First Mover Banks Come Clean on Climate Risk

Mark Carney, left, and Michael Bloomberg are authors of the final recommendations of the G20 Financial Stability Board’s Task Force on Climate-Related Financial Disclosures. Carney is a Canadian economist who currently serves as Governor of the Bank of England and chairs the Financial Stability Board. American businessman, author, politician, and philanthropist, Bloomberg is a former mayor of New York City. His current net worth is estimated at US$50.4 billion, ranking him as the world's sixth richest person. (Photo courtesy G20 Financial Stability Board) posted for media use.

Mark Carney, left, and Michael Bloomberg are authors of the final recommendations of the G20 Financial Stability Board’s Task Force on Climate-Related Financial Disclosures. Carney is a Canadian economist who currently serves as Governor of the Bank of England and chairs the Financial Stability Board. American businessman, author, politician, and philanthropist, Bloomberg is a former mayor of New York City. His current net worth is estimated at US$50.4 billion, ranking him as the world’s sixth richest person. (Photo courtesy G20 Financial Stability Board) posted for media use.

By Sunny Lewis

LONDON, UK, July 18, 2017 (Maximpact.com News) – Eleven of the world’s most influential banks have committed to work with the UN Environment Finance Initiative (UNEP FI) to promote climate transparency in financial markets. The banks will develop analytical tools to strengthen their assessment and disclosure of climate-related risks and opportunities.

“The message from financial heavyweights is clear – climate change poses a real and serious threat to our economy,” said Erik Solheim, head of UN Environment, formerly known as the UN Environment Programme (UNEP).

“At the same time, there are enormous business opportunities in taking climate action,” Solheim said. “Transparency on how financial institutions mitigate the risks and seize the opportunities of a two degrees pathway is crucial to move international markets towards actively supporting a low-carbon and climate-resilient future.”

The “two degrees pathway” is a reference to the Paris Agreement on climate, which has near unanimous support among world governments, for its goal of holding any rise in the global warming to two degrees Celsius above pre-industrial temperatures.

UNEP FI, a partnership between UN Environment and the global financial sector created after the 1992 Earth Summit, works to promote sustainable finance. Over 200 financial institutions – banks, insurers and investors – work with UN Environment to understand today’s environmental challenges, why they matter to finance, and how to actively participate in addressing them.

Representing over US$7 trillion, the first-mover 11 banks are:

  • the Australia and New Zealand Banking Group;
  • the British multinational bank and financial services company Barclays;
  • Brazilian banking and financial services company Bradesco;
  • New York-based multinational bank and financial services company Citi;
  • Itaú Unibanco Holding S.A, the largest financial conglomerate in the Southern Hemisphere;
  • National Australia Bank;
  • Royal Bank of Canada;
  • Santander Group, which serves more than 100 million customers in the United Kingdom, Latin America, and Europe;
  • Standard Chartered, a British banking and financial services company operating more than 1,200 branches in 70 countries;
  • TD Bank Group, a Canadian multinational banking and financial services corporation headquartered in Toronto;
  • UBS, a Swiss global financial services company.

These banks’ commitments follow the publication late last month of the final recommendations by the G20’s Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) .

The initiative will enable banks to follow the recommendations of the Task Force headed by Mark Carney and Michael Bloomberg. The Task Force recommendations were presented in Hamburg, Germany at the G20 annual meeting last week.

“Increasing transparency makes markets more efficient and economies more stable and resilient,” said Bloomberg in the Executive Summary of the Task Force report.

Key features of the recommendations are that they must be: adoptable by all organizations, included in financial filings, designed to solicit decision-useful, forward-looking information on financial impacts, and have a strong focus on risks and opportunities related to transition to a lower-carbon economy.

The Task Force presents the financial side of climate change, saying, “For many investors, climate change poses significant financial challenges and opportunities, now and in the future. The expected transition to a lower-carbon economy is estimated to require around $1 trillion of investments a year for the foreseeable future, generating new investment opportunities. At the same time, the risk-return profile of organizations exposed to climate-related risks may change significantly as such organizations may be more affected by physical impacts of climate change, climate policy, and new technologies.”

The banks not only welcome the Task Force’s recommendations but are the first from their industry to work towards adopting key elements of the unique framework.

Bank executives say that by improving their understanding of climate-related risks and opportunities, financial institutions are better placed to help finance the transition to a more stable and sustainable economy.

Ed Skyler, ‎executive vice president for global public affairs at Citi, said, “The scale and sophistication of climate risk and opportunity continue to grow, and the finance sector has an important role in shaping the path forward. Working together to refine our approaches to enhanced disclosure will help accelerate the transition to a low-carbon economy.”‎

The Financial Stability Board, chaired by Bank of England Governor Mark Carney, asked the Task Force to develop voluntary, consistent climate-related financial risk disclosures for use by companies, investors, lenders and insurers.

Jes Staley, CEO of Barclays PLC, said, “As a contributing member to the work of the FSB Task Force over the past 18 months, Barclays is pleased to be able to continue our involvement by joining this UNEP FI Working Group.  Putting the theory into practice – or exploring how best the Recommendations can be implemented – and creating greater transparency for all participants, is an endeavour we look forward to working on with our fellow Working Group participants.”

The Task Force warns in no uncertain terms about the dangers of continuing with fossil fuel business as usual, particularly after the Paris Agreement was adopted in December 2015.

“To stem the disastrous effects of climate change within this century, nearly 200 countries agreed in December 2015 to reduce greenhouse gas emissions and accelerate the transition to a lower-carbon economy. The reduction in greenhouse gas emissions implies movement away from fossil fuel energy and related physical assets. This coupled with rapidly declining costs and increased deployment of clean and energy-efficient technologies could have significant, near-term financial implications for organizations dependent on extracting, producing, and using coal, oil, and natural gas.”

“While such organizations may face significant climate-related risks, they are not alone. In fact, climate-related risks and the expected transition to a lower-carbon economy affect most economic sectors and industries,” the Task Force states.

Its recommendations are being welcomed by financial institutions and civil society alike, as the role of the finance sector in meeting the Paris Climate Agreement’s goals becomes crystal clear.

This first mover project to implement the recommendations puts the 11 UNEP FI members in the vanguard of this effort. Its results will be made public to encourage banks worldwide to adopt the scenarios, models and approaches developed.

“Sustainable finance is about two imperatives – improving the contribution of finance to sustainable, low-carbon and inclusive growth, and ensuring financial stability in light of environmental risks such as climate change,” said Christian Thimann, group head of strategy, sustainability and public affairs at the AXA Group, and co-chair of UNEP FI and TCFD vice-chair.

“The TCFD framework emphasizes how achieving these two goals requires that financial and non-financial corporations provide more transparency on how they plan to address the risks and opportunities related to climate change,” said Thimann.

Denise Hills, sustainability superintendent, Itaú, and co-chair of the UNEP FI Steering Committee, said, “Our participation in this UNEP FI initiative strengthens our commitment to a global economy in transition. At the same time, it reinforces our purpose to be a transformation agent to add value for our clients, shareholders and society in an ethical, consistent and responsible way.”

“After the G20,” said Thimann, “the issue now is about implementation. How can the finance industry put the framework into practice and deliver disclosure that is meaningful? Through this and other industry-led working groups UNEP FI is helping the finance sector to do just that: move from awareness to action.”


Featured Image: The Citigroup Center in Chicago, Illinois (Photo by anokarina) Creative Commons license via Flickr.

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Impact Investing Offers Opportunity to Wealth Managers

42879484 - businessman running in money wheel on blue background

by Robert Rubinstein, Chairman & Founder of TBLI Group.

I have had many conversations with private bankers who manage wealth portfolios, and they all lamented the difficulty of getting HNW clients interested in Impact Investing. They all recount to me the challenges they face in getting HNW clients to become interested in Impact Investing. I have heard this excuse hundreds of times. It is getting boring. This is what I tell them now.

“The reason you can’t seem to convince your client about ESG or Impact Investing, is because you are not good at getting buy in”.” It is hard to convince clients of a new product when you were selling them past products that were the new wonder middle. CDO’s.” “With that track record, it is hard to win back trust and it appears to the client that Wealth Managers are not fully committed. The Private Bankers all seem to live in fear of their clients. They don’t lead them but follow them. How can you engage with your clients, if you are afraid of them (afraid them leaving), you don’t understand values based investing, and you don’t engage with clients on Impact Investing (illiquid investments with a story) that would provide a sense of fulfilment, and you still operate in a ghetto of limited information. The best part is when Private Bankers all tell me “Clients are not interested in Impact Investing”. I laugh my head off. One even went so far as saying “none of our clients (100%) are interested in sustainable investments”. I never encountered anything that has 100% success or failure rate.

Client Engagement

Asset owners who meet with their wealth managers are often confronted with the comment “sorry your portfolio is down, because interest rates are so low”. That conversation is a dead conversation.

It is not inspiring, joyful, or interesting. The liquid part of the portfolio often represents 80-90% of the portfolio. So hearing that 80-90% of your portfolio is down because of low interest rates won’t put a spring in your step.

The part that represents a very small percentage of the portfolio, alternative investments or illiquid investments is the part where wealth managers can really engage, particularly the part called Impact Investment. If you look at the 10-20% of a client’s portfolio and within that you might find a razor thin part that could be considered “impact investing”. It is that tiny part of the portfolio that wealth managers can really engage with the client, and get clients passionate, excited, and most of all a feeling that the wealth managers made the client’s day. Isn’t that something to which to aspire.

It is refreshing to see that most Wealth managers are in one form or another starting to introduce clients to Impact Investing Product. Now instead of saying that the client is not interested, the excuse is there are no quality products at scale. Another fallacy. There are plenty of quality impact investing product at scale. Just need to start exploring other neighbourhoods, and not only your Bloomberg terminal.

You can’t find 100% of anything anywhere who believe the same, unless you are a private banker. How about waking up, smell the roses, engage with your client, gain some fulfilment, and get your bonus?

For the number crunchers who still need convincing.


Robert RubinsteinRobert Rubinstein, Chairman & Founder of TBLI Group.

TBLI-Building A Global Community of Values Based Investors

For the past twenty years, Robert Rubinstein, through the TBLI Group, has been instrumental in integrating Values Based Investing (VBI) into the culture and strategy of international corporate business and investment companies. He has worked tirelessly in raising awareness and creating money flows into ESG (liquid assets in Environmental, Social and Governance investments and Impact (illiquid assets in sustainability). The work is akin to farming and not hunting. Using what he calls the Shawshank Redemption approach vs the Wolf of Wall Street. Continuously chipping away at the system for 20 years to break through.

Africa Investment Forum Debuts at GITEX

afdbadesinainvestiture

Akinwumi Adesina, center with trademark bow tie, with the African Development Bank Board of Directors at his investiture ceremony, Abidjan, Cote d’Ivoire, Sept. 1, 2015 (Photo courtesy Office of the AfDB President)

By Sunny Lewis

ABIDJAN, Côte d’Ivoire, October 25, 2016 (Maximpact.com News) – The African Development Bank has launched the Africa Investment Forum as a meeting place for social impact investors who wish to transact business and deploy funds in Africa. The Forum will showcase bankable projects, attract financing, and provide platforms for investing across multiple countries.

Approved by the Board of Directors of the regional multilateral development financial institution on October 7, the Africa Investment Forum’s initial outing just 10 days later was a juicy one – a featured spot at GITEX Technology Week in Dubai.

GITEX, the Gulf Information Technology Exhibition, is a fast-growing annual consumer computer and electronics trade show, exhibition, and conference held in Dubai, United Arab Emirates.

gitex-2016-startups-3-400x225

African attendees at GITEX Technology Week 2016, Dubai, UAE (Photo courtesy Government of Nigeria)

 GITEX 2016 hosted 600 exhibiting companies from 60 countries at the largest technology exchange and marketplace for the Middle East and Africa.

On October 17, the National Information Technology Development Agency (NITDA) of Nigeria co-managed the Africa Investment Forum with the Dubai World Trade Centre as one of the conference highlights.

The Forum focused on technology investments and how African countries could increase the value ICT to help develop their economies, particularly in the fields of business startups, education, cybersecurity, retail, energy, healthcare, and finance.

Dr. Vincent Olatunji, acting director-general of Dubai’s National Information Technology Development Agency, said, “The ICT sector is no longer marginal in Nigeria and many African countries. Investment in ICT has in the last decade become profound in both social and economic terms.”

In the context of the ‘information economy,’ Africa has gained significantly as ICT virtually drives a huge portion of national economies,” Dr. Olatunji said.

 The Africa Investment Forum gathered major economic and technology influencers, business leaders and political decision makers to help put in achievable context what’s next for the continent’s ICT sector.

“In Nigeria,” said Olatunji, “this sector is already deemed the most viable non-oil sector and the Nigerian government is further energizing this sector to bring more benefits.”

The Board of the African Development Bank views the Forum as a broad avenue for connecting investors with both public and private sector projects throughout the continent.

