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What is Next For Impact Investing?

Posted on by MBC Strategic

Impact investing represents a potential additional funding stream for development, but the field is still evolving and those working in it warn investors may be expecting too much, too soon. While the field may be beyond its initial phase, stakeholders focused on building the infrastructure and proving its case agree that there is still much work to be done. Impact investments are made with the intention of generating measurable social and environmental impact, along with a financial return.

It’s clear that the sum invested in this way is growing — a recent study showed that last year about $10.6 billion in impact investments were made and investors intend to commit this year a further $12.7 billion or 19 percent more, with about 70 percent of the total money is invested in emerging markets. Though there is more clarity now about what impact investing is, one of the greatest challenges remains how to define and talk about those investments. And, those definitions would help to tackle what is one of the most often discussed challenges that is impeding growth in impact investing — accurately measuring and tracking outcomes. This article explores both, and what is being done to mitigate them.

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Impact Investing in Asia: Poised to Grow

Posted on by MBC Strategic

Impact investments are expected to increase globally this year, with South Asia and Southeast Asia among the top target regions, according to a recent survey by JPMorgan and Global Impact Investing Network (GIIN). This could bode well, in particular, for India’s nascent impact investment sector, which is one of the most active in the region.

It has been estimated that US$1.6 billion of capital has been invested in more than 220 impact enterprises across India, with more than half of the investments in microfinance. In addition, impact equity investments in India are estimated to grow 30% this year. Along with microfinance, enterprises in agriculture, health services, clean energy, and education are attracting investments. Narayan Ramachandran, CFA, Unitus Capital’s co-chairman, has said, “the biggest challenge is the market/business plan challenge, which is, if you invest in something, can it grow big enough and profitable enough for you to have a range of exit options?” He noted that while there have been successful exits recently in financial services enterprises, there isn’t a long list of companies in India “that have been sold in subsequent rounds to different and new kinds of investors.”

  Operating impact businesses in areas such as agriculture, health services, and other sectors “have really only been invested in over the last five to six years.” The support of impact investing around the world needs to come to small businesses in such a manner that they are helped, facilitated, and nurtured to grow into bigger mainstream businesses rather than a large impact business, which mainstream investors are not interested in.

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Measuring the "Impact" in Impact Investing

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Without solid metrics to quantifiably measure results in social and environmental terms, the whole “impact” part of “impact investing” would be worthless. The Aspen Network of Development Entrepreneurs (ANDE) is working to build an understanding around impact measurement, and they have collaborated with their members, TriLinc included, to write a report on the “State of Measurement: Practice in the SGB Sector,” which was released this past month.

ANDE is a global network of organizations that propel entrepreneurship in emerging markets with a mission to understand the impact of supporting small and growing businesses (SGBs). As a rule of thumb, they aim to create a measurement system to figure out how well companies are doing, and help them to improve.

Recently, ANDE conducted a survey and follow-up phone interviews with 34 of its members. TriLinc’s Marni Hodder and Kathryn Haugen contributed to the survey and participated in a follow-up phone interview. TriLinc helped ANDE gain an understanding of the struggles and triumphs it has endured thus far with impact measurement. Further, Joan Trant and Ms. Haugen joined the network on a Metrics group working call to help make changes and improve upon the rough draft of report.

As depicted in the report, ANDE found that most impact investors in this market are operating using three key “lenses:” collecting metrics related to both the scale and depth of impact, tracking economic development indicators such as job creation, and collecting specialized sector metrics to benchmark their portfolios. Then, a majority of firms and funds report these results to their current funders, and often use the results in their discussions with prospective investors.

However, 40% of ANDE’s survey respondents indicated that they believe the largest challenge they face is the lack of stability and resources for their investees concerning their impact measurement. Additionally, social metrics need to “balance and align” with financial performance indicators. This would place greater emphasis on transparency and attribution, as well as help to develop more efficient and effective ways of data collection and management.

All in all, there has been tremendous advancements in measurements in the past five years. ANDE has been encouraged by the organizations they surveyed, who have all either implemented some measurement strategy or are in the process of doing so, lending to their early efforts centered around the need for such “accountability” (Metrics 1.0) and “standardization” (Metrics 2.0), and are now moving on to “value creation” (Metrics 3.0). Together, they have proved it is possible to collaboratively create reasonable, sustainable metrics that funds and investors across the globe can utilize.

What’s Holding Back Impact Investing?

Posted on by MBC Strategic

With the unveiling of a new report at the White House last Wednesday, the investors who have pioneered the impact investing movement are now urging the U.S. government to create policies that will turbocharge its growth. Seasoned impact investors say there is much more potential to direct private capital towards addressing the world’s pressing social and environmental challenges than what is done today–especially if a number of policies can be tweaked.

Their report details more than two dozen government actions that could both remove existing barriers to impact investing, increase the effectiveness of the government’s own programs, and proactively provide new incentives to encourage growth. “If you were to imagine a crew team on a river, it’s like we don’t have all of the oars in water, because private enterprise has, for the most part, sat on the sidelines,” says Jean Case, CEO of The Case Foundation and an advisory board member. There exists a fear that social and environmental goals of good organizations will be diluted as financial interests blend with what is traditionally charitable work. But advocates say there are safeguards and transparency will help in many situations, and the potential to do good far outweighs the downsides.

