile and capacity of the field to attract new sources of capital and hold itself accountable to its stakeholders. By pushing for and utilizing these standards, impact investors have seeded the ability for those outside the space to understand and assess impact in their portfolios.
Blind Spots and Future Priorities
With increased enthusiasm for impact investing and thus growing potential to fund meaningful solutions, we (both individually and field-wide) must assess our own blind spots and continue to drive innovation in the sector.
Consider the context: Collectively there is a lot of attention and interest in urban settings, particularly the so-called “sexy seven” (New York City, San Francisco, D.C., Boston, Los Angeles, Seattle, and Chicago) where there’s massive demand for housing, high-capacity capital markets and government actors, and strong institutions. Solutions in those markets don’t translate to locations where poverty is becoming increasingly concentrated, including small and mid-sized cities, rural areas, or suburbs.
Invest in long-term solutions: Programs designed to bring capital to underserved populations have continuously over-emphasized asset-backed solutions over investments in business and job creation. At Prudential, we invest in small and medium businesses, helping create quality jobs that are likely to enable people to reach the next rung on the ladder of financial security. For example, making long-term investments in training keeps people learning on the job and on the path to creating their own financial security.
Work cooperatively with local governments: Local governments are complex but vital. Investors and businesses are often prone to restrict engagement with local governments, or in the opposite extreme, expect them to take the lead in making highly sophisticated and detailed planning choices. Instead, our experience has shown that by adopting a partnership model, and working closely with local governments, we can find better solutions that pave the way for more effective investments.
Welcome new perspectives: Impact investing is still not a fully inclusionary sector – even less so than with conventional finance. To fulfill its promise, impact investing needs to draw from broader talent pools and find pathways to inclusion at the investor and investee level. While the sector has several promising initiatives to address this trend, we need to push harder to diversify the table.
Lessons Moving Forward
Think big: We must develop solutions that can rapidly scale versus those that work on a particular issue or in a particular geography – though not at the expense of experimentation and smart risk-taking. Don’t be afraid to invest in a broad portfolio of areas to test out and identify solutions that work versus those that don’t. And when you identify a winner, double or triple down on it, scaling it to create the greatest impact.
Listen to – and adequately fund – your partners: Our investees are the ones in the trenches. No one has the same level of understanding of the challenges or the nuances than they do. All impact investors must recognize we’re in this together with our partners; their insights are invaluable to ensuring our investments create the most good. We should also ensure that on-the-ground partners have sufficient capacity, capital, and staff to deliver the results we all want and need.
Build skills: Impact investing is a business, and as such it demands a specific skill set built and refined over time. It is not an “add-on” to conventional investing expertise, nor a business-like approach to philanthropic work. As this financing vehicle becomes more widely used, we must continue developing talent and sharing best practices.
When all parties work together, the measurable impact we create for ourselves, our stakeholders, and society at large is greater. Not being afraid to tackle complex problems, choosing to commit to local partners for the long-term, and infusing purpose into core business strategies can position the field to do the most good for another generation.
"This blog was originally posted on LivingCities.com"
Let’s Talk about the Retirement Coverage Gap
Guest Blog Post: Christine Marcks, President, Prudential Retirement
Lately there’s been a lot of buzz about the importance of “financial health,” but at Prudential Retirement, it’s something we’ve always been committed to—and with good reason. In the U.S. alone, 138 million people struggle financially, and more than 40 percent of all workers risk running out of money in retirement.
Prudential was built on the belief that everyone should have the opportunity to achieve financial security and the peace of mind that comes with it, and that belief continues to guide us today. We work to protect and enhance quality of life by providing innovative financial solutions that help people achieve that peace of mind so they can meet the challenges of today’s world.
One such challenge is the current gap in retirement coverage. With society living longer than ever before, people need to save more to last them through their later years, and while many of us take participation in workplace retirement plans for granted, nearly half of American workers do not have access to such plans. Those who work for small businesses are especially at risk, because small businesses are much less likely to offer a retirement plan than larger organizations. Women and people of color, and low wage and part time workers are also more at risk, as they make up a large portion of the small business workforce.
I recently had the opportunity to address this topic at the Center for Financial Innovation’s annual EMERGE: Consumer Financial Health Forum in New Orleans, where I discussed the role of Multiple Employer Plans (MEPs) in solving the retirement coverage gap. MEPs would enable small businesses to participate in a single, professionally administered plan that would provide employees the same opportunities to invest for retirement that employees of large companies already enjoy via 401(k)s and other defined contribution plans.
Over the last few years, Prudential has taken the lead in advocating for the expansion of MEPs to all small employers. While MEPs have been allowed under federal tax law and ERISA (Employment and Retirement Income Security Act) for decades, under the current rules they are only permissible for a narrow subset of organizations.
Prudential and others have been advocating for changes to federal legislation to create “open MEPs,” which could be used by a much wider range of businesses. Concurrently, many states also realize the importance of closing this retirement coverage gap, and have begun proposing state-sponsored solutions, which vary greatly in terms of who they cover and plan design details.
While useful in raising awareness and stirring debate, there are many challenges in a system made up of myriad state programs. Instead, we argue for a unified, federal approach to MEPs. And although much progress has been made in laying the groundwork and building consensus, the legislation still needs to be passed.
In my EMERGE talk, I challenged those in the room to support open MEP legislation and help us change the future for so many people who lack equal access to opportunity and financial security. I challenge all who read this post, as well. Become an advocate for open MEPs and other solutions that help ensure financial security is attainable for all. Together, we can pave the path for a better tomorrow.
