ACCELERATING IMPACT: IMPACT INVESTING & INNOVATIVE FINANCING FOR DEVELOPMENT Edward Jackson Karim Harji 26th March 2013
Main Messages • Impact investing: a small, dynamic, growing industry with
impressive talent, products and networks
• Learning about impact investing opens the door to the broader world of innovative financing
• Impact investing needs accountability, transparency and critical engagement as it proceeds forward
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• Slow economic growth globally
• High unemployment and growing inequality
• Pressure to reduce western aid budgets
• Continued ascendance of new economic powers: China, India, Brazil, Korea, Indonesia
• Increased importance of G-20 in global governance
• Increased development assistance and trade on the part of the new powers
• Need and opportunity to lever private sector capital to address pressing social issues
Current Context
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• Ten years of R&D by UNDP, OECD, World Bank, think tanks
• GAVI vaccine bonds: $7B+ in long-term government pledges
• New options proposed that can be driven by G-20 countries:
• SWF Infrastructure Fund
• Financial Transaction Tax (Tobin Tax)
• Remittance Transfer Savings
• Diaspora Bonds
• Fuel Tax (Global Component)
New Options for Development Finance
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Source: Gates, 2011
Along with: • Government tax revenues • Domestic private investment • Foreign direct investment • Overseas development assistance • Charitable grants • Other innovative finance instruments
Impact Investing: Part of the Future of Development Funding
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Impact Investing: “actively placing capital in businesses and funds that generate social and/or environmental good and at least return nominal principal to the investor”
Source: Monitor Institute, 2009 7
Investments intended to create positive impact beyond financial return
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Provide capital • Transactions currently
tend to be private debt or equity investments
Businesses designed with intent • The business (fund
manager or company) into which the investment is made should be designed with intent to make a positive impact
… to generate positive social and/or environmental benefit • Positive social and/or
environmental impact should be part of the stated business strategy and should be measured
Expect financial returns • The investment should
be expected to return at least nominal principal
Source: JP Morgan, Rockefeller Foundation and GIIN, 2010
Intention Tangible Impacts
“Investments intended to create positive impact beyond financial returns”
Source: O’Donohoe, Leijonhufvud and Saltuk, 2010 9
Impact Investing: Core Definitional Elements
Low Impact and
Low Financial Returns Philanthropy
Social Returns
Financial Returns
Impact First
i
Financial First
Low High
High
• Subsidized Investments
• Grants
Below Market
Market Related
Traditional Investments
• SRI (“Do No Harm”)
Impact Investments
Impact Investing: Mapping Returns Source: adapted from Monitor Institute 2009, via Rockefeller Foundation , 2011
Source: Adapted from Monitor Institute (2009) via Rockefeller Foundation (2011)
Examples of Impact Investments
USA
INDIA
TANZANIA
Investee: M’tanga Farms Investors: Calvert Foundation, Lion’s Head Global Partners
Investee: Investors: and
Investee: Investors:
CHILE
Investee: LGBT Enterprises in Latin America
Investors: and supported by NESsT.org
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• Private debt (loans, guarantees) • Government debt (loans, guarantees)
• Equity-like debt (e.g., convertible bonds, warrants)
• Private equity (direct purchase of shares in enterprise)
• Program related investments of foundations/endowments
• Deposits in social banks, credit unions, CDFIs
• Community investment notes
• Disability savings plan (Canada)
• Social impact bonds (premium on financial return to private investors for non-profit achievement of outcome targets)
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Types of Impact Investment Products
Actors in the Impact Investing Industry
13 Source: ET Jackson & Associates, 2012
Supply of Capital
Intermediation
Demand for Capital
Building the Impact Investment Market
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• Impact investment funds of banks • Micro-enterprise, SME, non-profit
financing by credit unions • Micro-enterprise, SME and non-profit
financing by Business Development Bank of Canada
• Community economic development (CED) Investment Funds
• Program-Related Investments (PRIs) • Debt and equity investments by high net-
worth individuals • Social impact bonds
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Local Impact Investors
• The ability to unlock new types of capital to address a range of social issues, and to combine capital in creative ways
• An opportunity to address the limitations of traditional investment approaches that narrowly focus on financial returns
• A desire by more investors to generate both financial and measureable social returns
The Potential of Impact Investing
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• Not a silver bullet / panacea
• Not implying that every social issue can be solved through market-based approaches
• Not replacing the important role of philanthropy
• Not an excuse for governments to ignore their obligations to marginalized populations or their obligations to redistribute wealth
What Impact Investing is Not
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Accelerating Impact: Intentionally Deploy More Impact Investment
Source: JP Morgan and GIIN, 2011
• Impact investors provide the upfront capital to stimulate vaccine research and development
• Investments backed by international aid commitments
• 2008: International Finance Facility (IFFI) for Immunization issued bonds which raised the equivalent of over $1 billion
Accelerating Impact: Unlock New Capital at Scale
19 Source: GAVI, 2012
Intermediaries • Service
providers • Advisors Products • Institutional • Retail Platforms • Due diligence • Crowdfunding • Social impact
Accelerating Impact: Strengthen Intermediaries / Products / Platforms
20 Source: Shanmugalingam et al., 2011
Accelerating Impact: Options Beyond The Financial/Impact Trade-Off
21 Source: Monitor and Acumen Fund, 2012
Accelerating Impact: Capacity Development: Entrepreneurs & Teams
22 Source: Simpa Networks @ Dasra Social Impact, 2012
• Language: Impact Reporting and Investment Standards (IRIS)
• Enterprise Governance: B Corporations
• Investor Ratings: Global Impact Investing Ratings System (GIIRS)
• Approaches/Uses: Rating, Assessment, Management
• Tools: Social Return on Investment
Accelerating Impact: Coordinate and Balance Social Impact Measurement Initiatives
23 Source: GIIN and GIIRS, 2011
Accelerating Impact: Raise the Bar on Impact
24 Source: Root Capital, 2011
Accelerating Impact: Government & Policy as an Enabler
25 Source: Pacific Community Ventures, 2011
Accelerating Impact: Anticipate the challenges & opportunities of market building; and manage expectations!