In the end, what is needed are more standardized ways for people to access social impact investing opportunities.

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Why Impact Investing is an Emerging Paradigm Shift in Philanthropy

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Impact investing is a frequently featured topic of conversation at forums or conferences on philanthropy today.  Its popularity is linked to the potential for impact investing to cause a paradigm shift in the way philanthropy is approached—targeting investment capital as a complementary resource for achieving the social and environmental changes typically pursued by philanthropic organizations. The central theme underpinning the potential of impact investing is the creation of economic value and social value being, not necessarily, mutually exclusive.

Market-based approaches to critical social and environmental challenges do exist or can be developed, and those interventions can attract private sector capital. This provides a significantly larger, complementary source of capital alongside of philanthropic budgets and increasingly limited public sector resources. All in all, financeable interventions can satisfy a range of objectives—from mitigating climate change to creating jobs in agricultural communities to providing health care for underserved people—attracting a broad population of investors interested in creating change.

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Impact Investing Aided By White House

Posted on by MBC Strategic

On June 25, 2014, at the White House roundtable on impact investing, corporations, banks, foundations, and individuals including Prudential, Capricorn Investment Group and the Omidiyar Network committed to invest more than $1.5 billion in new capital into companies and funds that strive to generate positive financial and social returns.

 In addition, US government agencies announced programs to support impact investments and social enterprises. These commitments followed the release of a new report from the U.S. National Advisory Board to the Social Impact Investment Task Force that provides a framework for how federal policies can support impact investing.

As the industry matures and more investors enter the market, policies that remove barriers to growth and provide incentives for more impact investments will grow in importance. Government, philanthropy, and nonprofits cannot solve the world’s numerous problems alone, but with their aid in impact investing, social issues can be improved while creating a profit.

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So You Think You’re An Impact Investor?

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Charly Kleissner is a former tech entrepreneur and early pioneer of impact investing. He and his wife Lisa co-founded the KL Felicitas Foundation to support social entrepreneurs around the world and to bring like-minded investors together to redefine the meaning and purpose of investing in the first place. Kleissner says there is a much higher absorption capacity for impact capital than many realize, and, over the next 2-3 years, he and his wife want to show that there are at least a dozen $500 million impact portfolios making a difference. He strongly believes even the least socially concerned investor knows the benefits of hedging, like towards clean energy, because at some point a collapse in the status quo is inevitable. Unfortunately, in this day and age, social transformation begins with personal transformation. CEOs of multinational companies will need to change their own consciousness and awareness, or else impact investing is not going to get very far.

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Impact Investing: Making a Difference and a Profit

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Several not-for-profit organizations have recently been teaming up with money mangers and investment banks to create and market a new line of products that offer investors the opportunity to engage in impact investing, a form of socially conscious investing. The goal is to invest money in companies, organizations, funds or projects across globe that can influence positive social change, while delivering financial return to investors. In recent years, it has gained momentum and product variety leading to more and more retail investors and millennials getting involved in this ex-wealthy investors’ niche. And, with this growing interest, organizations such as the Rockefeller Foundation and Goldman Sachs have created their own funds aimed at deploying capital toward the physical, social and economic revitalization of disadvantaged communities across the U.S. and the world. The groundwork has been laid for the creation of numerous products to meet the demand of a new generation of socially conscious investors, and, as long as such investments produce competitive social and financial returns, their popularity will only grow from here.

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Massive Wealth Transfer Could Be a Windfall for Charities

Posted on by MBC Strategic

Kelley Holland reports on the $59 trillion wealth transfer to be passed down to heirs, charities, taxes and estate closing costs, according to a study by researchers at Boston College’s Center on Wealth and Philanthropy. This is $7 trillion higher, in 2007 dollars, than a 1999 study by the center. According to Alan Cantor, a nonprofit consultant, those who are inheriting, “may have a different mindset about charitable giving than their parents’ generation.” He “see[s] them doing a few things: looking more into mission investing and impact investing, trying to invest their money in more creative, progressive ways, so it’s not all sitting in their parents’ traditional corporate securities.”

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A Small Drop in a Large Bucket

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Abigail Noble, head of the Impact Investing Initiative at the World Economic Forum, talks about why impact investing needs to go mainstream. With their Mainstreaming Impact Investing Initiative, the World Economic Forum is looking at the challenges and constraints that mainstream investors, such as pension funds, venture capital and private equity, are facing in getting engaged with impact investing. Noble says “one thing to keep in mind is that there’s a range of returns. Some investors only make a 0-1 percent return. But if you look at impact private equity funds like Leapfrog, they’re making in the 20 and up percentile in returns. One of the things that I find most encouraging is that we looked at the GIIN ImpactBase survey data, and found that over 70 percent of impact investment funds surveyed target an 11 percent rate of return or higher.”

She mentioned the effects on financial markets of environmental shocks like climate change, or destabilizing events like social unrest related to youth unemployment. “When you have more stable political and social situations, it’s a better business climate, and you have more stable financial returns. Impact investing is a very real way to create a more stable and inclusive market economy, and once we start to adapt that mindset, we can see how you can target both social and financial returns and, over the long run, create the world that we want to see.”

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