President Akinwumi Adesina, Chairman of the AfDB Board said, “I commend the immense support and encouragement by Board members. The new structures are well thought out and will enable the Bank to achieve its transformation objectives.

 Adesina, formerly Nigeria’s minister of agriculture and rural development, said, “The African Investment Forum is a transformational instrument that will make it possible to crowd in investments to garner the huge financing required in critical areas, with the private sector playing a crucial role.

Senior Vice President Dr. Frannie Leautier said, “The AIF will coordinate with other Africa investment fora and work to strengthen collaborative efforts to crowd-in necessary investment, and attract social impact financing to Africa.

She said, “It will support AfDB regional member countries and potential investors through the provision of rigorous, authoritative and robust, business intelligence and analytical work on African’s competitiveness.

 At the same October 7 meeting, the Board created two new environmentally-related departments within the African Development Bank.

They established a Water, Human and Social Development Department as well as an Infrastructure, Cities, and Urban Development Department.

These are refinements to the institution’s new Development and Business Delivery Model, approved by the AfDB Board of Directors on Earth Day, April 22, 2016.

The Development and Business Delivery Model aims to streamline business processes to improve efficiency, enhance financial performance; increase development impact, and move the bank’s operations closer to its clients to improve delivery of services.

The new structure, which will be rolled out in phases over the 2016-2018 time period, is designed to ensure the successful implementation of the Bank’s Ten Year Strategy and its five scaled-up core development priorities for the continent, nicknamed the High 5s:

Light Up and Power Africa
Feed Africa
Industrialise Africa
Integrate Africa
Improve the Quality of life of the People of Africa

African development is no longer just about agriculture, although food production is still key to most African economies. The African Development Bank is moving forward on the industrial side with its most recent appointment. On October 24, Amadou Hott of Senegal was named vice-president, power, energy, climate and green growth.

Hott was the founder and chief executive officer of the Sovereign Wealth Fund of Senegal, where he spearheaded major infrastructure investments and integrated energy solutions for clients, including structured financing for power and utilities, oil and gas, metals and mining, as well as renewable energy projects.

The AfDB was founded following an agreement signed by member states on August 14, 1963, in Khartoum, Sudan, which became effective on September 10, 1964. The AfDB includes three entities: the African Development Bank, the African Development Fund and the Nigeria Trust Fund.


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Investors Assess Their Climate Risks

smokestackhelsinki

Greenhouse gas emissions from the coal-fired cogeneration Hanasaari B power plant at sunset in Helsinki, Finland, March 9, 2013 (Photo by Fintrvlr) Creative Commons license via Flickr

By Sunny Lewis

OAKLAND, California, October 20, 2016 (Maximpact.com News) – Investors are being put on notice that some mutual funds and exchange traded funds labeled “sustainable,” “ecology,” “green” or “integrity” may actually have very high carbon footprints.

Now, a free software tool that empowers investors to track the carbon pollution that companies embedded in their funds are emitting has expanded its analysis to cover funds worth US$11 trillion.

FossilFreeFunds.org, a website created by the environmental advocacy nonprofit As You Sow, has added carbon footprinting of over $11 trillion in global mutual funds and ETFs to the site – the largest-ever analysis of this kind.

Fossil fuel investments carry real financial risks,” says FossilFreeFunds.org on its site. Their analysis covers more than 8,500 global mutual funds, including 3,000 of the most commonly-held funds in U.S. retirement plans, so that all investors can be aware of the climate risk in their retirement accounts, with financial data provided by Morningstar.

In August, Morningstar introduced a Sustainability Rating for Funds that offers an objective way to evaluate how investments are meeting environmental, social, and governance challenges, helping investors put their money where their values are.

Transparency leads to transformation,” said Andrew Behar, CEO of As You Sow. “Measuring a company’s carbon emissions is a critical way to understand the specific climate risk of your investments.

We have aggregated this data for all of the companies embedded in each of the 8,500 most-held global mutual funds and ETFs,” said Behar. “This tool enables every investor to answer the question, ‘Am I investing in my own destruction or the clean energy future?

The analysis uses data from global sustainability solutions provider South Pole Group, and yourSRI.com, a carbon data analyst and reporting solution provider for responsible investments.

Intially, the analysis will cover funds in Denmark, France, Germany, Hong Kong, the United Kingdom and the United States. The developers plan to expand to include every fund in every exchange around the world.

Institutional investors such as California’s CalPERS and Sweden’s AP4 have embraced carbon footprinting as a way to protect their assets from climate risk.

Major index providers are increasingly offering low-carbon options that incorporate a footprinting analysis.

Traditional fossil-free investment approaches avoid companies with reserves of coal, oil, and gas that represent potential future emissions.

Carbon footprinting turns the focus to current greenhouse gas emissions, helping reveal businesses that operate with higher and lower footprints than their industry peers.

californiaoilrefinery

ConocoPhillips oil refinery, Rodeo, California, December 11, 2012 (Photo by ah zut) Creative Commons license via Flickr

As You Sow explains that, “Carbon footprinting a mutual fund means accounting for the quantification and management of greenhouse gases. It is the first step towards understanding an investor’s impact on climate change.

A carbon footprint is calculated by measuring and/or estimating the quantities and assessing the sources of various greenhouse gas emissions that can be directly or indirectly attributed to the activities of the underlying holdings.

 “Decarbonizing” a portfolio involves investing in companies that have lower carbon footprints than their peers.

The FossilFreeFunds.org platform allows investors to see real scores that are updated every month with Morningstar’s latest holdings data.

A few examples from the analysis:

  • Given that BlackRock recently published a major report on portfolio climate risk, it may be a surprise that the BlackRock Basic Value Fund’s (MABAX) has a carbon footprint 170 percent higher than its benchmark, the Russell 1000 Value Index.
  • Dimensional Social Core Equity (DSCLX) has 85 percent more carbon than the MSCI All World Index, with 13 percent of the portfolio made up of fossil fuel companies including Shell, BP, and tar sands giant Suncor.
  • The State Street SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX) holds 40 fossil fuel companies, including companies with reserves like Phillips66, Valero, and Marathon; coal fired utilities Duke Energy and Southern Company, and oil field services leader Halliburton.

Having funds with smaller footprints is one way to avoid climate risk,” said Andrew Montes, director of digital strategies at As You Sow. “It also actively rewards companies that have made positive decisions to lower the climate impact of their operations.

Investor demand will drive fund managers to drop companies with high carbon footprints and include those companies that are shifting to the clean energy economy,” explained Montes.

By providing a way to examine carbon demand and consider the value chain when measuring climate impact, the data can help investors large and small reconcile their investing with their values.


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8 Essential Things You need to Know When Looking to Raise Capital

Capital Raising

By Maximpact

Whether you are a seed, start-up, growing, established or mature company – at one point of another – you need to raise capital. In days past, this usually meant going to the bank to apply for a loan or perhaps sharing your ideas with your rich great uncle over tea. But in the modern age of the Internet and the technologies at our disposal, there are diverse and viable options for raising the capital you need. To better understand the 8 essentials you must know to raise capital. Let us first briefly discuss the common methods used to obtain capital.

Ways to Raise Capital

Friends and Family: 

They have always been there for you and you for them. Often if you have a great idea or need to grow your business, they are happy to get on board and support you all the way. There are disadvantages in the fact that relationships can be strained if you are slow to see returns on investments or things “go bust”.

Loans / Banks: 

Among them,

1) Long term loans, most often for large investments like expansion, acquisition or working capital. These loans are typically paid monthly and tend to have lower interest rates, but you must borrow a very large sum of money.

2) Short term loans, most often for immediate needs like accounts payable, or small projects, things that keep your business functioning in the short term. These also require monthly payments and are a bit easier to get, but the interest rate may be higher for loan amounts.

3) Line of Credit is a flexible option. You apply in advance and then request only the money needed in small increments. As you continue to replenish the money you can draw out more up to your limit. The downside is that the funds are limited. And, similar to credit cards, interests can be high. These are best only used for emergency shortfalls and not as an every day means to obtain capital, although some businesses use it in this way.

4) Alternative Financing, is things like cash advances, asset-based loans, leasebacks. These can be helpful as a last resort, but due to the high interest rates and low dollar amounts, they should be used with caution.

Venture Capital

This type of financing in provided by investors, who believe that your startup or small business can become a great success with the help of their money and they see great long term potential. The investors are taking a great risk, so they expect exceptional returns in a reasonable amount of time. This means that they will likely require a significant chunk of equity in the business and will want to have some say in how you do things regardless of whether they have a majority share. The partnership between a venture capitalist and an entrepreneur has incredible potential to generate wealth if the drive is there and smart decisions are being made with the money.

Crowd funding Platform such as Kickstarter

There are many crowd funding options today largely thanks to the success of a crowd funding website, kickstarter.com. These utilize the power of social media and hype to get everyday people excited about ideas. These can raise a lot of money in small increments, but it can be hard to generate the kind of excitement that can propel a crowd funding attempt. Additionally, you only receive the funds if you reach your funding goal and you need to provide something in return to the funders i.e. your product prototype, a trip to see your facilities or a thank you note.

Microfinance 

This type of financing is available when loans are not an option. They are more creative, often group-based models where entrepreneurs and small business work together to obtain funding. This form of financing is often done as a form of stimulus within an industry or impoverished area. The businesses are coming in to solve problems and, to obtain those funds, they must show that they have a plan.

Private Equity 

Private equity is usually about taking an existing company with existing products and existing cash flows, then restructuring that company to optimize its financial performance. This process can be very painful, but is done with the plan of being better and more profitable on the other side.

What do investors want?

If you are looking to raise capital, you have to stop thinking like a business owner or entrepreneur and start thinking from the investor’s point of view. This will be your ultimate guide as you navigate the sea of capital funding efforts.

What do all types of investors look at when people come to them for capital raising?

Investors of all types are all busy people. They receive hundreds of business plans, investment requests, investor pitch decks and the like a week. Going through all that requires time and effort. Usually, they would have trained staff looking through the documentation. These staff members know what to look for and they are good at what they do. If they don’t see it quickly, they will pass. Plans get selected based on their criteria and only then do the venture capitalists, investors and decision makers review the very few that they have selected. These odds are not in your favor. But once you get through these “screeners”, you have a real shot and getting the capital you need.

Are you investor ready? Investment-ready guide provides a quick overview of the needed material.

So, how do you get through to the next round? 

Now that you understand how this “game” works, you know that this is your goal. So next we will discuss the 8 essentials that you need to know to get through to the next round. Essentially it comes down to the below mentioned points:

1. Provide investment-ready material

Have all your documentation ready, well structured and in the format that the investors and their team can read and understand immediately. Do not ask them to kindly go to your website to find out more at the initial selection stage. That is a sure way to end up in the shred pile. All the important, relevant and decision influencing information must be clearly included in the investor pitch deck and business plan.

Financial people who look through the information are trained in a certain way. They go through schooling and education that teaches them to read and see information based on key metrics and points. Including those points and presenting them in a format that they understand will tell them the whole picture quickly and easily. If your financials are not presented in standardized format that they are able to read and understand quickly, then your project – no matter how good it is – will get the “reject” stamp.

2. Have a strong business plan

What do investors look for in a business plan? This is essential to understand. Guessing what they think is not a sure road to success. This is the complete roadmap and blueprint of your business. It must include a solid development and operations strategy, market study and marketing strategy, risk management, investment offering, exit strategy and other essential items needed for your business to succeed.

3. Be clear on strategy and competitive edge

How well did you think through and outline your strategy? It matters. They expect you to think through everything and think like an expert because of solid research even if you are new to this. A lot of business plans do not make sure that they outline their business and marketing strategy in full. This in turn shows investors that you have not thought through critical elements and they will pass.

4. Include all important company information

If you are an operating business or project, let the investors know. This will give you more credibility than startups. Investors will feel more comfortable with projects and businesses that have been operating for several years, as you know the ups, downs, risks and you already have hands-on experience in the sector. Even if you are not yet earning net income, having your operations or some of your operations set up is an advantage. With an operating business, projections and valuation can be done more accurately than a startup. Use that leverage to get their attention to pass through to the next round.

5. Do not undervalue your management team

Many would not think this is important as important as the business idea. But to a lot of investors this is very important, especially to Venture Capitalists. Venture Capitalists pay a great deal of attention to the management team, their experience and personality. Some Venture Capitalists will even admit that they have given money to entrepreneurs rather than to the business idea, because they knew that the entrepreneur would make it work. Attaching professionally laid out and curated CVs to business plans is highly important. Do not underestimate the human resource aspect.

6. Know the investor, valuation and scalability of your business 

Knowing which investor to approach is very important to your chances of success. If your business can only be set up in one place and does not have scalability potential, then you might not approach certain investors. If your project, technology or business is subject to scalability to other countries, regions, markets this is important to mention in your business plan.

A lot of businesses assume they know the valuation of their business. Valuation in financial terms is more complex than one might think. Having a business valuation done by a certified 3rd party brings credibility, comfort and seriousness to your project as well as an advantage for your project or business in that you know your business valuation.

