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 edward_jackson@carleton.ca

Karim Harji Co-Founder and Partner, Purpose Capital Senior Research Associate, Carleton Centre for Community Innovation karim@purposecap.com

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Contact Information