KEXP Presents Mind Over Matters; Sustainability Segment: Georgia Levenson Keohane

this is diane warren your host on the sustainability segment of mind over matters and katie x the seattle ninety point three of them my mobile app and on the web add k e x feat out or a ge my guess this morning as george eleven sancho hamm executive director of the pershing square foundation georgia is also a professor in the social enterprise program at columbia business school and a senior fellow at the new america foundation she is the author of social entrepreneurship for the twenty first century georgia call handouts here today to tell us about her most recent book capital in the common good how innovative finance is tackling the world's most urgent problems welcome thank you pointed to be her what is innovative finance innovative finance in my mind really means that creative approaches solving so the world's problems and finance an absence is really just a tool that means to an end but it's a way for us to think about funding and financing public goods social challenges economic challenges environmental challenges in ways where the market is failed often politics of which you say more about

why we need to innovative finance we need it to find its for a number of reasons but i think most importantly we have large and i'm a social environmental and economic problems that a traditional ways of funding and financing don't necessarily work or we have an adequate funds so often government has stepped in to supply public goods philanthropy which is about three hundred billion dollars a year in the us sometimes supplements where the government fell and with private capital one fell but often there's still a gap in a shortfall so we'd when india finance as a way to crowd in were tapes of capital and sometimes that means more private investment more private capital but there were lifted this topic or is it also means we need smarter capital and better capital and without really means as our instruments are tools that really help us as individuals as families as governments make better decisions and really make investments for the long term what led you to write a book on innovative finance my research really began a few years ago in the aftermath of hurricane sandy newark

where the city was shut down and among the parts of the city in addition individuals and families are really suffering are some of the country's oldest public transportation system which was their subway system was inundated with seawater after a massive search i was crowded and shut down in dallas of uninsured though i started thinking about finance actually is an interesting instrument to help us rebuild so the wake of sandy and knight discussions covering of catastrophe lawns i was approached by the rockefeller foundation to do some research to look at other innovative finance tools catastrophe on the backseat on social impact bonds really alternative approaches to public financing and this is in the new a lot of time last year we transitioned from the millennium to phone calls to the sustainable development goals and their two would not unlike the kids and send in your we have looming gaps in available funds so the question was how can the crowd and more private capital it helps others probably were dug into the problem the more i rise of the issue has much about

smarter capital and financial instruments and credits to make better decisions as individuals families and governments as it was more capital so one and it has to be about more capital can the us murder capital and again it's or of creativity it's not finance for finance sake and it's certainly not financial innovation i'm having discuss the difference between financial nation and innovative finance but it's really instruments and tools in some cases a jolt from the field of finance that help us solve problems in the race so what is the difference between innovative finance and financial innovation to be a question of conflict in and finance as i mentioned is really about using market mechanisms to solve problems were the market has failed to ensure the nation tends to be enough information it's really engineering new products and services for some engineering in unison profitability stakes though if we think about some of the very faint a derivative that contributed to the financial

crisis or if we think about things like speed trading evened bitcoin is a really sort of engineering feats in finance that might allow markets work more efficiently but don't necessarily intentionally solve problems and paul volcker the former fed chair after that financial crisis famously said you know the only useful innovation and finance was the atm volcker's point is well taken but my definition and i beg to differ is really that the innovation is applying them age old tools of finance insurance for learning and more uses et cetera to new sectors a new context the new problems in your book you speak about pay for success financing as an element of innovative finance would you explain and give an example sure so pay for success in some ways a self explanatory and what it means is we actually pay for outcome so you pay for a proven interventions or you pay for finishing completed and successful projects that serve generically true in the us pay for success has come to be synonymous in some ways the social impact

on social and that times are not in fact on this little bit of and a misnomer they're a little bit more equity structure but social bonds are essentially new ways of getting at the not so new problem that we have prevention pays with no investment and sacrilege health education an investment in things like public health and execute a future turned as we often fail to make those investments sell a social impact bond do their city contracts and they allow governments to contract with service providers use a nonprofit service providers and their private investors tropic increasingly crucial lessons a lone divide working capital to the nonprofit writer to provide early intervention services the first and for social impact bond was in fact in the uk and the us in pure broken out of prison with very high rate of recidivism like to decrease series of recidivism to the prisoners leaving prison that was in two thousand ten today there's alyssa hundred million dollars in social impact bond across almost every continent in the

second part of her fifteen countries but sixty projects in the work and analysts every case they really looking to bring in new capital private film tropic in combination with a government a local government and a service provider to unlock future savings from preventing problems i'm diana maria and my guest is george m cohan author of the book capital in the coming days how innovative finance is tackling the world's most urgent problems and your turn to the sustainability segment of mind over matter some listener authority ie frankly i am by lava lamp and on the land kei next we know it we were going to get to this earlier about how his innovative finance being used to address natural disasters so i think in defiance has been used both at the macro level i would say and also the micro level i'd certainly be used to be delving into context i think some cases and it might also be similar