7. Really consider what documents do you need

Essentially it comes down to two pieces of material:

  • Investor Pitch Deck: this is a presentation on roughly a 10-page slide. This is the first communication you would send to an investor, so they can scan through and see whether they are interested in reading your business plan.
  • Business plan: this an in-depth document that will outline your history, vision/mission, strategy, market and marketing strategy, investment section, how the funds will be used and exit plan, management team, valuation and financial projections.

Do not be unprepared. Know these documents inside and out and make sure they convey the message that you want to convey.

8. Know the steps of capital raising 

The basic and process is the following, of course this varies from investor to investor:

  • Step 1: Investors receive your investor pitch deck and your business plan.
  • Step 2: Trained staff member reviews the investor pitch.
  • Step 3: If the pitch piques their interest, they take a look at your business plan.
  • Step 4: If staff sees what they are looking for, staff member takes notes and marks up your business plan to prepare it for the investor.
  • Step 5: The investor reviews the business plan presented by the staff member along with any notes from the staff member, as the staff member knows exactly what this investor is looking for.
  • Step 6: A decision is made to invest or not to invest.

The “take aways”

Too many people seeking investment are not prepared properly and their materials are not investment ready – do not be one of them.

Showing investors that you have done your homework through how you present information for their review will make you stand out.

Any perceived weakness in your plan can derail your efforts and you may not get a second chance, especially with these investors. When it comes to preparing your financials, it is best to have an expert do them for you. With their financial expertise, they cannot only assure that everything is accurate, but also they know to the letter how to lay it out in the most standardized and easy to understand way.

The cost of having a professional consultant do your financials should not be considered as an expense, but an investment into your success.

Maximpact.com offers investment-ready services that fits all budgets.

Business Plan Writing Service 

You can have your business plan written from scratch, update it or get it completed by an expert consultant. The business plan service includes financial projections.

Funding Assessment – Are you investor ready? 

If you have a business plan already written, then before approaching investors have it reviewed to by a funding assessment expert to verify that you are investor ready.

Business Valuation – Certified Business Valuations 

Do you have a 3rd party project / business / startup valuation done? If not, it is advisable to have it done. You have an option of 3 different levels of depth:


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Achieving My Max Impact

Achieving_My_Max_ImpactCan I maximize my impact? That’s a fair question many of us raise. I am convinced that your investments, your ideas and your work have a potential you haven’t tapped into yet.

The more we understand what and how we are able to contribute, the bigger our impact will be. Often our pursuit to contribute gets jeopardized by what we don’t understand about the baggage we still carry with us from the time when our thoughts and deeds were primarily focussed on doing business the old fashioned way: meeting business targets and our own personal needs and wants, first and foremost. And let’s be honest, we all had this time in our lives when the ecosystem, people and planet came secondary, if not last.

I suggest you grab a cup of coffee (or tea, if you prefer so), sit down and take an introspective moment for the benefit of our planet and your impact on it. Please ask yourself, what stands in your way to offer more of the best you can give to make this world a better place? Is there a fear that there would not be enough for you and your loved ones if you give more, compromise more, sacrifice more? Is there a fear that the people you love and want to be appreciated and respected by turn away from you because they don’t understand? Fears are illusions created by an overactive left hand side of our brain. They are not a sign of reality. Your brain tricks you and makes you think they are. That’s what brain research tells us. So what about having a coffee break now? The community of the human family needs you, me and many more to achieve our max impact. It might start with this coffee…

Yours,

Martina Violetta Jung

A Hero's Journey to Healthy LeadershipMartina Violetta Jung is a German writer, business woman, leadership coach and speaker. She focuses on the concepts “Leadership Beyond Intellect” and a more Holistically and conscious way of doing business.   Martina Violetta Jung’s most recent book ‘A Hero’s Journey To Healthy Leadership‘ available on Amazon. 

Making Deals in Impact Investing

By Pallavi ShahInternational sustainable/impact investing consultant; photographer

Global Investing, May 20, 2016 (Maximpact.com News)  – Impact investing is gaining traction among both large and small investors and entrepreneurs. Angels, private equity firms, and banks are expanding beyond their traditional markets and exploring deals that could generate financial returns, while also having a positive environmental or social impact. Some previously niche industries – such as clean tech, natural food – are moving toward the mainstream. While both investors and entrepreneurs are embracing this trend, they are having a hard time connecting.

Why? In my experience, it is a limited understanding by both parties on the opportunities of impact investing, the risks, and the realities and nuances of each other’s worlds.

Many investors say they have trouble finding good quality deals; they’re too risky, difficult to scale, and are mired in confusing definitions of business models (for-profit vs. non-profit vs. hybrid) and impact investing itself (impact vs. SRI vs. ESG vs. sustainability). At the same time, for-profit impact enterprises (“investees”) are getting more attention but are having trouble securing funding.

It’s like dating. A good match can be very successful, but it is difficult when you know what you want but just can’t find the right person, or when you are not sure what you want and end up with some not-so-great options. In impact investing, the trial and error process for both parties takes a lot of time and money. It can lead to poor quality investments, higher perceived risks, frustration, and in some cases, no investments at all.

In my work with investors, including through the International Finance Corporation (IFC/World Bank), and with for-profit investees, building their “investor-readiness,” I’ve gained perspective on each party’s needs and common pitfalls. A few lessons stand out:

Investors

Evaluating and choosing impact deals is complicated. As with any investment, investors need to understand the investee’s business model and potential risks before making an investment decision. The riskier the deal profile the costlier the capital. Risk assessment of impact investments is tricky because of the sector’s relative infancy, its heterogeneity, the variety of measurement and reporting approaches, and the limited information on lessons learned.

In addition, most investors do not have an impact investing track record and vague terminology makes it hard to sort through potential options and choose what’s right for them. There are also industries, geographies, and business models that are less risky than others so painting all impact deals with the same brush can lead to an over- or under-assessment. All of these factors affect the categorization of the deal’s risk profile.

What can investors do to help make their process easier?

  • Build their internal capacity. Increase investment staff’s awareness and expertise to help them better understand impact investing and the various risk profiles.
  • Offer a range of investment options. Don’t offer a “one size fits all” deal structure. Typically this isn’t the best way to support both the finance and impact goals of an impact investment.
  • Set up impact-related systems. Set up systems to collect impact evaluation, monitoring and reporting data according to the investor’s impact strategy and goals.
  • Apply lessons learned. Analyze data regularly to identify patterns and understand what worked and didn’t work and why.
  • Collaborate with external parties. Work with industry experts, strategic partners who have complementary geographic, technical, or market expertise.

Investees

For-profit impact investees are unique. Their goal – to address an environmental or social issue and have a profitable business model – is not easy. The ones that will thrive are the ones with effective business models, who know how to approach investors, and who know what factors are critical to their business.

What can investees do to improve their funding chances?

  • Target the right investors. They need to understand and articulate their company profile (e.g., Is this a startup? What is the target market? What impact does the business want to make?). Knowing these answers will help them target the right investors. For instance, angel investors will be best for some investees while others will be better served by a bank.
  • Address key risks for investors. Address two sets of risks: those that are common to all businesses (such as business model, team composition, competitiveness, etc.) and those unique to the impact sector (e.g., how incorporating environmental & social factors will affect the revenue model; how to measure and report impact). Example: A biomass energy company was providing electricity to underserved populations and approached an investor for funding. While the business was compelling, it had not secured a reliable biomass fuel supply or done a comparative analysis to its competition. The deal was rejected because the company did not address its key business risks.
  • Ensure the pitch tells the right story. Lead the pitch with the business arguments. Then show how incorporating environmental, social impact will support the business. Example:A sustainable coffee company focused most of its investment pitch on how the coffee would improve the lives of farmers and reduce environmental impact. It did not provide information about the increasing demand for coffee in its target market, how its coffee met gourmet quality standards, or its plan to get environmental certification, which was proven to yield a price premium. These oversights led to it being rejected by the investor.
  • Clearly show returns, impacts. Showing financial returns over time is important for investors. Additionally, investees need to be clear about which specific environmental, social metrics they will focus on (e.g., CO2 reduction, job creation, access to energy) and their approach to measuring, monitoring, and reporting the impacts.

These are some of the key factors that can help both investors and investees understand each other’s needs and concerns and lead to more productive conversations. Addressing the real and perceived differences in incentives, interests and constraints will give both parties a better chance of finding the right match.

Takeaways from the 2016 Latin American Impact Investing Forum

logo_FLII_completo1-1024x340By John Kohler

The most recent Latin American Impact Investing Forum (Foro Latinoamericano de Inversión de Impacto , or FLII) gathering, held in Mérida, Mexico, highlighted both the promise and remaining challenges of impact investment and social entrepreneurship in Latin America. Here are the top three things I took away from the 2016 FLII event:

  1. Latin American impact investing is gaining traction and evolving its own identity. The FLII attendees are very professional in how they’re forming, supporting, and investing in social enterprise in Latin America. They are also taking ownership of the FLII event and creating a vibrant, solutions-oriented conference. A precursor to FLII, Sustainatopia, was held in Miami with sessions primarily in English. With its move to Mérida, Mexico, FLII now presents a majority of sessions in Spanish. This is important, because impact investing needs to be locally driven. Some in our sector like to say, hemispherically, that we want to encourage a South-to-South conversation around solutions, rather than holding the North-to-South dialog that has been the norm until recently.

It was also obvious at FLII that the idea of impact investing is gaining momentum throughout the region: About half of those attending in 2016 were new to FLII, which bodes well for the continued growth of impact investing in the region.

  1. Although the infrastructure is growing and progress is happening, FLII felt very Mexico-centric. Yes, there were people there from Guatemala, Chile, Argentina, Bolivia, Peru, and Colombia, but most of the action is from Mexico. Perhaps part of that imbalance was because the gathering was held in Mérida and because it was organized by New Ventures Mexico. But for the entire Latin American region to flourish and to benefit from social investing, the FLII message needs to have a more regional reach.

The conference organizers tried to hold a FLII event in Columbia last year, and they also tried to do one in Guatemala. Unfortunately, both were too small, and one-time events lack staying power and continuity. It’s good news that the premier Latin conference has moved from the United States (Miami) to someplace that’s more accessible to Latin Americans. But I would love to see FLII extend even further.

  1. At this year’s FLII, there were more people from countries that have been largely isolated in the past, specifically Chile and Argentina. Until now, the efforts of those countries have not melded with the rest of Latin America. The South American countries showed some nascent activity in the past, but I see bigger sparks being generated. I’m hopeful that with greater South American participation, FLII becomes truly a southern hemisphere effort for all of Latin America.

Beyond those three takeaways, I had one other observation of note, which is the flowering of new financing programs that leapfrog the whole idea of banks. One issue faced by many social enterprises in Latin America, especially agricultural or other seasonally based businesses, is that their income isn’t consistent throughout the year. As a result, it’s difficult for these enterprises to adhere to traditionally structured, monthly loan payments. The need for flexibility with repayment amounts and timing is a consistent theme across several Latin countries.

In addition, traditional bank loans are based on collateral, and many Latin American social entrepreneurs are women or farmers or others that have not had the ability to hold anything of sufficient value in their own names.

An example of an alternative approach is Variable Payment Obligation (VPO) financing, which I pioneered at Santa Clara University’s Miller Center for Entrepreneurship. Taking a page from venture debt mechanisms, and another page from microfinance aimed at very small-scale livelihood loans, the combination became VPO financing for social enterprises, in which payments are based on cash flow instead of collateral and fixed monthly payments.

At this year’s FLII, not only did a number of VPO financings take place, but there was a session where an investor and an entrepreneur talked together about their considerations as they went through the VPO financing process, as a way of teaching the rest of the investors and entrepreneurs in attendance how they might do it, too.

It’s clear that Latin Americans have quickly grasped both the opportunity and the depth of change that’s possible by embracing impact investing and by supporting social enterprises and entrepreneurship in their communities and countries. In the end, I came away from FLII feeling optimistic about the direction of impact investing and social entrepreneurship in Latin America.


John Kohler

John Kohler is executive fellow and director of impact capital, Miller Center for Social Entrepreneurship, Santa Clara University. He is the pioneer of a new impact investment vehicle – the Demand Dividend – that presents investors with a structured exit alternative to equity. Kohler will speak on a panel at the Second Vatican Conference on Impact Investing June 28 in Rome.

SOCAP15: Bigger Than Ever & Leading the Conversation About Money and Meaning

SOCAP15

Tomorrow sees the start of, SOCAP, the leading conference on social enterprise and impact investing, where an expected 2,500 attendees will be part of the biggest SOCAP yet, taking place October 6-9 at Fort Mason Center, San Francisco, CA.

SOCAP15 will feature more than 140 sessions for learning, connecting, and meeting peers and potential partners, as well as uniting global innovators in business, finance, tech, international development, philanthropy, and more.

