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ADB’s Inclusive Business Impact Assessment Tool

Proposal for Further Discussion

Inclusive Business Forum for India

30-31 August 2012, Discussions with Fund Managers and

Development Partners in Delhi and Mumbai

For inquiries: Dr. Armin Bauer, Principal Economist, Regional and Sustainable Development Department, Asian Development Bank, abauer@adb.org, Tel: 0063-26325550

What we will discuss

1. What is Inclusive Business at the BoP?

2. What is the social impact?

3. How do others measure it?4. ADB’s proposal to measure impact

� Why?

� The 5 steps

� Proposed TA Facility

5. Impact Assessment as part of ADB’s IB Initiative6. Conclusion and further Discussions

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Disclaimer: The views expressed in this paper/presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. Terminology used may not necessarily be consistent with ADB official terms.

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What is Inclusive Business ?

Inclusive Businesses are � Commercially viable private

companies� Whose core business solutions

are designed� address pressing social (and

environmental) issues � for the poor and vulnerable ($3

and below)� through

� The provision of goods� Services, or� Income and decent work

opportunities� To provide goods and services or

employment opportunities Their investments will improve � in a systemic way and� through scale� the living conditions and

livelihood of the women, men, and children at the base of the pyramid 3

poor ($2)

very poor ($1.25)

Total popuklation (million people)

Sources: World Bank PovCalNet (24 Aug 2012 update), ADB Key Indicators 2012

The Base of the Pyramid

the rich

East and Southeast

Asia

South Asia

Latin America

% of population (2009)

the lower and upper middle class

94.1 31.4

vulnerable ($3, $4)88.4 22.0

inclusive business70.9 12.4

36.0 6.5

65.9

53.0

33.2

14.3

1,983.1 1,586.7 569.5

impa

ct

How does Inclusive Business differ from Corporate Social Responsibility?-> Scale of impact and commercial viability

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Philantropie / NGO

CSRsocial

enterpriseinclusive business

mainstream business

business criteria

financial viability not viable not viablecommercially

viablefully commercially viable

(profitable)profitable or

highly profitable

rate of return (percent net per year) 0 0 0-10 10-25 10-50

turnover in business (million $per year) < 0.5 < 0.25 < 1.0 0.5 - 30 > 10

net profit per year (million USD) 0 < 0.05 0.05 - 0.1 0.1 - 10 1 - 500

investment (million USD) < 0.25 < 0.1 0.1 - 0.9 1 - 15 > 3

growth potential (average percent per year over 5 years)

< 5% < 2% 5% - 10% 10% - 25% > 15%

social impact criteria

main purpose of the business is social impact

yes yes yes mixed (business + social) no

social impact area community / local community / local local sector / country / systemic

bottom line triplesingle or double

or tripletriple double or triple single

benefitting households (total over 5 years, number of households)

500 250 less than 5,000 5,000 - 50,000 anything

of which poor (under the $2 poverty line, %)

80% 20% 10% 30% 10%

of which vulnerable (under the $4 poverty line; %)

10% 50% 20% 50% 10%

of which non poor and not vulnerable 10% 30% 70% 20% 80%

Other exclusion criteria for ADB Fundmicrofinance, BoP business for private consumption goods

Characterists of inclusive business and social ent erprises

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Measuring Impact- key principles

� Its not about

� measuring rate of returns or size of profit

� General impact investing (environmental or other impact)

� It is about social impact on low income people

� $3 international poverty line

� Social exclusion

� Focus on contribution rather than attribution

� Understanding the impact chains

� We favor assessment over self-reporting

� Quantifying before and after / with and without solutions

� The tool has to be simple and affordable; and easy to report on5

Monitoring impact investments- what the others do

� Its not about

� measuring rate of returns or size of profit

� General impact investing (environmental or other impact)

� Issues

� Focus on contribution rather than attribution

� Range of impact: direct, indirect, systemic

� Reach and depth of impact

� Ex ante � ex-post

� Understanding the impact chains

� Stakeholder perception: We favor assessment over self-reporting

� Data gathering:

� Quantifying before and after / with and without solutions

� The tool has to be simple and affordable; and easy to report on

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It is more about social impact on low income people ($3 international poverty line)-Inclusive growth goes beyond poverty (�Social exclusion), - but is not “trickle down

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Monitoring impact investments- what the others do

� Global Impact Investors’ Network (GIIN): developed the Impact Reporting and Investment Rating (IRIS)

and a Global Impact Investing Rating Scheme (GIIRS)

� IRIS:

� Set of indicators � companies or funds can chose from for self reporting

� Common langue for reporting social and environmental impact, Not context specific

� GIIRS

� Social and environmental impact

� Weighting and rating (1-5 stars)

� Can we compare?