to approach that we use here in the us nine developed countries i think as everyone is well aware of the typical conventional disaster response model but in holland air quotes for that hard to see of the air but they're a model is a little bit but when i called too little too late a disaster occurs perhaps it's a hurricane perhaps it's drought that some women become famine perhaps it's an outbreak of a disease that if it really more scary quickly might become a pandemic like ebola aren't foreseen seek care and a country will alert the world a disastrous happened there is an appeal to the un could take months or is money and money is the delivered sometimes informing time relief sometimes in the form of cash but it's often as insensitive little bit too little a little bit too late the increasingly what we're seeing and there's a great urgency both because climate change is really exacerbate un natural disasters i think that we see the destabilizing force of love and towards immigration and other really trans border and global challenges boise

experimentation is with again really sort of time tested fighters' insurance somewhat happen to be insurance so in the book i give the example the africa risk to pass today which is essentially new insurance entity that only african union in subsaharan africa and unlike the typical too little too late disaster sponsor we typically see where drought can morph into famine and famine is really an antiseptic where describing starvation and real privation what we see in the case of arc for the first time last year or five insurance payouts to six or seven african countries that essentially had pooled their risks and made small wonder nine million dollar premium payments in return for coverage about sixty billion dollars the idf again insurance is not new pooled risk is not knew what's interesting is that the refugees in subsaharan africa even though they often all experience a different time strout in fact their risk or

exposure to jettison and correlated so they make a natural cool and would that also means is that collectively they've become a diversified portfolio and was passed here again i said with the first pay out their pets were only about twenty five million dollars total which is small compared to some of the very large problems of drought what those parents deal and those pets are triggered by satellite technology that indicate that there's insufficient waterfall is those interest payments allow these countries to respond much more quickly than waiting for you an appeal so that quick response time to chase months off their response time it allows them really to get money to households much faster much faster than previously and that time savings the timing of those payments in some cases really the difference between life and death earlier you mentioned chris koster fear care plans which you go into more detail about tampons sure had have gone sour rather arcane and after they near times piece i run

scene in the use of happens by the mta case of became known a law that as the cat bond woman which i think is probably less exotic than catwoman but you may be better than beef cattle at any way that tabloids were fascinated me because it happens catastrophe bonds essentially are ways for insurance companies to reassure themselves so first happens really appeared nineteen eighty two or so after hurricane andrew struck florida and so to put fifty insurance companies out of business the size and scope of the flooding the damage they're really exceeded the capacity of derision insurance companies to pay claims mike casserly bonds do an inexpensive way to do it is that allows insurance companies to larger capital markets where investors essentially are betting against disasters and they are betting the answer is the civic a sense of disaster so tom cole parametric the risk which means they're betting that a hurricane in the case of sandy that's a specific stories or size of a particular period of time does not happen again and

if it does happen and this may hold for earthquakes they hold for wind big wins runs in europe he can really use the cab on to ensure against was any kind of disaster if they don't occur then investors don't have to pay out the russia been very few pats it is an expensive way to ensure that again for example the empty handed his of sandy found itself uninsurable after sandy in the face of that degree of damage that can innovate finance investment depth can be taken i think the sun has to do with political will so i think that there is often a reluctance in the public sector and often rightly so but there's sometimes a reluctance to work with the financial service sector isn't people in the financial service sector for fear distrust or concerned really a profit motive may our way good intentions and i converse they face years in the private sector often see the public sector in the nonprofit sector is slow

inefficient ways fall and this too often don't come together so i think an open mindedness an unwillingness on both sides and to recognize that really innovative finance another of her partnership finance an example imagine the century have actors from the private sector the private sector and the public sector working together to advance social good so i think her willingness to release would work across sectors winter across boundaries is very helpful what do you hope your vocal accomplish i hope my book will probably do one of three things the first is i hope it'll just introduces topic and away and really re frame some people thinking about business finance in that finance is not something to be glorified or fantasize store celebrated as an insult but a means to an end and that in fact we can take really age old practices like insurance or mortgages that front lot of funding to pay for things that we need today and really pressed them into the public and i think that that's one i think the second is that it might spark an idea in someone's

mind who hasn't thought about they are also in financial financial service sector is something in the service of the public good so many of the innovators to high profile in the new restaurants i provide the book are really people who came out of the financial service sector maybe traditionally worked and much more commercial approaches but became interested in financial inclusion some micro finance or became interested in impact investing and global health so i think it's a winning some of those hearts and minds over the public good and i and the third is durant won all the separate sheet all have a stake in there that we're all citizens many of us are asset owners we're all consumers and we can actually use our voice as well as our dollars on our shares to make these types of instruments so real and possible what's the message you'd like deliver less misled it was a book that is about insurance business really grab everyone that i think when you read it you realize that innovative finance is very much about time and date value of time those were people's time and it's really the end all about trust and

decision making an officer to think about financial tools in that light i think it really reminds people that they're new and creative ways to solve some pretty entrenched problems what thanks so much for being here here you were just listening to george m cohan author of the book capital in the common good how innovative finance is tackling the world's most urgent problems published in twenty sixteen by columbia university press sustainability sigman interviews are available as podcasts along with tx these music podcast no it can demand and then podcasting and i am one thanks for listening and they showed it into the sustainability segment again next week and listener part ninety point we have them buy mobile app and i'm katie x he got orgy