Maximpact‘s social media team will be attending this years SOCAP15 and live tweeting on key events throughout each day, follow us at @Maximpactdotcom for these updates.  For more tweets on SOCAP15 follow @SOCAPmarkets and keep up with the action via the hashtag #SOCAP15

It’s not to late to join us at SOCAP15

Conference Schedule, Gratitude Awards Finalists, and Tips for SOCAP15

In addition to the main stage speakers that have been announced, over 400 changemakers, social entrepreneurs, impact investors, and related thought leaders will share their perspectives and invite collaboration with the broader SOCAP community to build the market at the intersection of money and meaning at SOCAP15.

SOCAP15 Schedule

For the list of speakers and attendees, check out the full schedule for SOCAP15, now available on the conference app, Pathable. Conference attendees can join the SOCAP Pathable community to schedule meetings, explore the conference schedule, participate in discussions, and continue to build on conversations and collaborations that start at SOCAP15.

Panel Preview

Here’s a sampling of some of this year’s most anticipated SOCAP15 panels, across the content themes of Impact Investing, Meaning, Divest/Invest, Financial Inclusion, Neighborhood Economics, 21st Century Talent, Living in the Future, and Sustainable Supply Chain:

At the Tipping Point: Risks and Opportunities of Impact Investing Going Mainstream

Speakers: David Chen, Equilibrium Capital; Abigail Noble, The ImPact; Wayne Silby, Calvert Social Investment Fund; Jackie VanderBrug, US Trust; Mark Newberg, Womble Carlyle Sandridge & Rice, LLP

Impact Investing in 2015: a Panoramic View of the Field

Speakers: Cathy Clark, Director CASE i3 at Duke University; Fran Seegull, Chief Investment Officer ImpactAssets

Neighborhood Economics: a Whole Portfolio

Speakers: Ross Baird, Village Capital; Bryce Butler, Access Ventures; Dr. Ann DeRosa PhD, Chilton Capital Management; Kevin Jones, SOCAP

Building Financial Capability

Speakers: Timothy Flacke, D2D Fund; Daniel Rogers, Moneythink; Ben Mangan, Center for Social Sector Leadership at Berkeley; Shalu Umpathy, IDEO.org

Exploring Segmentation: Breaking Down Impact Investing to Build it Up

Christina Leijonhufvud, Tideline; Lauren Booker Allen, Omidyar Network; Debra Wetherby, Wetherby Asset Management; Clara Miller, Heron Foundation; Gil Crawford, Microvest

How Environmental Investments are Generating Social Outcomes

Speakers: Taryn Goodman, NatureVest; Craig Wichner, Farmland LP; Bettina von Hagen, Ecotrust; Debra Schwartz, MacArthur Foundation

The Results are In: Impact Funds are Outperforming

Speakers: Maya Chorengel, Elevar Equity; Dave Kirkpatrick, SJF Ventures; Jessica Matthews, Cambridge Associates; Nancy Pfund, DBL; Wes Selke, Better Ventures

Funding Fair Trade: Gaps and Opportunities in the Supply Chain

Kate Danaher, RSF Social Finance; Les Szabo, Dr. Bronner’s; Scott Leonard, Indigenous Designs; Benjamin Schmerler, Root Capital; Chris Mann, Guayaki Yerba Mate.

Gratitude Awards Finalists Announced

Nine finalists for the 2015 Gratitude Awards were selected from over 550 applications representing 30+ countries around the world in the categories of Community Development, Education, Sustainability and Environment. Of these, four Gratitude Award winners will be announced live on the mainstage at SOCAP15.

The 2015 Gratitude Awards finalists:

CareNx Innovations

CityTaps

Vendedy

Library for All

The Reset Foundation

ZanaAfrica

CASSA

Carbon Analytics

Waste Ventures

Tips for Getting the Most out of SOCAP

The SOCAP15 team spoke to Minhaj Chowdhury, the co-founder and CEO of DrinkWell, about how he works to overcome challenges in social impact work. Chowdhury was a 2014 Echoing Green Global Fellow, a 2014 Gratitude Award recipient, and was named one of Forbes Magazine’s 30 Under 30 Social Entrepreneurs for 2015. His venture, DrinkWell, works to solve the global crisis of arsenic-contaminated water by supplying filtration technology and business tools to a network of entrepreneurs who sell arsenic-free water within their local communities.

Read Chowdhury’s tips on how to get the most out of SOCAP as an entrepreneur.

Sponsors & Partners

Each year, SOCAP welcomes new sponsorship from a variety of institutions who believe that business and investment can have a positive impact on social and environmental challenges. This year, they are excited to work with a record number of sponsors and partners in what will be the biggest SOCAP yet. SOCAP15 would not be possible without the financial and in-kind support of these wonderful partner organizations.


Images: courtesy of from SOCAP15 website

Biggest Banks Back Strong Global Climate Deal

BankofAmericaTowerLight

Image: Bank of America Tower in the fog, New York City, May 2014 (Photo by David Phan creative commons license via Flickr)

 

By Sunny Lewis

NEW YORK, New York, October 2, 2015 (Maximpact News) – Six of the largest U.S. banks have called for a strong, legally-binding universal climate agreement to emerge from the United Nations Paris climate conference in December.

The big six – Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo – said in a joint statement released Monday, “While we may compete in the marketplace, we are aligned on the importance of policies to address the climate challenge.”

“Over the next 15 years, an estimated $90 trillion will need to be invested in urban infrastructure and energy,” the banks stated. “The right policy frameworks can help unlock the incremental public and private capital needed to ensure this infrastructure is sustainable and resilient.”

Matt Arnold, managing director and head of social and sustainable finance at JPMorgan Chase, said, “Significant investments in urban infrastructure and energy will need to be made over the next two decades.”

“Governments need to take the lead in sending clear and timely policy signals to ensure these investments support and enhance sustainable economic growth and development, which includes addressing climate change,” said Arnold.

From November 30 to December 11, France will be hosting and presiding over the 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21).

COP21 will be a crucial conference. There, world leaders are expected to achieve a new international agreement on the climate, applicable to all countries, with the aim of keeping the increase in global warming below 2°Celsius as compared to pre-industrial times.

“We call for leadership and cooperation among governments for commitments leading to a strong global climate agreement,” the American banks stated jointly. “Policy frameworks that recognize the costs of carbon are among many important instruments needed to provide greater market certainty, accelerate investment, drive innovation in low carbon energy, and create jobs.”

“Morgan Stanley believes that the capital markets can and must play a positive role scaling solutions to global challenges,” said Audrey Choi, managing director and CEO of the Morgan Stanley Institute for Sustainable Investing.

“The demand for financial tools that address climate change is strong and growing,” said Choi, “and we are committed to continued leadership across a range of climate-focused capital markets activity, including financing for clean-tech and renewable energy businesses, underwriting green bonds, and ensuring our wealth management clients have options to align their portfolios with their environmental goals.”

As the bank executives offered their views of a universal climate agreement to be signed in Paris and take effect in 2020, the word “opportunities” arose repeatedly.

“Climate change presents enormous challenges for global business, but addressing it also offers tremendous opportunities,” said Alex Liftman, global environmental executive at Bank of America.

Valerie Smith, director of Corporate Sustainability at Citi, said, “We are increasingly working with our clients across various sectors to not only manage and mitigate risks but also recognize opportunities associated with addressing climate change.”

“Businesses across the spectrum are evaluating the risks and opportunities associated with a changing climate – and taking action,” said Mary Wenzel, head of Environmental Affairs at Wells Fargo.

The banks said they are committing “significant resources” toward financing climate solutions but that these resources are not sufficient to meet global climate challenges.

CrowleyPark

Image: Susan Crowley of Multilateral Consulting LLC, left, and Kyung-Ah Park of Goldman Sachs (Photo courtesy United Nations Association creative commons license via Flickr)

Kyung-Ah Park, head of the Environmental Markets division at Goldman Sachs, said, “One of the critical roles financial institutions play in helping to address climate change is to harness market mechanisms to mobilize much needed capital to facilitate the transition to a low carbon future and build greater physical resiliency. Governments can help markets by establishing a clear, stable policy framework that creates value for these investments and facilitates innovation.”

Across the Atlantic Ocean, the European Bank for Reconstruction and Development (EBRD) is scaling up its contribution to the global fight against climate change with an increase in green financing over the next five years.

Endorsed by the EBRD’s Board of Directors September 30, the bank’s new Green Economy Transition approach aims for green financing to total some €18 billion over the next five years. So, the EBRD would deliver as much green financing in the next five years as it has in the last ten.

The EBRD aims to increase its green financing to around 40 percent of total annual investments by 2020 compared with a target share of 25 percent over the previous five years.

EBRD President Sir Suma Chakrabarti said, “The international community has a unique chance this year to deliver a decisive set of measures to combat climate change. With its long experience as a leader in climate finance, the EBRD is making an important contribution to this collective stand through its Green Economy Transition approach.”

Chakrabarti
Image: Sir Suma Chakrabarti, president of the European Bank for Reconstruction and Development in London, September 2013 (Photo courtesy Foreign and Commonwealth Office creative commons license via Flickr)

Across the Pacific Ocean, Asian Development Bank (ADB) President Takehiko Nakao announced September 25 that his bank will double its annual climate financing to US$6 billion by 2020, up from the current $3 billion. Nakao said ADB’s spending on tackling climate change will rise to around 30 percent of its overall financing by the end of this decade.

Featured Image: City lights of the United States, December 2012. Keeping the lights on while limiting greenhouse gases emitted by burning fossil fuels to produce electricity is the climate challenge. (Photo courtesy NASA Goddard Flight Center creative commons license via Flickr)

Award-winning journalist Sunny Lewis is founding editor in chief of the Environment News Service (ENS), the original daily wire service of the environment, publishing since 1990.

Investment Court Could Restore Trust in Dispute Resolution

By Sunny Lewis

BRUSSELS, Belgium, September 25, 2015 (Maximpact News) – Europeans no longer trust the way the EU resolves disputes between investors and states, says European Trade Commissioner Cecilia Malmström. The Swedish politician proposes to restore that trust by establishing a “modern and transparent” Investment Court System to replace the existing investor-state dispute settlement (ISDS) arbitration model.

The Investment Court would be part of all Europe’s ongoing and future trade negotiations, particularly the Transatlantic Trade and Investment Partnership between the European Union and the United States now under negotiation.

MalmstromPanel

EU Trade Commissioner Cecilia Malmström debates with Members of the European Parliament the best dispute resolution system for investors in the context of the Transatlantic Trade and Investment Partnership. (Photo © European Union 2015 – European Parliament creative commons license)

 

The existing ISDS system enables an investor to bring a dispute before an arbitration tribunal. It operates on an ad hoc basis with arbitrators chosen by the disputing parties.

Instead, Malmström proposes a permanent tribunal of 15 publicly appointed, highly qualified judges and an accompanying six-judge appellate panel.

ISDS provisions appear in trade agreements such as the North American Free Trade Agreement and in such international investment agreements as the Energy Charter Treaty, but there is widespread disatisfaction with the ISDS system.

“From the start of my mandate almost a year ago, ISDS has been one of the most controversial issues in my brief,” blogged Malmström on her official site last week. “I met and listened to many people and organizations, including NGOs, which voiced a number of concerns about the old, traditional system.”

“It’s clear to me that all these complaints had one common feature – that there is a fundamental and widespread lack of trust by the public in the fairness and impartiality of the old ISDS model,” she wrote. “This has significantly affected the public’s acceptance of ISDS and of companies bringing such cases.”

Malmström has her eye on eventually establishing a permanent international investment court.

But a senior U.S. trade official has criticized the proposal.

Stefan Selig, U.S. undersecretary for international trade at the Commerce Department, told Agence France Presse in May that the United States prefers the ISDS mechanism because it “increases the security of companies willing to make investments…”

EU investors are the most frequent users of the existing system. To Malmström this means that the EU must take responsibility for reforming and modernizing the system.

“Some have argued that the traditional ISDS model is private justice,” she wrote. “What I’m setting out here is a public justice system – just like those we’re familiar with in our own countries, and the international courts which Europe has so actively promoted in the past.”

In crafting the proposal, Malmström has engaged in extensive public consultations, followed by detailed discussions with the 28 EU Member States, the European Parliament, national parliaments and stakeholders.

Setting up an Investment Court System would create trust, Malmström believes, if it is “accountable, transparent and subject to democratic principles.”

Judges, not arbitrators, would decide cases, and the judges would be publicly appointed. “We will guarantee there is no conflict of interest,” wrote Malmström.

Proceedings would be transparent, hearings open and comments available online, and a right to intervene for parties with an interest in the dispute would be provided.

And an Appeal Tribunal would form an essential part of the Investment Court System.

On September 16 Malmström made the proposal public and sent it to the European Parliament and the Member States.

EU First Vice-President Frans Timmermans likes the idea, which he says breaks new ground.

“The new Investment Court System will be composed of fully qualified judges, proceedings will be transparent, and cases will be decided on the basis of clear rules. In addition, the Court will be subject to review by a new Appeal Tribunal,” Timmermans explained. “With this new system, we protect the governments’ right to regulate, and ensure that investment disputes will be adjudicated in full accordance with the rule of law.”

