Healthcare Systems can be Impact Investors Too
Impact investments are made with the intention to generate a financial return alongside positive, measurable health, social, and environmental impact. For nonprofit health systems, impact investing means that investable assets (such as operating reserves, an endowment, a trust, or a private foundation) can deliver on the financial requirements the institution has to ensure long-term sustainability while also delivering on its mission for better health.
The term “Impact investing” was coined in 2007, launching a new market sector that has scaled over 15 years at an impressive pace. 2022 estimates show global impact investing assets under management at $1.164 trillion USD. In the US, the practice itself goes back decades, even centuries, before the term was coined, led by religious and faith-based organizations - a parallel worth noting we see in the healthcare industry.
Separately, nonprofit healthcare systems have tremendous investing power that can be harnessed for impact. For example, a 2019 list of the top 100 nonprofits by assets included 29 nonprofit healthcare systems and their affiliate plans with a combined $454.4 billion USD in assets. Though perhaps some of those combined dollars are invested for impact, anecdotally it’s safe to say that healthcare impact investments would sum to a rounding error of the industry’s total assets.
Multiplier Advisors helps healthcare systems align their investment strategy with their mission to deliver impact alongside financial priorities. Across our work we’ve found that some basic grounding has helped healthcare executives better connect to the impact investing opportunity and industry as well as make the case internally for a mission-aligned investment portfolio.
Impact investing doesn’t have to mean sacrificing financial return
A successful impact investing strategy delivers on a healthcare system’s investment priorities and requirements while also considering the impact it would like to have on health and wellbeing. Impact investing falls along a spectrum - for healthcare systems this could mean screening out health harming investments (e.g. tobacco companies), for others it could mean screening in social determinants of health (SDOH) (e.g. economic development), and for others it could mean carving out a portion of the portfolio to invest for high impact in communities they serve (e.g. place-based investing in SDOH). Multiplier’s partner for impact investing in healthcare system engagements, Tideline, has an adapted spectrum of sustainable investments, shown below, that can be a useful framework as a healthcare system considers its impact priorities (see also Tideline’s Truth in Impact guide).
Importantly, a healthcare system impact investor wouldn’t have to commit to a portfolio overhaul at the get-go, rather they could take steps toward impact that balances their financial return priorities. Foundations provide a helpful analogous precedent here. While some foundations have led the way in a whole-portfolio approach to impact investing - for example the F.B. Heron Foundation, Nathan Cummings Foundation, and the Mary Reynolds Babcock Foundation, to name a few - they often start incrementally and iterate strategically over time. Others allocate carve-outs or smaller portions of their balance sheet to align with their mission. As an outsized example, the Ford Foundation in 2016 allocated $1 billion of its $16 billion endowment to what it calls “Mission Investments”, and at the five year mark (2021), reported a 28% annual compound return.
Healthcare systems are inherently mission-oriented asset owners
Like foundations, healthcare systems are asset owners responsible for executing on a mission. And as such, healthcare systems steward foundations, endowments, trusts, and other investment portfolios that could yield measurable impact alongside financial return. While the practice isn’t widely adopted yet within the industry, there is precedent and interest among a growing group of healthcare systems and affiliate organizations.
For example Cone Health Foundation, a public charity supporting organization of Cone Health in Greensboro, NC is strategically pivoting its resources to achieve community-wide health and racial equity by focusing on social drivers of health which determine up to 80% of a person’s health outcomes. The Foundation has brought its entire >$100 million in assets in line with its mission and values. As a grantmaker, Cone Health Foundation continues to distribute 5% of the corpus in grants and has allocated an additional ~4% for place-based investments potentially creating below-market returns; however, the expectation is that the portfolio in its entirety will generate market-rate returns. Cone Health Foundation president Susan Shumaker says, “Our Board members understood immediately that a mission-aligned portfolio complements our grantmaking objectives and generates a return on investment.”