To find out more about open MEPs and how you can become an advocate for closing the retirement coverage gap, visit our MEP web page at research.prudential.com/mep.
Inspiration in Arizona
By Lata Reddy, Vice President, Corporate Social Responsibility
Today, around the world, there are more than 350 million opportunity youth – those youth that are unemployed, undereducated and out-of-school – that could benefit from resources to get them back in school or in the workforce. By providing opportunity youth with skills and job opportunities, we put them on a path to achieve economic success but the impact of this strategy reaches beyond the youth we touch. It has a multiplier effect that helps to improve the lives of family members, friends, their community and even their local economy.
For almost two decades, Prudential has been investing in providing the above mentioned resources through our partnership with YouthBuild International, an organization that helps opportunity youth learn construction skills by building affordable housing and community assets in their neighborhoods. On March 2, 2016, we were proud to partner with YouthBuild at the first-ever Prudential YouthBuild Global Service Day. The event brought together 70 YouthBuild students from Arizona, Mexico and El Salvador as well as Prudential employees, prominent government officials and community members to mark a key moment in the organization’s history and build two green homes for low-income families in Arizona.
I was fortunate to be a part of this milestone alongside Tim Cross, President of YouthBuild International. We were also both extremely honored to have Heather Higginbottom, U.S. Deputy Secretary of State for Management and Resources, join us. Deputy Secretary Higginbottom shares the same passion Prudential and YouthBuild have for helping young people reach their full potential. We were all inspired by the promising young people who participated and the stories they told of how YouthBuild impacts their lives.
Prudential’s work with YouthBuild has been focused on closing the opportunity gap by helping young people complete their continuing education goals. Additionally, the YouthBuild programs also teach them valuable job and life skills through construction projects that provide housing for homeless and lower-income families. The Prudential Foundation has provided more than $9.5 million to YouthBuild, to date, with this funding impacting more than 140,000 youths.
Prudential’s most recent commitment to YouthBuild was an investment of $1.5 million here in our hometown of Newark. This investment will help strengthen YouthBuild Newark’s organization structure, including staff and board development, while also helping to improve opportunity youth services citywide.
Outside of Newark, we helped launch YouthBuild programs in U.S. cities including Jacksonville, Minneapolis and Philadelphia. We’ve also worked with our real estate investment business to found YouthBuild programs in Mexico and Brazil. The business and its partners were instrumental in establishing these programs by helping connect YouthBuild to government agencies, additional investors and contractors. This work is ongoing.
At Prudential, we know that providing access to quality jobs is critical to achieving financial and social mobility, especially for underserved populations. And our goal is to help young adults learn the skills necessary to improve their lives and achieve economic success. With YouthBuild, we’ve seen that there are no boundaries to what can be accomplished when the nonprofit, private and public sectors work together to reach a common goal. Thank you to everyone who helped to make our first Prudential YouthBuild Global Service Day a success. We look forward to continuing to build with all of you.
A Year of Transformation in Newark
By Lata Reddy, Vice President, Corporate Social Responsibility
As a member of the Newark community for 140 years, Prudential has had the distinct honor of helping to write the story of Newark. Seeing the sweeping change that has taken hold in 2015 on Broad Street and in Military Park –- in Newark's core, I can't help but believe that we are living through the beginning of the city's newest chapter –- one focused on growth, transformation and of course, continued partnership and collaboration to ensure the very best future for the city.
This year, we saw the opening of the Nike Store and Starbucks and the revival of Military Park, our city's town common. But one of the greatest examples of Prudential's partnership with the City of Newark and countless community organizations and businesses was the September opening of Prudential's new tower. The tower is more than just office space for our company and employees—it's a symbol of our dedication to this city and our belief in its immense potential. We made a strategic decision to locate the building in the heart of Newark, our hometown for 140 years. One of our goals was to create an economic engine to further strengthen the community. As the building's construction got underway, we jumpstarted that engine with an additional $150 million in investments in the surrounding neighborhood, including the redevelopment of the historic Hahne & Co. building. These projects alone will add 300,000 square feet of retail space, 250 new hotel rooms and nearly 1,000 housing units to Newark, helping transform it into the kind of vibrant core the city needs to grow and thrive.
Prudential's latest impact investments in Newark build upon our legacy as a partner to the city. Our company was founded in a basement office on Broad Street—just a few blocks from the site of our new tower, in fact—and we have remained headquartered here ever since. From the beginning we have recognized that our success as a company is inextricably linked to the strength of our community. Over the years, we've invested more than $390 million to support valuable civic amenities, such as the New Jersey Performing Arts Center (NJPAC) and Prudential Center, and to improve educational infrastructure and outcomes for Newark students.
The decision to ramp up our investments in Newark over the past few years has been deliberate. Given the current, unprecedented pace at which cities are growing and an increased interest in urban living, we view the present as a critical, now-or-never opportunity to create lasting urban renewal and unleash a cycle of economic development here. This opportunity exists in every distressed American city, and we hope that the tested solutions we've successfully implemented here in Newark give investors the confidence to make similar bets on other urban areas.
We have many reasons to celebrate this year's achievements and we look forward to continued positive change in 2016—a year that will mark Newark's 350th anniversary. We are already seeing how this year's developments have helped attract new jobs, a broader pool of skilled local talent, more urban consumers and vibrant streets, and we're excited for what's in store for the city we are prouder than ever to call home.
Check out #20StoriesofStrength on Instagram to follow along as we share photo and video vignettes celebrating the history Prudential shares with Newark and the community champions who are helping write the city's next chapter.