Tag Archives: Impact investing

DEVELOPMENT OF AN IMPACT INVESTING INDUSTRY

These are issues that I believe impact investment professionals will grapple with for the foreseeable future:

Impact Measurement. There is still no clear consensus on how to measure the social impact of impact investments. A number of methodologies have been developed, each seeking to create a standard that can be used across a wide range of investments.

  • IRIS is a catalog of impact metrics managed by the Global Impact Investor Network. IRIS is intended to provide a common language for measuring social, environmental and finance performance.
  • GIIRS ratings, developed by B Analytics uses the B Impact Assessment to rate the impact of a given investment or portfolio. The GIIRS rating includes an Overall Impact Business Model Rating, Overall Operations Rating and a Fund Manager Assessment.
  • The UN Global Compact measures companies’ performance in meeting universally recognized standards of human rights, labor, the environment, and anti-corruption. The Global Compact also encourages alignment with the UN Sustainable Development Goals.

In addition, several organizations have their own impact measurement methods tailored to suit their specific circumstances. Impact investors and social enterprises will need people who can sort through these methodologies, and understand how to apply them to their organizations.

Mainstreaming” of Impact Investments. When will impact investing become the norm? Will companies ever report social results alongside financial results as a matter of course?

Based on my experience at the IBL workshop, much of impact investing mirrors the startup world, involving relatively young and small companies whose value proposition includes some form of groundbreaking innovation. One sign of mainstreaming will be when we see larger, institution-sized impact investments. In addition, one wonders if we will see established, Fortune 500 companies reporting social impact results. These are companies that have tremendous influence on the global economy, the global workforce, and on communities and municipalities. They usually discuss their interactions with stakeholders in their annual reports, but that is not the same as an objective measurement of impact. How will impact influence executive compensation? Firm value? Corporate governance? Professional recruitment? These questions are being asked and discussed but the answers are still some distance away.

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IMPACT INVESTING IN EMERGING MARKETS

Recently, I along with a group of mid career professionals participated in a 3 day workshop entitled “Break into Impact Investing.”

The workshop consisted of seminars from leading practitioners in the field. They represented organizations such as Village Capital, Accion Venture Lab, Infodev (World Bank), and the Calvert Foundation.

Impact investing is a broad category that addresses many topics of concern around the globe. This workshop devoted much attention go early stage ventures in the developing world.

  • The Village Capital seminar for example focused on a case study featuring an a successful entrepreneur turned investor who need to allocate investment dollars between two mission driven startups, and Village capital’s own investment fund and a donation to Village Capital’s non-profit entity.
  • Infodev provides funding and support to entrepreneurs in the developing world. The seminar featured a startup in Kenya and dealt with several issues faced by impact investment funds such as how to define success, fund structure, and governance.
  • The Accion Venture Lab presentation offered insights on assessing a social venture at its earliest stage.
  • The Calvert Foundation discussed fixed income investments in the impact investment context, using vehicles such as the Community Investment Note to fund several kinds of loans to social enterprises, and the Ours to Own campaign to raise capital to revitalize urban centers including Denver, Baltimore, and the Gateway Cities of Massachusetts. The Calvert Foundation is a bit of a departure in that it uses debt instruments for impact investing.

All the presenters gave us frameworks to guide the process of impact investing. They had in common the identification of a value proposition or unmet need, development of a business model, and building a strong management team. It seem the elements of a promising startup are the same regardless of whether or not social impact is a factor.

It is also interesting to note that most of the cases and enterprises discussed were in Asia and East Africa. It was pointed out that Kenya is considered one of the more attractive countries for impact investing. East Africa’s popularity among the impact investment community is largely due to the advanced startup ecosystem in East Africa compared to other parts of the continent. The concerted effort to make Nairobi an African technology hub, plus the impressive regional integration efforts of the East African Community have attracted investment of all kinds including impact investment.

Careers in Impact Investing

In addition to learning about the industry, the workshop included insights on career options in impact investing.

The workshop organizer, Impact Business Leaders is in the talent development business, so the workshop was very much about career development and creating the talent pool for the impact investment industry.

