Social Impact Investing

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<strong>Impact</strong> Investments: An emerging asset class Global Research 29 November 2010 Technology Many experts focus on the potential to spur development through the adoption of technology, especially technology that promotes information and communication (“ICT”). This interest has accelerated recently with the explosive spread of mobile phones across the developing world. Entrepreneurs are developing business models that use this new mobile phone infrastructure to deliver basic services such as healthcare, education, agricultural information and, most successfully, the basic banking service of money transfer. For the purposes of our analysis, we do not consider technology as a basic service that constitutes a discrete sub-sector of impact investing. Instead, technology will play an increasingly important role as an input to business models that seek to reduce costs in serving dispersed populations of poor customers (and will therefore be incorporated in comprehensive analyses of these sub-sectors). Future research could determine what components of technology investment are most socially beneficial and suitable for impact investment capital. Investments in infrastructure According to the World Bank, emerging countries need 7 to 9 percent of their GDP per annum, or approximately US$400bn, to address their core needs in building infrastructure. Historically, though, less than half of this amount has been invested in infrastructure development and maintenance, leaving a financing gap of 3.5 to 4.5 percent. 97 Further, according to the World Economic Forum, this underestimates the true need as it excludes electricity transmission, waste-water treatment, urban transport, ports, airports, and oil and gas. Including these sectors would bring the annual investment need to more than US$900bn or close to 20 percent of the GDP of emerging countries. In total then, the investment need could be as high as US$3 trillion per annum globally (or close to 5 percent of current global GDP), of which approximately US$1 trillion per annum needs to be spent in emerging countries. 98 . We presented the opportunity for investment into water service for the BoP above, but broader opportunities exist within infrastructure. Ports, roads, on-grid power generation, and large-scale water delivery are all examples of products or services that could greatly improve the lives of BoP+ populations. Poor roads for example contribute to post-harvest food losses that can range from 15% to as high as 50% of what is produced. Demographic changes over time are also ignored in our analysis. Economic growth in emerging markets can propel some of the BoP populations into higher income categories, outside of our target markets. On the other hand, fiscal crises and financial shocks can have the reverse effect. Rather than take a view on how these demographic changes will materialize, we assume current dynamics will remain as they are. “Plus populations” (those that make up the BoP+ category but are not BoP) As we have explained earlier, impact investments do include businesses that serve or employ poor people that earn more than the strict WRI definition of $3,000 per annum. However, we have not endeavored in this report to define which segment of the more developed countries’ populations would be considered in the BoP+ classification and leave that for future research. Investments that generate impact through their business processes Our market sizing work has focused on business models that deliver affordable products or services to BoP populations, which is one segment of the “means of impact” characterization we presented in Figure 7. The other segment includes businesses that employ BoP (or BoP+) people. Root Capital, for example, engages 97 Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World Economic Forum, August 2010. 98 Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World Economic Forum, August 2010. 64
<strong>Impact</strong> Investments: An emerging asset class Global Research 29 November 2010 BoP suppliers of food products for export. The typical impact thesis for investments such as these is that connecting BoP suppliers more effectively with the markets will increase the reliability and amount of income those suppliers can generate from their produce. We fully acknowledge the financial and social value of investing in BoP supply chains, but refrained from sizing this portion of the market. 65
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Turning the Improbable Into the Exc
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6. 1 We disseminate Quarterly publi
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23 “His master replied, ‘Well d
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Domini, shareholder advocacy and co
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Two good things came out this resea
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Fund Azzad Ethical Mid Cap Fund Bri
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Fund Fund A Praxis Growth Index Fun
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development in the US, or are made
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concern, and submitting and voting
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sustain land trusts, to a meeting o
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that are often excluded from market
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Some organisations that have used S
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it helps identify the critical sour
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and shareholder trust through posit
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Approaches Some commentators have i
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Wieland and Handfield (2013) sugges
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EthicalQuote (CEQ) tracks reputatio
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Displaying commitment to CSR is one
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Brand Differentiation CSR can help
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takes health and safety, diversity
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advance with the practice of CSR wh
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Stakeholder Influence One motivatio
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Regulation Fifteen European Union c
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jurisdictions. E.g., some jurisdict
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"Impact investments can be made in
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venture capital community. Investor
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countries via local intermediaries.
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determining views of affected commu
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Another measure of economic impact
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The Board for the CCEG was to inclu
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17 Love Relationship Online dating
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Social Value Act 2012 legislation.
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Development released a report outli
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Benefits and Costs of Social Impact
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UK On 18 March 2010, Secretary of S
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US Massachusetts: The second of two
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US Federal: The U.S. Department of
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would establish a five-year pilot p
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We are dedicated to finding ways to
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In the past, public monies have oft
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indicate that more Americans want t
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Youth" to "Opportunity Youth" in or
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income must file a Form 990. The fo
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In its first three years, SIF has a
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The Office of Social Innovation pri
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of Management at UCLA; and launched
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Notes _____________________________
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Investing for Impact Case Studies A
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Contents What is Impact Investment?
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What is Impact Investment? Impact I
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A case study approach in an asset a
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Segments of Impact Investors High T
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Foundations Like high net worth ind
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in the developed and the developing
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By creating mechanisms through whic
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Asset Allocation Framework Asset cl
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Cash Shorebank Deposit Program fina
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Mezzanine/Quasi Equity Instruments
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Venture Capital Bridges Ventures CD
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Real Estate JP Morgan Urban Renaiss
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absolute return (hedge funds) BelAi
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senior debt Root Capital Impact Fir
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Venture Capital Aavishkaar Impact F
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eal estate Ignia Impact First Inves
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senior debt Root Capital Layered St
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The New York City Acquisition Fund
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Appendix Methodology The Investing
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Websites •• Bridges Ventures: h
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Cash Quasi Equity Public Equity Buy
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SOCIAL IMPACT INVESTMENT: BUILDING
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Global Research 29 November 2010 Im
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Impact Investments: An emerging ass
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About The Author John C (Jack) John
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