Meanwhile, faith-based health systems have been innovating in community investments for decades - often in partnership with local mission-oriented community development financial institutions (CDFIs) (note: Cone Health Foundation is also working with CDFIs). CommonSpirit Health, for example, has a $400 million Community Investing Program. The program began in the 1990s before Dignity Health merged with Catholic Health Initiatives in 2020 to form CommonSpirit. Dignity allocated a portion of its investable reserves to advance SDOH through below-market-rate loans and loan guarantees.
CommonSpirit is also one of over a dozen health systems that have signed onto the Healthcare Anchor Network (HAN) Place Based Investing Commitment. These signatories commit to allocating $50 million or at least 1% (whichever is less) of their long-term reserves or unrestricted investments into place-based investments addressing SDOH. While these investments are high impact, many in partnership with CDFIs, they also require low and sometimes no financial return. Nonetheless, anecdotally we’ve heard from some of our clients that during this recent period of market volatility, these investments have been the least volatile asset class within the system’s portfolio. While place-based investments may not bring in the financial returns needed to grow an endowment, they can recycle and preserve capital and offer a starting place for healthcare systems interested in impact investing.
Impact investing speaks healthcare systems’ language …using different language
The tenets and infrastructure foundational to impact investing are well aligned with healthcare systems’ missions and long-term sustainability priorities. However, the impact investing industry grew up using language meant to engage the finance and investment industries, language that does not necessarily resonate with the healthcare sector despite common aims. For example, the impact investing industry often defines its impact using the United Nations (UN) Sustainable Development Goals (SDGs). Not surprisingly, these SDGs directly line up with the SDOH. In a recent project to help translate across sectors, Multiplier worked with CityHealth to map SDOH, resulting in the crosswalk below:
Healthcare systems that have embraced the transition from volume to value or have embedded SDOH into their theory of change have already done the heavy lifting aligning system goals with holistic health impact. An impact investment strategy can be another tool in the toolkit for creating health and wellbeing - all the while fostering long-term sustainability.
What to expect on the journey
At Multiplier, we are inspired by our healthcare system clients who are forging new pathways that will have lasting impact bolstering their own sustainability and growth, support the communities they serve, and advance the healthcare industry as a whole. Each is incredibly unique in how it is structured, governed, operated, and financed. This means each healthcare system’s strategy design and implementation is bespoke and takes time to develop and launch. Even so, we’ve found that healthcare system impact investing journeys have these common attributes:
Each journey takes time
Most healthcare systems we know that have embarked on the journey undertake a process from design to launch that takes a minimum of two years, with constant iteration along the way. In many cases, those leading the effort internally encounter “no” more than once before they get to “yes” as they make the case to their peers and colleagues. As a result, our clients are very intentional about both internal and external messaging, and Multiplier works with them to build consensus, leadership, and buy-in across multiple internal departments while balancing external engagement and communications in their communities.
Each journey needs a bridge
While impact investments have seeded global health social enterprises and catalyzed innovations in medical devices, pharmaceuticals, and technology, the existing sector infrastructure is not geared to engage healthcare systems as asset owners. So while there is a wide array of impact investing frameworks, measurement tools, and networks, very few - if any - have yet to speak directly to healthcare system impact investors. Multiplier serves as the bridge between the sectors, and helps our clients translate applicable tools and leverage existing resources using healthcare system-relevant language and concepts that help them go further faster.
Each journey is relational
Further, there are myriad impact investing organizations, content experts, investment intermediaries, and networks out there that can be important supports to healthcare system impact investors. Identifying which to engage, based on a health system’s strategic goals and financial priorities, is an important step. Multiplier helps our clients find the right partners, make strategic connections, and steward those relationships for the long term.
In conclusion
We see a future where healthcare systems are not only players but leaders in impact investing, deploying billions of dollars in capital to advance health and wellbeing while attaining long-term financial success. The opportunity, precedent, and infrastructure are in place - there is no doubt that healthcare systems can be impact investors too.
Colby Dailey is the founder and principal of Multiplier Advisors, the national impact investing consultant helping healthcare companies advance social determinants of health (SDOH) alongside financial priorities.
This fall you can find her at the Healthcare Anchor Network (HAN), Opportunity Finance Network (OFN), and SOCAP conferences. Email her anytime at colby@multiplieradvisors.com.