26 Source: ET Jackson & Associates, 2012
• Bad things can happen to good ideas and good people • Managing the social and business dimensions at the
same time is challenging
• Business environments are volatile
• The private sector fails all the time, but it is private!
• Capital and measurement are not enough
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When Things Go Wrong
• Evaluate on a case-by-case basis and programs as a whole • Protect vulnerable parties
• Undertake SROI and other value-analysis studies
• Rebuild the business plan, reposition the enterprise
• Ensure strong business leadership, financial reporting
• Draw lessons for future investments and programs
• Strengthen regulation and monitoring
• Get back on the horse and keep riding!
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What To Do? Short-Term Responses
• Build a cohort of new leaders in business, finance and the social sector with the skills and commitment to design and execute impact investments and social enterprises successfully
• Develop targeted training programs jointly designed by community, government, business and educational stakeholders, using case studies of both failure and success
• Increase resources for monitoring, evaluation, regulation and mentoring
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What to Do? Long-Term Responses
Increase the velocity of: • Evaluating, monitoring, learning and improving
• Scaling up capital pools
• Diversifying investment products and services
• Strengthening the capacity of social enterprises to receive and use capital
• Refining cost-effective impact-measurement tools
• Building the leaders of the future
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Accelerating Impact Investing
What Now? What Next? Learn. Act. Reflect. Repeat.
Accelerating Impact: Achievements, Challenges and What’s Next in Building the Impact Investing Industry
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http://www.rockefellerfoundation.org/news/publications/accelerating-impact-achievements
Resources
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• Bugg-Levine, A. and J. Emerson. Impact Investing: Transforming How We Make Money While Making a Difference, 2011.
• Gates, B. “Innovation with Impact: Financing 21st Century Development,” Report to the G-20 Leaders, Cannes, 2011.
• JP Morgan, GIIN, Rockefeller Foundation. “Impact Investments: An Emerging Asset Class,” 2010.
• Monitor and the Acumen Fund. “From Blueprint to Scale: The Case for Philanthropy in Impact Investing,” 2012.
• Monitor Institute. “Investing for Social and Environmental Impact: A Design For Catalyzing An Emerging Industry,” 2009.
• Monitor Group. “Promise and Progress: Market-Sased Solutions to Poverty in Africa,” 2011.
• Pacific Community Ventures. “Impact Investing: A Framework For Policy Design and Analysis,” 2011.
• United National Development Program. “Innovative Financing for Development: A New Model for Development Finance,” 2012.
• UN Department of Economic and Social Affairs. “World Economic and Social Survey 2012: In Search of New Development Finance,” 2012.
Organizations and Networks
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• AKF USA Impact Investing Initiative: akdn.org/usa_impact_investment.asp
• Carleton Centre for Community Innovation (3ci): Carleton.ca/3ci
• Purpose Capital: PurposeCap.com
• Aspen Network for Development Entrepreneurs (ANDE): aspeninstitute.org/policy-work/aspen-network-development-entrepreneurs
• B Lab / B Corporation: bcorporation.net
• Global Impact Investing Network (GIIN): thegiin.org
• Global Impact Investing Ratings System (GIIRS): giirs.org
• ImpactBase: impactbase.org
• Impact Investing Policy Collaborative (IIPC): iipcollaborative.org
• MaRS Centre for Impact Investing (CII): impactinvesting.marsdd.com
• SocialFinance.ca: socialfinance.ca
Edward Jackson Senior Research Fellow Carleton Centre for Community Innovation Carleton University [email protected]
Karim Harji Co-Founder and Partner, Purpose Capital Senior Research Associate, Carleton Centre for Community Innovation [email protected]
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Contact Information