� Aspen Network of Development Entrepreneurs (ANDE)’s core set of metric: Revenue, employees, wages,

additional finance mobilized, greenhouse gas emissions avoided

� IADB: number of beneficiaries, cost per beneficiary, innovation factor, role of BoP, scalability, replicability

� KfW/DEG: impact rating system: combination of social, financial and economic returns

� IFC’s Development Outcome Tracking System (DOTS): focus on growth and jobs; financial performance,

environment-social=governance standard, private sector development7

ADB Impact Assessment Tool - 5 Steps

A tool for a fund manager to assess individual possible deals, not for portfolio screening

5 steps

� Eligibility gate : financial soundness, good business case, social inclusiveness

� Routes to Impact (smell test): how does the company achieve the combination of financial and social objectives: unmet

development needs, proposed inputs, planned outputs, anticipated outcomes, anticipated impact, alignment of social and

financial objectives

� investment decision

3. Scoring: social impact and inclusiveness; direct beneficiaries and poverty ratio, distribution benefits, gender, percentage

change, systemic impact (innovation and scalability), distribution and use of company profits, relevance and critical need for the

poor, internalization of inclusiveness in the company’s business culture

4. Setting Targets

5. Assessing the Fund Manager’s performance

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ADB Impact Assessment Tool - 5 Steps

� Eligibility gate : financial soundness, good business case, social inclusiveness

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ADB Impact Assessment Tool - scoring

1. Eligibility gate: financial soundness, good business case, social inclusiveness

2. Routes to Impact (smell test):

� how does the company achieve the combination of financial and social

objectives:

� unmet development needs, proposed inputs, planned outputs, anticipated

outcomes, anticipated impact, alignment of social and financial objectives

� investment decision

3. Scoring

4. Setting Targets

5. Assessing the Fund Manager’s performance

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ADB Impact Assessment Tool - scoring

1. Eligibility gate: financial soundness, good business case, social inclusiveness

2. Routes to Impact (smell test):

3. Scoring (1-10, or high-medium-low; weights depending on ADB strategic

priority):

� social impact and inclusiveness; direct beneficiaries and poverty ratio, distribution benefits, gender,

percentage change, systemic impact (innovation and scalability), distribution and use of company profits,

relevance and critical need for the poor, internalization of inclusiveness in the company’s business culture

� Good business case conditions: alignment of financial and social objectives, value for money (cost per

beneficiary), management of negative social, environmental, governance impact, proven quality of

financial performance, quality of strategy

4. Setting Targets

5. Assessing the Fund Manager’s performance13

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ADB Impact Assessment Tool – setting targets

1. Eligibility gate: financial soundness, good business case, social inclusiveness

2. Routes to Impact (smell test):

3. Scoring

4. Setting Targets for systemic change on poverty reduction and

inclusiveness� Fund manager will set targets for each project, in consultation with company and ADB

� Along the routes of impact

� Direct and indirect

� Data point should be referenced to the IRIS set of indicators

5. Assessing the Fund Manager’s performance

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ADB Impact Assessment Tool –assessing fund manager’s performance

1. Eligibility gate: financial soundness, good business case, social inclusiveness

2. Routes to Impact (smell test):

3. Scoring

4. Setting Targets for systemic change on poverty reduction and inclusiveness

5. Assessing the Fund Manager’s performance (impact coefficient)� Principles

� incentives to select business ventures with significant pro-poor and inclusive business impact Maximize not only commercial

returns

� Nothing without social impact

� Quantitative and qualitative matrix to determine the impact coefficient (UBS):

� Impact coefficient

� Investment policy target

� Investment target on Pro poor reach

� Achievement of specific targets (incl. innovation of IB business models promoted)

� Quality of reporting

� annual impact assessment (Aureos Health Fund) or carry (15%+5%+5%) or combination17

ADB Impact Assessment Tool –assessing fund manager’s performance

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ADB Impact Assessment Tool - Reporting

For the investment committee

� Initial screening

� Investment approval

� Portfolio management and monitoring

Reporting to ADB / development partners

� Core metrics: number of beneficiaries, route to impact, revenue and profit generated, additional capital

mobilized,

� Company specific metrics: output and outcome indicators

� Additional qualitative indicators, e.g.: empowerment of the poor (organizing in cooperatives, involvement

in company’s decisions), engagement of NGOs, change sin government systems

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ADB Impact Assessment Tool –

� In sum

� A rating instrument

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ADB Impact Assessment Tool –in sum

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For discussion: Harmonizing the tool

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ADB Inclusive Business websitehttp://www2.adb.org/projects/Base-Pyramid/default.asp