“I’m convinced that this system will also benefit investors,” Malmström wrote. “These changes will create the trust that is needed by the general public, while encouraging investment.”

An overview of the proposal Transatlantic Trade and Investment Partnership  and a reader’s guide to the proposal Guide to the Draft text on Investment Protection and Investment Court System in the (TTIP) is also available.

Featured Image: Trade Commissioner Cecilia Malmström discusses the Transatlantic Trade and Investment Partnership at a breakfast with women of the ALDE party, the Alliance of Liberals and Democrats for Europe Group, July 9, 2015 (Photo courtesy ALDE Group via Flickr creative commons license)

Award-winning journalist Sunny Lewis is founding editor in chief of the Environment News Service (ENS), the original daily wire service of the environment, publishing since 1990.

 

Donor Checklist Improves Odds of Doing Good

Checkbox

By Christopher Purdy

Americans continue to be a most generous people, ranking Number 1 in the World Giving Index 2014, the only country to rank in the Top 10 for all three kinds of giving covered by the Index – helping a stranger (1st), volunteering time (5th) and donating money (9th).

In 2014, Americans’ giving to charitable organizations exceeded $350 billion, according to Charity Navigator, equivalent to 2% of Gross Domestic Product.

No doubt, that largesse does a considerable amount of good. But this generosity could have even more impact if prospective donors would consider a few issues before writing a check or punching in their credit card number. Here’s a checklist for prospective donors looking for outstanding investing opportunities in social good:

  • ___ Measurable Results and Transparency: Organizations should rigorously measure and report results that are transparently presented on a consistent basis by yardsticks such as contraceptive prevalence and maternal and child mortality. This ensures greater accountability and engenders trust by partners and donors. Look for an annual statistics recaps, like this example, on their website.
  • ___ Cost Recovery: The best programs mimic the best for-profit companies and recover a significant portion of their costs through revenues collected, and do so without sacrificing the quality of its services or the ability of poor people to use them. It’s important to ensure that programs are financially sustainable and have the financial health to endure beyond a donor’s gift. This article talks about the three steps to financial sustainability – cost recovery, cross-subsidization and profitability.
  • ___ Check Out Their Finances: Their audited financial statement and Form 990 should be easily accessible on their website. “Savvy donors ask the charity for copies of its three most recent Forms 990,” according to “Top 10 Best Practices of Savvy Donors” of Charity Navigator. “Not only can the donor examine the charity’s finances, but the charity’s willingness to send the documents is a good way to assess its commitment to transparency.”
  • ___ Entrepreneurial Spirit: Look for an entrepreneurial spirit where managers are empowered to use social marketing or others tools of the commercial marketplace to achieve a social purpose. This entrepreneurial tendency generally results in less bureaucracy and more focus on bottom-line health impact using the commercial infrastructure already in place.
  • ___ Decentralization: Look for a decentralized approach, ensuring that strategic and programmatic responsibility is delegated to field offices or employees on the ground. This allows for fast decision-making that is based on the realities of the environment. It also means fewer headquarters costs. DKT International, which I run, spends 2% of operating costs on a headquarters of less than 10 people; less than 0.2% is spent on fundraising.
  • ___ Domestic vs. International: Many people subscribe to the credo that “charity begins at home” and tend to favor domestic charities over international ones. Certainly, there are great needs in the U.S. But I believe that there are tremendous opportunities to make more impact with less money by donating to organizations working in developing countries. This article, “Your dollar goes further overseas,” explains this concept.
  • ___ Follow Up: Don’t just fork over the money and then forget about it. Check back a year later and see whether the organization has met its objectives, says GiveWell, a nonprofit dedicated to finding outstanding giving opportunities, in their “6 tips for giving like a pro.”

When giving to charity, following your heart feels good. Using your head and your heart feels even better.

Chris Purdy is CEO and president of DKT International. From 1996 to 2011, he served as DKT country director in Turkey, Ethiopia, and Indonesia, where he managed the largest private social marketing family planning program in the world.  He served as executive vice president from 2011-2013. His professional interests center on advancing the cause of social marketing for health and socially responsible capitalism.

Images: 123RF

Aligning Institutional Investment With Sustainable Development

By Sunny Lewis

NEW YORK, New York, September 22, 2015 (Maximpact News) – The largest public pension fund in the United States, the California Public Employees’ Retirement System (CalPERS), with upwards of US$300 billion in assets, takes sustainability seriously.

Just days ahead of a United Nations summit in New York that will adopt new Sustainable Development Goals to guide international efforts through 2030, CalPERS has joined the UN Environment Programme (UNEP) in issuing a report that calls on regulators to build a new culture of sustainable investing.

Entitled “Financial Reform, Institutional Investors and Sustainable Development: A review of current policy initiatives and proposals for further progress,” the report calls for proactive policies putting sustainability at the core of new institutional investment frameworks.

Henry Jones, who chairs the CalPERS Investment Committee, said, “At CalPERS we have no doubt that our focus on sustainability is entirely consistent with our fiduciary duty – indeed it is an essential part of it.”

JonesHenryHenry Jones heads CalPERS Investment Committee (Photo courtesy CalPERS)

“Where doubts on this score remain, they must be dispelled,” Jones said. “And we need institutions that have the knowledge, the skills and the ways of working that are required to embed sustainability in their investments – to manage the risks it brings, and to capitalize upon the opportunities it offers.”

In his forward to the report, Jones writes, “Of all the sustainability challenges we face, climate change is one of the most pressing.”

“This report is being published just a few weeks before the Paris Climate Change Conference. At CalPERS, we earnestly hope the world’s governments will reach an ambitious global agreement to address climate change. Bold action is needed in particular to introduce stable, reliable and economically meaningful carbon pricing, and to strengthen regulatory support for clean energy. This will enable us, as investors, to manage the risks and take the opportunities that climate change brings. We hope every country will reflect on how it can best address these challenges,” Jones wrote.

The report’s author, Rob Lake, is a UK-based independent responsible investment advisor and expert, working with asset owners.

With an estimated annual financing gap of up to US$7 trillion a year in infrastructure investments alone, the global financial system, worth more than US$300 trillion, has a potential to transform the international economic landscape to better serve the needs of humanity, Lake’s report concludes.

The report had its genesis in the Inquiry into the Design of a Sustainable Financial System initiated by UNEP in January 2014 to advance policy options that could improve the financial system’s effectiveness in mobilizing capital towards a green and inclusive economy.

Nick Robins, who serves as co-director of UNEP Inquiry, said, “A package of measures is needed to deliver the full sustainability potential of institutional investors. Disclosure is important, but without effective governance frameworks and incentives, this will not drive sufficient change.”

The report shows that policy intervention has evolved from focusing on disclosure obligations and statements about investors’ core legal duties to a “second generation” approach that addresses the synergy between sustainability and other policy objectives.

CalPERSbuildingSolar panels on the roof of CalPERS’ Sacramento, California headquarters generate some of the electricity that powers the building. (Photo courtesy CalPERS) – Building for the Future, Protecting the Environment.

Seven critical policy objectives that hold the strongest potential for positive change are explored in the report together with 14 policy tools to achieve them.

The seven policy objectives are:

  1.  Aligning Institutional Investment System Design with Sustainability
  2.  Removing Policy Barriers
  3.  Stimulating Demand for Investment that Integrates Sustainability
  4.  Strengthening Asset Owner Governance and Capabilities
  5.  Lengthening Investment Horizons
  6.  Aligning Incentives along the Investment Chain
  7.  Ensuring Investor Accountability

The 14 policy tools are:

  1.  The Design of Pension Systems Investment
  2.  Performance Measurement
  3.  The Legal Duties of Investment Institutions
  4.  The Legal Duties of the Directors of Risk-Taking Financial Institutions
  5.  Solvency and Risk Regulations
  6.  Prudential Regulation
  7.  Investor Disclosure Rules
  8.  Corporate Disclosure Rules
  9.  Fiscal Incentives
  10.  Rules on Equity and Credit Research
  11.  Investor Rights, Codes and Stewardship
  12.  Risk Mitigation and Market Development for Green Assets
  13.  Soft Law Sustainability Frameworks
  14.  Professional Qualifications and Knowledge Transfer

The report concludes, “Enormous potential exists to pursue new policy initiatives designed to achieve sustainability goals through the institutional investment chain while simultaneously strengthening other public policy objectives: better governed asset owner institutions that serve their beneficiaries more effectively, enhanced prudential regulation, increased economic welfare meeting energy, water and food needs, and restored public trust in the financial system.”


 

Award-winning journalist Sunny Lewis is founding editor in chief of the Environment News Service (ENS), the original daily wire service of the environment, publishing since 1990.

Social Investors vs. Social Businesses: Who will win the struggle for the future of SRI investing?

little box boxer knocks out dad boxerBy Marta Maretich @maximpactdotcom

We all like to talk about how the social, responsible and impact (SRI) investing sector is growing—and current research indicates that it is flourishing, with more capital and a wider range of investors now entering the field.

All that is good—and it’s what we’ve all be working for. Yet if there’s one thing experience has taught us about deploying the new market approaches to generating social and environmental benefit, it’s that the detail matters at least as much as the big picture.

A closer look at the way the sector has developed in recent years reveals more than just growth: There’s been an important shift in the story we’re telling ourselves about SRI investing. A movement that began with an emphasis on social entrepreneurs and social businesses serving the needs of beneficiaries has become preoccupied with investors and the mechanisms of the marketplace. What caused this shift to happen? And is it necessarily a bad thing for SRI investing?

Changing the subject

As we’ve tracked the growing body of research documenting the exponential growth of the SRI marketplace, we’ve noticed something strange:

Once most of the literature in the field came from social investors, like Root Capital, and accelerators, like the Skoll Foundation, who were actively engaged in developing socially beneficial businesses.

Today the focus has shifted away from social businesses and their beneficiaries. Instead, sector bodies, like the WEF, the G8 Social Impact Investment Taskforce, UK SIF and USSIF, as well as big financial advisory firms (EY, Deloitte, Citi to name just a few), are turning their analytical lenses on investors and markets in an effort to demonstrate (and, in some cases, capitalize on) the potential of the new SRI investment approaches.

In a sector that has its deepest roots in social entrepreneurship, microfinance and microlending, this change may seem surprising, even worrying. Why has it happened?

1. Investors demand attention

First, investors are driving the market for SRI investing and this has lead financial firms and other analysts to study them, and their investment habits, more intensively.

As one example, a USSIF trend report for 2014 tells us that: “Money managers increasingly are incorporating ESG factors into their investment analysis and portfolio construction, driven by the demand for ESG investing products from institutional and individual investors and by the mission and values of their management firms. Of the managers that responded to an information request about reasons for incorporating ESG, the highest percentage, 80%, cited client demand as their motivation.”

This is one more piece in a growing body of evidence that shows personnel in financial firms finally waking up to the fact that their clients are interested in SRI investing. At the same time, they’re realizing that the ability to use these approaches is likely to be an important selling point for their businesses in the future.

This realization comes rather late in a sector that saw small, socially concerned family offices, like Omidyar, pioneering the practice of impact investing back in 2007. But with a new generation of private investors, led by wealthy young millennials and women, now asking for SRI investment options, the message is finally getting through. Mainstream financial firms are focussing more of their attention on socially-motivated investors and promoting SRI offerings to attract what they now realize is a growing client base.

2. Mainstreaming forces a market focus

The second reason for the focus on investors and markets has to do with the recent raft of mainstreaming initiatives for social investing.

In an effort to draw larger investors into the SRI marketplace, these initiatives sought to gather sector information, such as existed, into reports aimed at larger investors. The reports were designed to demonstrate that social investing is, in fact, a real market.  They presented their case in the language of the mainstream and included statistical data, graphs, tables and pie charts—the works. Everything about them was engineered to convince the heavy hitters that SRI investing was something they could engage in securely, responsibly and even profitably.

Several of the most important reports in this vein have been produced by the WEF as part of a series aimed at large institutional investors, including insurance firms and pension funds. The G8 Social Impact Investment Taskforce and its various working groups also produced material aimed at the largest investors including national governments thinking of entering the SRI market.

All this is a world away from the early literature on social investing, which emphasized its impact on social entrepreneurs and beneficiaries, often people in emerging economies and those at the bottom of the pyramid.

Yet the motives behind the mainstreaming push were good. They reflected the commitment of a few far-seeing financiers, like Sir Ronald Cohen, who realized the potential for scaling social and environmental benefit through using the powerful mechanisms of global finance. And, to judge from the buzz around ESG at Davos this year, the approach has been successful in getting mainstream finance to take SRI more seriously.

Aren’t we forgetting something?

This suggests that the shift of focus to markets and investors was needed to get bigger financial players to engage with social benefit. Yet in other ways the rush to mainstream may have been a distraction from some of the most important challenges still facing our sector.

These include fundamental questions about the role of business in society and the role capital plays in supporting the development of companies.

