Social Impact Investing
Social Impact Investing
Social Impact Investing
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<strong>Impact</strong> Investments:<br />
An emerging asset class<br />
Global Research<br />
29 November 2010<br />
First coined by US President<br />
Franklin Roosevelt, the phrase<br />
“bottom of the pyramid” gained<br />
its modern usage in a 2004 book<br />
by business professor C.K.<br />
Prahalad, who described the<br />
“Fortune at the Bottom of the<br />
Pyramid” available to companies<br />
that created efficient models to<br />
engage poor people as customers<br />
and suppliers. Since then, the<br />
World Resources Institute has<br />
defined the BoP as people earning<br />
less than $3000 per annum per<br />
capita (in 2002 PPP).<br />
<strong>Impact</strong> investments generally target the (broad) base of the economic pyramid<br />
<strong>Impact</strong> investments generally aim to improve the lives of poor and vulnerable people<br />
or to provide environmental benefits at large. In this report, we focus primarily on<br />
investments that target the ‘base of the pyramid’ defined by the World Resources<br />
Institute as people earning less than $3000 a year 1 . In addition to this established<br />
definition of BoP, which applies to emerging markets, there are also people living at<br />
the base of economic pyramids in developed countries who may enjoy a higher<br />
income but can still benefit from impact investments that expand their access to<br />
services and opportunities. We refer to this broader population as the “BoP+”. While<br />
many impact investments target BoP+ populations, this report focuses on impact<br />
investments benefiting the BoP sub-segment in emerging countries.<br />
Investments generate impact in a variety of ways<br />
<strong>Impact</strong> investments can deliver positive social outcomes by expanding access to<br />
basic services for people in need or through production processes that benefit society.<br />
Figure 3 summarizes some of the ways in which business can deliver positive<br />
outcomes for BoP+ populations through their method(s) of production such as by<br />
providing quality jobs, enhancing energy efficiency, facilitating local asset<br />
accumulation and/or purchasing inputs from local or smallholder providers. Other<br />
businesses deliver positive social outcomes by providing customers with access to<br />
needed and cost effective products or services, including agriculture, water, housing,<br />
education, health, energy or financial services.<br />
Figure 3: Ways in which businesses can deliver impact<br />
These means of impact might be part of the impact investment thesis motivating an investor<br />
Means of impact<br />
Means of impact<br />
Process<br />
Products for BoP+<br />
• Job creation<br />
• Energy efficiency<br />
• Facilitating asset accumulation<br />
• Utilizing BoP+ suppliers<br />
• Agriculture<br />
• Water<br />
• Housing<br />
• Education<br />
• Health<br />
• Energy<br />
• Financial Services<br />
Source: The Rockefeller Foundation, J.P. Morgan.<br />
Defining an emerging asset class<br />
Over the last two decades, the definition of an asset class has shifted from one based<br />
solely on the financial characteristics of a given set of assets to one based on how<br />
mainstream institutional investors organize themselves around those assets. The<br />
identifying characteristics of an asset class in today's markets include: the demand<br />
for professionals with a unique set of investment/risk management skills; structures<br />
on the buy side that organize around and allocate capital to these skilled<br />
professionals; industry organizations and networks dedicated to the investment class;<br />
and the adoption by the investment community of metrics, benchmarks and ratings<br />
that standardize performance and risk measurement.<br />
Hedge funds and emerging markets are both relatively recent examples of alternative<br />
assets where underlying investments cut across traditional debt and equity products.<br />
However, the unique characteristics of the people, processes structures and risks<br />
1 The Next 4 Billion, World Resources Institute and International Finance Corporation, 2007.<br />
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