Throughout the weekend career paths were revealed both implicitly and explicitly. Some of them include:

  • Portfolio manager – working with financial statements, managing relationships with portfolio companies.
  • Analyst/CFO – Overseeing accounting and financial analysis, being a resource to management for understanding financial issues.
  • Adviser/Consultant – working directly with entrepreneurs providing advice and technical assistance.
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Reflections on the UN Climate Talks (Guest Post)

The pledges are a good sign if followed up with action. Meanwhile there is a role for the private sector in promoting and implementing renewable energy, as well as energy saving and monitoring products and services. This is a huge opportunity for impact investors to achieve measurable, tangible results.

caribbeanclimate

Indi Mclymont-Lafayette (L), Journalist and the Regional Director of Panos Caribbean Indi Mclymont-Lafayette (L), Journalist and the Regional Director of Panos Caribbean

COP 20 wrapped up in Lima, Peru last week and many attendees are reflecting on the negotiations. Today Caribbean Climate features a review by Indi Mclymont-Lafayette, a Journalist and the Regional Director of Panos Caribbean – a non-government organisation that focuses on development communication.

Soo… what has been achieved after two weeks of talks?

That was the question one of my friends whatsapped me – knowing that I was attending the 20th United Nations Climate Talks in Lima, Peru from December 1-12.

I hesitated before answering.

Truth to tell, if you followed the achievements highlighted by the United Nations – then a lot had been done. The achievements included:

  • Country pledges to the Green Climate Fund (GCF) pushing it past a US$10 billion start up target.
  • Germany pledging and giving 55 million Euros (roughly US$68 million) to the Adaptation…

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Sustainability Measurement and Reporting – IRIS

 

IRIS DEFINED

IRIS, Impact Reporting & Investment Standards, is a reporting language developed under the auspices of the Global Impact Investing Network to encourage a common methodology for social impact reporting.

WHO USES IRIS AND WHY?

IRIS was designed for investors and organizations seeking investment. IRIS was born as a spinoff of an organization of investors and therefore reflects an impact investor’s perspective. It is useful to several types of investors including:

  • Investors in funds that may or may not focus on social investment
  • Direct investors in companies
  • Companies raising capital

One could also make the case for additional use of IRIS metrics by exporters seeking to participate in global supply chains.

MEASUREMENT CATEGORIES

  • Organization Description – the organization’s mission, business model, and location
  • Product Description – description or the organization’s products, services, and target markets
  • Financial Performance – standard financial statements and ratios plus other metrics related to micro enterprises and community service
  • Operational Impact – metrics that describe the organization’s policies, employees, and environmental impact; this is where sustainability is measured as well as other social metrics such as diversity
  • Product Impact – the performance and reach of the companies products and services; these metrics address the extent to which the venture contributes to the local or national economy and to quality of life indicators

The IRIS website also contains a glossary of terms used in impact measurement.

SECTOR METRICS

Most IRIS metrics are relevant to the organization across sectors. Some have particular relevance to organizations whose activities impact a certain sector.

IRIS identifies eight specific impact sectors:

  • Agriculture
  • Education
  • Energy
  • Environment
  • Financial Services
  • Health
  • Housing/Community Services
  • Water

IRIS is a useful tool for measuring social impact in a developing country context. International organizations and development financial institutions such as the International Finance Corporation often require companies seeking funding to show the economic, social and or environmental impact of their venture. IRIS can be used for making the case for investment in a given company, product or service, or project, even when it does not maximize returns on a purely financial basis. It is also useful for tracking progress against goals and reporting to stakeholders.

I would encourage all businesses operating in emerging and frontier markets to begin measuring the sustainability and social impact of their activities. This is especially true for exporters. These indicators are growing in importance not only for investors, but also for larger corporate and government buyers facing pressure to demonstrate corporate social responsibility. These companies will look to their supply chains to help boost their CSR scores. If the expertise does not exist in-house, seek out professionals with the technical and financial expertise to get the job done.

 

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