The mainstreaming of SRI investing, though it may be beneficial, doesn’t challenge the status quo behind the international capital markets. Rather, it works with the prevailing forces of global finance in an attempt to turn at least some of them in a more favorable direction. This approach is pragmatic—and its unthreatening nature partly accounts for its popularity at places like Davos—but for some in our sector it doesn’t go far enough toward bringing about a permanent change to the way we do business.

On a more down-to-earth level, the recent focus on investors and markets leaves out what many think is the most important element of all in this equation: Socially beneficial businesses.

We have a lot of experience in operating for-profit businesses and non-profit organizations that deliver social benefit, but socially beneficial businesses are still a relatively new kind of animal to us. Despite progress in the sector, we still have a lot to learn about how to operate companies that are financially sustainable and able to deliver extra-financial benefits at the same time.

What really matters

The commitment to pursue benefit alongside profit, when genuine, touches every aspect of a business. Leadership, governance, operations, compliance and reporting (among other things) are all affected and we need to understand much more about how this works in practice. The influence of investors, especially those that take an active role in governance, is yet another factor, still little studied or understood, in the development of social businesses.

With so much still to learn about how to “do” socially beneficial business, the recent emphasis on investors and mainstreaming markets can seem misplaced. However, it makes sense in one important way: Only by doing more socially beneficial business will we ever have a chance to find out what really works and develop effective models. And only by attracting sufficient capital will we have the opportunity to do more socially beneficial business.

Time to re-focus—again

So, should the story of our sector be one of global financial markets and canny investors, or should it be one of heroic social entrepreneurs and white-hat social businesses?

The answer is: It needs to be both.

But now that the larger markets and a more ample pool of investors are showing interest, it’s time for the sector to shift its focus back to actually making socially beneficial businesses work across a range of global contexts.

It’s emerging that one of the dangers of mainstreaming is that social businesses can find themselves forced back into the mold of regular companies with no social benefit goals. To avoid this, they need clearer roadmaps for how to manage and develop their companies, especially as they grow to scale. Investors and markets also need to find better ways to engage with socially beneficial businesses in order for the partnership to work successfully.

More research in both these areas is needed. The question is: Who will do this work and so help write the next chapter in the ongoing story of socially beneficial business? Could it be you?

Effective Two-Way Engagement: A New Gold Standard for SRI Investing

cartoon of men communicating across a chasmBy Marta Maretich @maximpactdotcom

At its most effective, communication is a two-way process. Developments in engagement practices between companies and social, responsible and impact (SRI) investors are showing us that this idea is now more applicable than ever.

New expectations and standards are growing up around investor/investee engagement in the SRI investing sector. These are driven by a number of factors including calls for more transparency and accountability, the rising power of investors in the boardroom and emerging evidence that attending to extra-financials, like sustainability, has positive effects on financial performance.

In practice, the pressure to engage—and the need to find effective ways to do this through communication—comes from several directions.

Investors want more extra-financial information

The need for engagement is impelled by a increase in socially concious investors, notably wealthy millennials and women, who are demanding detailed ESG performance information about the companies they invest in. Recent research reveals that investors (and their advisors) are relying more heavily on extra-financial disclosure when deciding where to place their capital. Poor performance in ESG areas, or a lack of disclosure about them, will make them say no to an investment.

Companies are responding to this increased scrutiny by improving communications around ESG extra-financials. This may include making performance information more freely available on websites and other media, or training company spokespeople to incorporate extra-financials into their communications.  It may also mean embracing integrated reporting, which delivers performance information in extra-financial areas and provides the content for communication in these areas.

In another trend, the corporate world is seeing increased demand for more up-to-the minute and on-demand performance information. Facilitated by web-based services, real-time financial performance information is already a reality for some companies and it could shortly become a necessity for all. If that happens, companies will need to create systems for delivering extra-financial information this way—and for receiving investor feedback.

Investors expect more influence over companies

Investors are becoming more active in their efforts to influence the companies they invest in.  In a trend for more investor engagement, industry leaders like Blackrock are declaring their intentions to engage with investees on governance matters, strategy and operations, with ESG issues a major focus. Evidence of increased engagement on extra-financials can be seen in the record number of proxy resolutions filed by investors seeking corporate disclosure and action on a range of environmental and social issues, seen here in the Sustainable Investment Institute’s Proxy Preview 2015.

To deal with increased pressure from investors, businesses are establishing direct engagement strategies, and communication is an important part of these. Direct engagement strategies identify investor concerns and priorities, then pro-actively seek to address them before they become an issue. Communications may involve a range of measures including targeted investor roadshows, making more information accessible online and one-to-one communication between investors and senior managers.

Companies need to know more about SRI investors

The burden of communication isn’t solely on the side of companies. Investors, too, need to communicate clearly for effective engagement, especially when they are SRI-focused.

With the increasing influence of investors in the boardroom, it’s more important than ever for companies to seek out investors who will support all parts of their strategy. This is particularly true when it comes to businesses aiming to produce both profit and benefit—blended value, impact and profit-with-purpose businesses—and those for whom ESG goals are a core part of their business model.

For these kinds of organizations, investors who might work against the overall strategy, for example pushing through an unfavorable exit or IPO, should be avoided. To make a good match, companies need adequate information about potential investors before they partner with them, including insight into their goals, priorities, values, governance stance and voting policies.

According to findings by the Conference Board, a US governance think tank, investors should communicate clearly and transparently with potential investees about themselves, providing information on their own engagement policies and track record when voting as members of the board. Information about their stance on extra-financial issues, such as governance and sustainability, should be easily accessible to investees and should form a point of discussion during negotiations. Triodos Bank is one SRI investor that makes such information freely avaliable to investees and the public.

Engagement services for the future

With engagement between investors and investees becoming more important, the question of how best to engage is now taking center stage in SRI investing.

In mainstream financial markets, Broadridge has risen to become “the most important firm on Wall Street that you’ve never heard of” by providing investor engagement services, including proxy and shareholder communications, to companies. However, it’s questionable whether Broadridge’s engagement methods will prove as effective for the SRI sector, where communicating ESG extra-financials and impact metrics will be as important communicating about the traditional bottom line.

This suggests an opportunity for service providers to step up to meet the needs of a growing marketplace of SRI investors and companies. By providing high quality, innovative engagement services that help investors and investees communicate about a broader range of performance criteria, an ESG- and impact-oriented engagement service company could fill the gap and become the next Broadridge in a vibrant new marketplace. Any takers out there?

Another new definition for social investing—and why we should pay attention to this one

green shoot with ladybug growing from a sack of coins

By Marta Maretich @maximpactdotcom

Definitions—we are so over them in the social investing sector.

I mean, we wrangled over those darn meanings for years: ethical investing, responsible investing, socially responsible investing, triple- and double-bottom-line investing, green investing, sustainable investing and finally—boom!—impact investing.

We split hairs, we waved banners, we made colorful infographics to settle the matter once and for all—and then, worn out with all the talking, we got on with the work of building the social investing sector and tried to forget about definitions for awhile.

Definitions are to social investing what balance and reaction time are to surfing: You need them, but if you think about them too hard, you just can’t stand up on the board.

On the other hand…
Once in a while a new definition comes along and we really need to pay attention.

That’s the case with the definition for social investing proposed by a new report, After the Gold Rush, from the Alternative Commission on Social Investment (ACSI). Rather than splitting yet more definitional hairs, this report highlights telling developments in the practice of social investing and yields a new, clarifying meaning for the term.

handsome doctor cares for healthy green plant

The patient seems to be doing well—but is it really?

The green shoot is wilting!

Before we get down to what that meaning is, let’s take a look at the source of this report.
The ACSI describes itself as initiative established “to investigate what’s wrong with the UK social investment market and to make practical suggestions for how the market can be made more accessible and relevant to a wider range of charities, social enterprises and citizens working to bring about positive social change”.

One look at this group’s spare website and signature image—a cupped hand, full of dirt, supporting a dead seedling—tells us that the ACSI are working in a very different key to, say, the G8 Social Impact Investment Taskforce. We’re not going to get cheerleading from these people, their branding suggests; they’re going to make us face facts.

The ACSI shuns the international glamor that has recently surrounded social investing. Its focus is national, not global. Its approach is practical, not theoretical or political. ACSI intends to cut through the hype. It wants to know, specifically and categorically, whether the UK social enterprise sector, especially its largest player, state-bankrolled Big Society Capital, has delivered all that it promised for social investing.

Keeping it real

What they demonstrate in this report, with dead plant images on several pages, is that it hasn’t. The reasons behind this failure, which fill out the body of the paper, make sobering reading for anyone who wants to see the practice of social investment flourish for real.

Problems range from basic errors—such as the assumption that social sector organizations don’t have access to finance from mainstream lenders (they do) — to more subtle but potentially damaging issues, such as a mismatch between the support social sector organisations actually need and the kind of finance social investors are currently offering.

Confusion around definitions is part of the trouble. The report rounds up a range of definitions from various authorities including the OECD, the Charity Commission and the UK Cabinet Office—all strikingly different. Then it offers a new one.

Just one more definition, please

The ACSI suggestion is really less of a definition than a set of characteristics that helps us tell whether an investment really counts as “social” or not. A social investment, in their eyes:

•    pursues and accountable social or environmental purpose;
•    is autonomous of the state;
•    has the mission of the investee as the principle beneficiary of any investment;
•    is transparent about measuring and reporting the social value it seeks to create;
•    is structured to create financial value or organisational capacity over time, for example, by helping the investee invest in growth, acquire an asset, strengthen management, generate income and or make savings.

Like all definitions of social investing, this one is up for discussion—it seems we’ll never lose our taste for arguing about terms.

At the same time, a couple of things stand out about this particular definition. One is the statement that a social investment should be “autonomous of the state”, which is to say, not politically motivated or subject to state control.

That’s an interesting stipulation to come out of the UK, whose early leadership in social investing was based on the involvement of a series of governments who saw it, at least in part, as a way of shrinking the state benefits burden. It may also shine a light on why the UK seems now to have lost its position as a leader in social investing.  Perhaps state control and authentic social investing are incompatible?

The second remarkable point about ACSI’s definition is the focus on “the mission of the investee as the principle beneficiary of the investment.”

This emphasis has the effect of directing attention away from the motives of investors and the mechanisms of investment, subjects that so often, in this sector, preoccupy us. It focuses instead on the impacts and outcomes of the investment, on the mission ends, rather than the means. This has a clarifying effect, reminding us of the real reason we are doing any of this investing at all, and keeping the focus of the argument practical and close to home.

Lessons—and satire

At a time when the idea of social investing is gaining mainstream traction—with more national governments as well as mainstream finance organizations getting involved—this report holds lessons about the realities of making social investing work in practice.

One of them is that hype has the power to hijack even good ideas and prevent them from delivering results on the ground. Another is that there’s a danger of loss of focus in our sector, with the emphasis shifting away from social benefit and the organizations that can, with support, deliver it. A third is that more attention needs to be paid to the fact that, despite claims, most social investing is still subsidized in one way or the other—and that is fine, so long as it creates real benefit for real people.

But the biggest lesson of the ACSI report is probably that the presence of a dissenting voice in our sector is a very good thing. With its focus on the practical, and its satirical bent (“Social investing is dead!” reads one subhead, and another, “Long live social investing!”) it makes refreshing reading and should encourage others to pitch in and provide alternative points of view.

Now go and water your plants!

Why Social Investors Must Get Behind the Circular Economy

recycling symbol superimposed over image of trash

By Marta Maretich @maximpactdotcom

What goes around and around and comes out better for the planet? By now, most of you will guess that the answer is the circular economy.

But what is the circular economy? It’s an approach to manufacturing based on the principles of reuse, repair, remanufacture and recycle. The point is to preserve finite resources, such as fossil fuels, which are running out. At the same time, the principles provide a way to manage supply chains and design waste out of the manufacturing equation.

See examples of circular products

Going around is gaining ground

With roots deep in a number of different design, ecology and industrial movements including regenerative design, biomimicry, and the recent Cradle to Cradle phenomenon, the Circular Economy is less a new idea than a coming-together of several strands of thought.

Today, the concept is gaining ground in a big way with high-profile leadership from circumnavigator Dame Ellen Macarthur and her foundation as well as support from the WEF. Big companies as diverse as Coca-cola and Caterpillar, a heavy machinery manufacturer, are embracing its principles.

This rise in popularity is generating a whole ecosystem for the circular economy. New service providers, funds and accelerators are already popping up to fuel the trend. Research, such as this Nesta report on data use, is beginning to shine a light on what makes circular approaches successful. Events and conferences and even DIY toolkits are proliferating.

Why the circular economy still needs social investment

So what does this craze for the circular mean for social investors?

Despite its popularity, there are indications that this new approach to manufacturing needs the support of social investors. Significant barriers remain to building and scaling the circular economy and one of these is financial.

