Steve Beck gave an overview of the changing attitudes towards the fight against poverty, the role of the private for-profit sector in development and the growth of the Social Venture Capital sector. He also gave 3 examples of successful investments made into businesses that are directly impacting poverty.
FOR THEREALLY SENIOR PEOPLE AMONG YOU WHO CAN ONLY THINK IN PICTURES AND SOUND BYTES, I’ve created an Executive Summary. So in the next 60 seconds you’ll get the gist of what I’m saying.
True whether we’re talking about commercial business or aid…
Prompting a variety of responses: anger, denial, blame-throwing and just out and out paranoia.
While we’re reaping the whirlwind of a mindset that maximizes the short-term bottom line at the expense of anything else,Entrepreneurs, investors… even managers… are searching for a greater sense of purpose and meaning in their work.
IMPACT INVESTING may just be the answer we’ve been looking for… a cool new approach – some have even called it an asset class – that integrates doing well and doing good… Except we’re not totally sure what impact investing really is.That hasn’t stopped people talking about the great exploits they are planning…
I could be at a conference each week… Socap has 1,500 people attending each yearExcept the same people and case studies are always presented… Talk seems to be way out ahead of the walk.
Impact Investing has been unleashed on an unsuspecting world to be sure… and it is a movement that is growing (like a virus)… but it’s still too early to assess its real potential or impact.OK, End of Exec Sum… really senior people should be wholly satisfied at this point.The rest of you may be asking…
OK, let’s double-click on these points.
2005 WE HAD JEFF SACHS’ “THE END OF POVERTY” WHICH ADVOCATED FOR TOP DOWN ASPIRATIONAL GOALS FINANCED BY A MASSIVE INCREASE IN OFFICIAL DEVELOPMENT ASSISTANCE. MANY CELEBRITIES AND WORLD LEADERS GOT ON THE BANDWAGON AND HIS EARTH INSTITUTE AT COLUMBIA UNIVERSITY INITIATED THE MILLENNIUM VILLAGE PROJECTS IN VARIOUS PLACES AROUND THE WORLD. THEN, RISING UP FROM INSIDE THE WORLD BANK AND OUT OF AFRICA COME SOME OTHER MORE SKEPTICAL VOICES…ADVOCATING THE NEED TO FUEL ENTERPRISE: 2006 FIGHTING POVERTY THROUGH ENTERPRISE; 2007 WHITE MAN’S BURDEN; 2008 DEAD AID2002 SUBTITLE… WE DON’T WANT ECONOMISTS TO BE HAVING ADVENTURES AND MISADVENTURES… DOCTOR’S ADVENTURES AND MISADVENTURES IN YOUR BODY…
THERE IS A PLACE FOR PHILANTHROPY HOWEVER. LET’S NOT THROW THE BABY OUT WITH THE BATHWATER.LAST POINT IS PARTICULARLY TRUE OF PRIVATE PHILANTHROPY. WE’VE ALL EXPERIENCED THIS.LET’S TURN TO IMPACT INVESTING…
FINANCIAL RETURN: RETURN OF CAPITAL ALL THE WAY TO FULLY RISK-ADJUSTED RETURNS.ALL VERY DRY AND THEORETICAL… SHARE EXAMPLES OF 3 INVESTMENTS WE’VE DONE IN THE PAST 2 YEARS.
KENYA2.5X IN 18 MONTHSCOMPANY HAS RAISED MORE THAN $16M OF EQUITY CAPITAL TO DATE…
OPERATING PROFIT OF >$100K PER MONTH IN ETHIOPIA ALONE
3 STONES AND A PILE OF WOOD = 40 CIGARETTES EACH MEAL COOKEDNEARLY 2M PEOPLE DIE EACH YEAR DUE TO INDOOR AIR POLLUTION CAUSED BY COOKING SMOKE… THESE PEOPLE ARE OVERWHELMINGLY WOMEN AND CHILDREN.40,000 STOVES IN FIRST 12 MONTHS OF OPERATION
POLICY CHANGE: GOVERNMENTS THAT ARE BROKE LOOKING TO UNLEASH NEW SOURCES OF CAPITAL TO ADDRESS SOCIAL PROBLEMSFOUNDATIONS LOOKING TO DEPLOY THEIR INVESTED ENDOWMENTS IN ADDITION TO THEIR GRANTS TO FURTHER CHARITABLE MISSIONNEW CORPORATE FORMS THAT PLACE A FIDUCIARY RESPONSIBILITY ON DIRECTORS FOR THE SOCIAL AND ENVIRONMENTAL AIMS OF THE COMPANY; NOT JUST MAX SHAREHOLDER VALUE.NEW APPROCAHES TO AID… SHIFTING THE DFI’S
EITHER A CONFERENCE OR A REPORT OUT EVERY OTHER WEEK… REALLY!
GIIN/ANDE/TBN?IRISImpactBaseGIIRS
IRIS – Social and Environmental Impact Reporting Standards – accepted taxonomy of social/environmental impactImpactBase – Searchable database for investors and > 200 fund managers – helping to make the marketGIIRS - GIIRS (which stands for the Global Impact Investing Ratings System) is a comprehensive and transparent system for assessing the social and environmental impact of companies and funds with a ratings and analytics approach analogous to Morningstar investment rankings and Capital IQ financial analytics. It seeks to spark the impact investment movement by providing a tool that is intended to change investor behavior and unlock the potential of this new asset class
Impact floor can be “do no harm” (negative screens like tobacco, drugs, and arms) or can be more positive (renewable energy, agriculture)Financial floor can be different for different investors (foundations starting to allocate capital as program related investments – delighted to see a bond rate of return; others looking for fully risk-adjusted returns.
DFIs – still biggest source of capital for frontier market impact investmentsBanks and financial institutions (Morgan Stanley, DB, LGT – interesting story)Foundations and family officesFunds of fundsInvestor Clubs200 registered managersAcumen Fund gets cited most often and have been an important pioneer but be careful: it’s a non-profit structure so they are investing grant capital without obligation to return anything to investors
c. 200 organizations, $450M of investments and grantsExample of a philanthropically minded family setting up a flexible structure whereby they can choose the right tool for the job.less than 1% of the capital U.S. foundations disbursed in 2007 (the last year of complete data) supported for-profit ventures. Moreover, only 4% of that 1% was invested in equity — precisely the kind of risk capital than can nurture businesses aimed at creating social good. With hundreds of billions of dollars flowing into philanthropy over the next few decades, the big urgent question will be: How can we best deploy these funds?We believe in "flexible capital" — that is, we invest financial and human resources in both for-profit and nonprofit ventures. It's not an either-or decision for us; we believe using both grants and for-profit investments can be powerfully complementary.OPPORTUNITY TO OPEN UP THE FOUNDATION ENDOWMENT ASSETS (THE 95% OR $750 BN) AND PUT MORE OF IT TO WORK NOW, RATHER THAN SEEING IT SIMPLY AS 5% ($38BN)
Foundation started in 2000 by the Kleissner family.In 2004, agreed to work to investing 85% of Foundation endowment assets in impact investments. In 2009, based on 5 years experience, increased that to 100% by the end of 2013.In 2010 are at 70%.Target (net of fees) performance = CPI plus 5%to enable us to continue giving 5% annually on an inflation adjusted basis, thereby keeping the giving and investment capacity of the Foundation whole over time.