There’s evidence that companies making the transition to circular economy principles are having trouble raising the finance they need to adopt circular business models designed for sustainability. This is because companies in transition have special financial requirements that mainstream investors and venture capitalists are reluctant to meet. First, they must finance the ownership of products for a longer time than in a linear model. Second, existing businesses need significant investment to change established systems, such as setting up a different revenue model.

Doubts about the practicality of adopting the circular economy are being felt at high levels. In 2014, the European Commission rejected a proposal that would have established circular principles at the center of policy across the Eurozone. Though EU president Frans Timmermans promised a “more ambitious proposal” by the end of 2015, the Greens and other environmental campaigners are concerned about the EU’s commitment to sustainability and the influence of big business over government policy.

Opportunities for “circular portfolios”

All this underlines the circular economy’s continued need for social investment capital. On the positive side, the rise of the circular economy should offer tempting investment opportunities for investors, especially if, as is planned, standards can be developed.

Investors could engage in this connected market in a number of ways. First, they could put their money into funds whose portfolios focus on companies that use circular economy approaches. Themed funds in sectors such as agriculture, food retail, clothing manufacture and waste management all have potential to benefit from backing the circular way of working.</>

Alternatively, social investors can invest directly in companies that take a circular approach, or in a clutch of companies along a circular supply chain. Imagine a “circular portfolio” that includes a company that produces the raw materials, the manufacturer that turns those materials into a consumer product and the recycler that turns any product waste back into a usable commodity.

Social investors can also benefit from adopting the circular mindset and applying it to their own use of capital. By treating capital as a resource to be preserved, conserved and recycled in sustainable systems, social investors have the opportunity to deepen their commitment to this new way of doing business. The analogy even extends to the idea of waste and byproducts. Just as businesses need to design them out of their processes, social investors should avoid producing financial negatives such as toxic debts, crushed economies and unhealthy markets.

Overall, the rise of the circular economy is a positive sign that the world is ready to change consumer culture and seek more sustainable solutions, and that’s good news for us. Beyond this, the circular economy is in step with a sector-wide push for collaborative, systemic ways to tackle global problems with both resource scarcity and waste. It’s joined-up sustainability logic for manufacturing, and that’s something we social investors certainly can, and definitely should, support.

How corruption kills the promise of social enterprise—and drives extremist violence

492795977By Marta Maretich @maximpactdotcom

Corruption is bad for business. It damages the global marketplace by siphoning away profit and hijacking capital that could otherwise be used to build enterprises and increase prosperity.

This shouldn’t be news to anyone. Nobody, apart from the profiteers, likes corruption. But now evidence is emerging that corruption is even worse, and more dangerous, than we thought.

In her new book, Thieves of State, journalist, social entrepreneur and anti-corruption activist Sarah Chayes takes the case against corruption into new territory. She argues that, not only is corruption bad for the marketplace, it actually generates violent extremism and poses a direct threat to global security.

Drawing on her first-hand experience of founding and operating the social enterprise Arghand in Afghanistan for almost a decade, Chayes demonstrates how extremism arises as a reaction to corruption. And she makes a forceful case for dealing with systemic corruption as a way of strengthening global security and creating a climate where economic development can make a difference to people’s lives.

Old as sin

We’ve known for a long time—perhaps since markets were invented—that practices such as fraud, bribery, extortion and embezzlement poison the business environment and corrode economies from within.

And, if corruption is toxic to mainstream business, it is twice as deadly for businesses with a social or environmental mission, as we argued in a recent blog:

Corruption strikes simultaneously at both of impact investing’s stated aims: profit and benefit. … Sustainable, socially beneficial businesses are unlikely to thrive in corrupt contexts. Investors who put money into them run risks they may not initially see or understand… Impact measurement and reporting, too, can be tainted by corruption. Read more…

Worse than ever

Dirty dealing has always been with us, but over the last two decades globalization of business and the financial markets have highlighted both the prevalence of corruption in many parts of the world and its ill effects. Huge multinational corporations, finance institutions, international aid bodies and accountable governments have all fallen prey to corrupt practices when dealing with countries where kleptocracy—the rule of thieves—is a feature of civic life.

Some of these victims, like the Norwegian government with their Norad program, have fought back. Yet many have accepted corruption as a cost of doing business, effectively colluding with the criminals. And, while some governments, like China, make a show of stopping corruption among their own leaders, others, such as Afghanistan and Nigeria, facilitate theft on a stunning scale. At the same time, tax havens shelter wealth that is known to be stolen and rich economies allow thieves to invest —and effectively launder—ill-gotten loot in property and other assets.

Anti-corruption takes on more urgency

The global reaction to corruption has so far been mixed and to a large extent uncoordinated. Yet a global anti-corruption movement has been gathering momentum.

Since 1993, Transparency International has amassed an extensive pool of data on global corruption. Global Witness has launched a number of successful anti-corruption campaigns and is now leading the charge to ban anonymous companies.  Largely because of their work, corruption is going mainstream, with a number of anti-corruption topics on the agenda at the WEF at Davos this year.

Chayes’ book adds to the literature on corruption and brings a new urgency to the conversation. Using a readable mix of memoir, history and analysis, she bears witness to the way corruption undermined efforts to bring peace and prosperity to Afghanistan.

While leading her social enterprise and living among ordinary Afghans, Chayes shared their fury when police demanded bribes and government officials refused to do their jobs without payoffs. As corruption steadily increased under the rule of Hamid Karzai, she watched levels of violence rise apace, often directed against the military occupiers and civilian agencies like the police who were seen as the protectors and enforcers of a corrupt government.

Sarah Chayes founded the social enterprise Arghand in Afghanistan with high hopes.

Sarah Chayes founded the social enterprise Arghand in Afghanistan with high hopes.

In her role as special advisor to a series of ISAF military commanders, Chayes did her best to drive home the link between corruption and violence, with limited success. Meanwhile, she watched the hopes that drove her to establish her social enterprise—the promise of a better life for Afghans—slip away as Afghan society became crippled by violence.

Chayes’ experience makes a powerful case for re-evaluating the way international development agencies, businesses and governments interact with countries like Afghanistan—and this has deep implications for the social investing sector.

For social investors, including aid and development agencies, it demonstrates the danger of unwittingly putting resources behind programs and enterprises controlled by kleptocrats and kleptocratic regimes. Not only does this amount to pouring good money into a bad system, Chayes argues, it makes well-meaning institutions look like they support corruption and its oppressive effects on local people. In brief, it makes them part of the problem rather than part of the solution.

Time for social investors to think again

So what can we do about corruption? Chayes offers a range of remedies including improving intelligence, using diplomatic levers against kleptocratic regimes, and putting in place measures that keep state thieves from buying clean assets in developed countries.

Her suggestions for aid agencies give an idea of what can be done by social investors. Aid agencies (and, by implication, social investors focused on development) need to actively collect information about corruption in the countries where they work, listening to the voices of ordinary people, not just those of plausible intermediaries who often turn out to be kleptocrats. They need to improve contracts, increasing accountability for how their money is used. Finally, they need to establish independent monitoring and evaluation stystems, tracking impacts and chasing any irregularities that arise.

For far too many people around the world, systemic corruption is a daily part of life—and a daily insult that can, as Chayes argues, drive citizens to desperation and violence. The social investing sector should heed her warning and think again about our role in enabling corruption. Chayes is, after all, one of us: a social entrepreneur who devoted a good chunk of her life to helping people through building a business. Her experience holds important lessons for us on how to be part of the solution to corruption—and avoid becoming part of the problem.

Much more than just a conference – Lilongwe Malawi, 14-17 April 2015

World Vision AUS

We need your help to raise $122,000

in order to restore land and change lives

Maximpact is reaching out to its network to assist World Vision  in raising  the remaining $122,000 for the 2015 Beating Famine Conference in Africa.

This is your opportunity to be part of a global movement

In 2012 the first Beating Famine conference was held in Kenya, with incredible results. The conference introduced cost effective land regeneration techniques and instigated the roll out of ground-breaking projects across the East Africa region. These projects are now actively restoring land, regenerating trees, increasing crop yields and ultimately improving livelihoods and food security for people across East Africa.

  • Contributed to NEPAD/Africa Climate Smart Agriculture Alliance’s decision to cast FMNR as a foundation of Climate Smart Agriculture.
  • Helped convince the Australian Government overseas Aid program to invest $1.5 million matching funds to the FMNR for East Africa project.
  • Contributed to the Dutch Government decision to fund the Euro 40m DGIS project in five Sahelien countries.
  • Resulted in strengthening World Agroforestry Centre – World Vision collaboration, helping to scale up activities East Africa and opened up new opportunities around the world.

In 2015 we want to offer you the chance to be involved in the second Beating Famine conference, to be held in Malawi. Our 2012 event was the catalyst for huge changes in the region. In 2015 we want to provide Southern Africa with the same opportunity. We cannot do this without your help.

World Vision Malawi, World Vision Australia, and the World Agroforestry Centre (ICRAF) will deliver the ‘Beating Famine’ conference from 14-17 April 2015. It will showcase leading global land restoration techniques and will feature world class speakers from the private sector, NGOs, research institutes, governments and more,. This conference is more than just a way to reach out to local farmers and communities, it is also a vibrant platform for knowledge sharing and developing new partnerships in the sector.

About the 2015 Beating Famine Conference

The conference will showcase leading global land restoration techniques and will feature world class speakers from the private sector, NGOs, research institutes, governments and more.

This conference is more than just a way to reach out to local farmers and communities, it is also a vibrant platform for knowledge sharing and developing new partnerships in the sector.

How you can help

There are many ways that you can actively support this conference and Southern African communities. Your attendance will not only involve you in a global movement, it will provide you with networking and knowledge sharing opportunities.

Alternatively your donation can go towards co-sponsoring this conference, which will secure your promotional material and presence throughout.

To be involved 

If you would like to support, attend or donate the Beating Famine Conference please contact us on +61-3-9287-2604 or email us at info@beatingfamine.com

For more information please visit www.beatingfamine.com

world Vision

Does the Social Investing Sector Need Activist Investors?

 

devil shadowActivist investors are changing the terms of engagement between businesses and investors. What will that mean for social businesses and the investors who back them?

By Marta Maretich @maximpactdotcom

Social investing continues its march toward the mainstream. Sector research shows a wider variety of investors—including pension funds, mutuals, and governments along with an array of private investors—demonstrating an interest in capitalizing the blended bottom line. This is all to the good, yet the growth of our industry is bound to expose socially beneficial companies, many of which have led sheltered existences in the care of mission-driven investors, to the stormy seas—and resident sea monsters—of mainstream capitalism.

Consider the growing importance of activist investors. These are hedge funds that take a small stake in a company—typically around 5%—and then launch an aggressive campaign to determine strategy and/or change leadership. The activists have gone into overdrive in recent years, carrying out successful campaigns to unseat powerful CEOs, like Microsoft’s Steve Balmer, break up giant corporations, such as Yahoo, and win themselves board seats in corporate giants like PepsiCo. Their aim is to maximize their own profits by re-engineering their investees’ businesses.

Once known as corporate raiders and asset strippers, these bad boys of capitalism are now attracting positive media attention, notably from The Economist, which recently concluded that, overall, activists are a force for good in the marketplace. Their interventions actually can make organizations stronger in the long term, the journal says, bringing more rigor to companies and “waking up” passive institutional investors. Other commentators have reached similar conclusions. Like it or loathe it, there’s no doubt that the threat of the activist investor is a now a force be reckoned with in business; even the biggest, oldest and most influential corporations ignore it at their peril.

Are they coming for us next?

With activism on the rise and activists winning new respect, should the social investing marketplace start preparing to repel attacks in the near future? Probably not.

So far activist investors have only gone after the biggest prey, targeting industry giants, like Dow Chemical and Ford, that they deem to be underperforming. Although rampant in the United States, they’ve had limited impact in Europe, which has a different corporate culture, and hardly any at all in Asia. The danger of them turning their unwelcome attentions on the small fry of social investing is, as yet, remote.

And yet the trend toward activism points to larger changes in investing culture that social investors and mission-driven businesses should pay attention to:

Investors, even small ones, are more powerful than ever. Activist investors are able to wield power with only a small stake in the company through launching proxy campaigns and winning other investors, often passive index funds and institutionals, over to their way of seeing things. The activists may have perfected the mechanisms for forcing change, but they aren’t the only ones capable of putting them to use. It’s certainly possible to imagine a future where investors use similar tactics to take over other kinds of organizations to suit their own ends.

Shareholders are increasingly taking an active stance. The example of the activists is forcing other kinds of investors to reexamine their relationship with the companies they invest in. Index and pension funds, normally passive investors or “lazy money”, are being increasingly drawn into debate with company managers about strategy through the activists’ proxy campaigns. Meanwhile, the “bossy money” of private equity now has to look over its shoulder for the activists, preempting their interventions with forceful strategies of their own.

The importance of the aligned investor

The implications of these changes are likely to be felt most strongly when social investors and businesses come in contact with mainstream investors and markets, for example when they raise capital to scale up. Yet with activism becoming the new normal, other investors, including ones with social credentials, may feel the need to change the nature of their relationships with investees, becoming even more active in shaping strategy and influencing governance decisions than they already are.

The trend toward activism places a new emphasis on the motivations and conduct of investors. For social businesses, more investor influence means that choosing the right investors, ones that will really and truly support the delivery of a blended bottom line over time, is more important than ever. For social investors, and equally for mainstream investors with ambitions to enter the social investing marketplace, the trend should be cause for some soul-searching. How far are they actually willing to support impact? How will they react if social benefit delivery impinges on profit?

More profits, speedy exits

Taking a step back, the phenomenon of the activist holds other lessons for social investors.

The aggressive activism we’ve seen in the mainstream is all about turning bigger profits from quick exits. The approaches taken by activists maximize their own short-term profits but, despite their claims to be doing a service for the market—by shaking up complacent, bloated corporate giants and making them more efficient—it’s debatable whether they strengthen the companies they attack. Activism has been blamed for deterring inward investment, draining money from R & D, and hampering employee training, all things that can add authentic rather than paper value to companies.

Today’s activists are not the right investors for the social sector, obviously, and their new respectability throws the difference between the social and mainstream investing sectors into sharp relief. Through their aggressive interventions, they’re managing to turn profits in a time of sluggish economic growth. It’s quite a feat, but it’s important to remember that’s all they do. They don’t prevent climate change, provide essential financial services, deliver healthcare, ease inequality or reduce poverty (except their own and their investors’). Clever and ruthless as the activists are, turning pure profit is child’s play compared to the complexity of delivering profit and measurable benefit on the same balance sheet.

A new definition for the activist investor

By implication, the social investing sector needs a completely different approach to creating value through investing in businesses and this will involve establishing a new model for the relationship between investors and businesses, one that is collaborative rather than confrontational. The sector is now gaining practical experience about how to achieve true  partnership, but a step further would be to replace the functional primacy of shareholders with the primacy of stakeholders.

For a variety of reasons, the interests of shareholders have come to dominate the world of mainstream finance, and this is what really lies behind the rise of the activists. For the social sector, finding legitimate ways to shift the focus away from shareholders to a wider perspective that includes beneficiaries, customers, employees, habitats and communities, could turn the tide. Doing this will mean continuing to develop the infrastructure of our sector, for example establishing more legal forms that protect directors who make decisions for extra-financial reasons, and persuading governments to adapt regulatory policy.

As we move toward the mainstream, it may also mean resisting the temptation to adopt the mainstream’s norms. Despite encouraging signs that the corporate mainstream is beginning to embrace aspects of the social agenda, especially sustainability, the success of the activists reminds us that the fat bottom line is still king, even when it comes with unquantified costs. Social investors need to continue to work with businesses to find better ways to transform capital into healthy businesses with positive impacts.  If we manage this, it will lead to a new, much more positive definition of the term “activist investor”.

Why impact Investors and Businesses Need Better Ways to Communicate

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Impact businesses and impact investors want the same things—but a lack of tools for sharing information hampers successful collaboration.

By guest contributor Antony Upward, Sustainability Business Architect

Both impact investors and businesses seeking impact investments share a strong desire to see that businesses are tri-profitable— producing financial rewards, social benefits and environmental regeneration.  This shared desire to maximize the tri-impact of business comes from the fact that impact investors and tri-impact entrepreneurs fundamentally share the same belief that businesses will do best when they do good.

Based on their shared desire for tri-impact:

  • Tri-impact entrepreneurs are driven to choose strategies and design their operations to be tri-profitable;
  • Impact investors are motivated to allocate capital (debt, equity or hybrid forms) to investments where they expect both to receive a financial return (ranging from return of principal to market-beating returns) and a defined additional social and/or environmental impact.

Why shared values aren’t enough

And yet, what we’re learning in our conversations with impact investors is that, despite their shared values and intention to act accordingly (and all the goodwill this engenders), there isn’t currently an approach for the investor and the business seeking investment to efficiently carry forward their shared values to the necessary next level of detail.  In other words there isn’t a good way for them to gain a shared understanding of the viability and quality of the action the for-impact business is planning and to report on whether what they do has produced the intended tri-impact.

In order for collaboration to work effectively, several things need to happen. Businesses need to be certain that their proposed action (the design of their business model) is well aligned with their intended impacts. They must be able to share the story of their proposed action in a language that will resonate with impact investors. On their side, impact investors need to be able to quickly and accurately gauge whether business plans are realistic. And they need to be able to scope the risks to tri-profitability, spot opportunities to increase tri-impact a business has missed, and communicate these things in a way an that a business can act upon.

In summary: how can the investor and the business to quickly share the action planned by the business in a way that allows mutual understanding and learning while deepening their relationship?  How can they efficiently and effectively determine if they are aligned and have a good fit for each other based on their shared values?

The limits of current approaches

But don’t existing techniques used by profit-prioritizing businesses resolve these challenges?
Unfortunately the two most common existing approaches —business plans and reporting— don’t, on their own, enable the required level of values-aligned shared understanding, mutual learning and relationship-building required by impact partnerships. Though both are valuable, both have limitations when it comes to using them in an impact context.

Business Plans: There is no agreement on what a business plan that describes a tri-profitable business looks like; every business and impact investor has their own ideas of what’s required.   As Alex Osterwalder and Steve Blank have observed, business plans don’t enable compelling storytelling, a powerful tool for impact businesses. They don’t facilitate learning and they can be inaccessible for investors.

Reporting:  Reporting provides some evidence of tri-impact created in the past, but it doesn’t give a view of future impact, which helps investors assess the quality of the planned actions.  At this writing, we still don’t have an integrated set of reports (financial, social, environmental) that allow rating and ranking by investors.  Hindering the Growth of the Impact Investing Market.

Constraining the impact market

The lack an efficient approach for impact investors and tri-impact entrepreneurs to deepen their relationship around their shared values creates a range of problems for the impact investing marketplace:

  • It takes too long for investees and investors to build trust, impacting deal cost and deal flow.
  • It’s hard for businesses to tell inspiring stories about all aspects of their planned tri-impact—profit, people and planet.
  • Impact investors have trouble communicating about additional opportunities for tri-impact or additional risks they may identify.
  • Both parties have trouble identifying a concise set of performance measures and reporting approaches to track all aspects of the businesses progress.

But there is also a wider issue: These communication problems effectively limit both the number of viable tri-impact business opportunities and the supply of impact investments seeking those opportunities.  In turn, this limits the scale and development speed of the impact investing market and hence the total quantity of integrated environmental, social and economic benefits being created by business to address today’s most pressing challenges created by the ever growing mega-forces of change.

We think that impact investors and business would find it easier to get aligned on a specific opportunity based on their shared values if they had a shared language to communicate business plans and demonstrate impact. In my upcoming blog, I’ll explore how impact investors and business seeking capital can use new approaches to business models and reporting to align based on their shared values – for their mutual benefit.

About the author: Antony Upward is a Sustainability Business Architect and the Principle of the enterprise design consultancy, Edward James Consulting Ltd. His work focuses on business model diagnosis and design considering all three dimensions of sustainability: economic/profit, social/people, and environmental/planet. He’s one of the developers behind The Flourishing Business Model Innovation Toolkit, a collaborative project of the OCAD University Strongly Sustainable Business Model Group.

After Davos: Lessons for Impact and Social Investors from the WEF 2015

By Marta Maretich @maximpactdotcom

Aerial photograph of Davos, Switzerland

Davos: Returning to normal after WEF15 but what will the forum mean for us?

The World Economic Forum has been and gone, leaving the Davos snow more than a little trampled. Now that 2500+ of the world’s most powerful people have flown home in somewhat fewer (it seems) than 1700 private jets, what do we know about what’s coming in 2015? And, more specifically, what lessons did the Forum hold for impact and social investors?

Impact and social investing are part of the global economic reality, so the larger trends identified at Davos will be felt in our sector, too. Quantitative easing in the Eurozone, the unpredictable fallout from the Grexit, the slowdown in growth in China and India, its surge in the US, will all shape the world economic outlook for 2015 and will inevitably have their effects on the social sphere. And yet it was interesting to notice certain issues — some our own favorite topics — were more prominent on the agenda than they have been in previous years.

Climate Change

The financial crisis pushed climate change off the agenda; the presence of Gore as the opening act at Davos seems to indicate that it’s now back on. The ex-US Vice President (and his musical friend Pharrell Williams) were on hand to drive home, once again, the message that we need to act fast to avert disaster. This can’t have been news to the delegates at Davos, all of whom have heard Gore’s arguments before and yet have presided over the increase in the use of fossil fuels we’ve seen in recent years.

Among those in the know, real indicator that things are changing was the advocacy of Lord Stern, Tony Blair’s climate change adviser.  At Davos, he argued cogently that fossil fuel is not, as it long appeared, cheap anymore, and that alternatives are now getting cheaper. Governments don’t have to make a tradeoff between growth and preventing climate change, he said, and his argument seems to be gaining traction in the world of business. It’s one that impact and sustainable investors have long understood, of course, but the mainstreaming of sustainability should bring new opportunities for impact investors and climate-friendly social enterprises alike, especially when it comes to collaborating with business and government.

Alternative energy

Related to the issue of climate change is that of energy, another hot topic at Davos. The energy landscape is changing, partly because of the wider acceptance of the reality of climate change, but also because alternative energy sources are coming into their own. A plunge in oil prices, due in large part to the availability of cheap gas from fracking, is driving oil-producing nations to re-examine their strategies, diversify their activities and rethink their future. It’s also fanning the flames of the divestiture movement, which is gaining ground as the value of fossil fuel stocks, for so long the central pillars of many portfolios, continues to fall.

For impact and social investors, this shift in focus will help in two ways. First, the exit of capital from fossil fuels could spur a renewed wave of investment in existing forms of alternative energy such as wind, solar and hydrogen, and in energy efficient technologies, all areas where impact investing has a track record. Second, turning away from fossil fuels will require more investment into developing new alternative sources of energy. Investment in energy R&D and in companies rolling out alternative energy solutions to new markets will be attractive opportunities for social investors.

Inequality

The specter of Thomas Piketty was found haunting many of the sessions at Davos. The French economist’s landmark tome, Capital in the 21st Century, has sparked wide-ranging debate about the nature and role of capital in our times. One of its impacts is to highlight the growing problem of wealth inequality, an important theme threading through many discussions at WEF15.

The Economist explains Piketty in four paragraphs

Different delegates working in different contexts and sectors interpreted inequality in a number of ways. Piketty is mainly concerned with the current dynamic that sees wealth in societies moving inexorably in one direction—upwards—and accumulating in the hands of fewer and fewer people at the top (such as those attending the Davos conference, for instance). Other kinds of inequality, however, were on the agenda, including the disparity between rich and poor nations, and among different groups, for example women and marginalized groups, within societies.

For impact and social investors, investments aimed at reducing inequality of all kinds are already part of the landscape and can take a number of forms. Affordable loans for college students, edutech that brings learning to those who need it, and provision of healthcare for girls and women, are all examples of investments that can help reduce inequality. Technology also has a role to play. Sheryl Sandberg, when asked by Arianna Huffington, opined that more technology, specifically access to the internet, and, less specifically, “more data” would bring more equality to the world. Social investments that extend tech to the tech-poor are already on the cards, but more work, targeted specifically on easing inequality, is needed from our sector.

Corruption and crime

In a recent blog, we showed why the impact and social investing sector should be putting its weight behind the growing global movement to fight corruption.  At Davos, corruption and crime were prominent on the agenda, an indication that the movement is now hitting the mainstream thanks to the efforts of campaigners like Global Witness. The connection between corruption, poverty and the health of markets is becoming clearer, as is the role of the business community in tackling this scourge. These topics and others were addressed in number of sessions and an issue briefing at the WEF. Impact and social investors should keep abreast of how this discussion develops and, in keeping with their commitment to ethics, adopt anti-corruption strategies wherever possible.

Changes to the way the world invests

The delegates at Davos showed a new level of interest in the way capital markets are changing, and this has implications for the impact and social investing movements. This change-consciousness was evident in this year’s sessions, many of which acknowledged, in different ways, a new mood and attitude toward investing in  mainstream markets. Yet it can be seen most clearly in the future projects funded by the WEF for next year. Projects on accelerating capital markets in emerging economies and direct investment by institutional investors, for example, point to trends in the markets that could be important for impact investors. Meanwhile. Phase III of the Mainstreaming Impact project has been cleared to move forward, led by Abigail Noble. If the excellent work coming out of this project so far is any indication, this will give us even more data to work with and deepen our understanding of the developments in our own corner of the financial world.

An insight into the things to come?

The World Economic Forum provides a fascinating snapshot of the forces that shape our global economy and thus determine the fate of billions—billions of people, that is, not only dollars. It gives us a fleeting glimpse of the individuals making the decisions and the merest hint of how things will go in the year to come. For our emerging sector, it’s vital to tune in to the lessons of Davos and learn what we can, especially if our aim is to one day become the mainstream that Davos represents.

And yet, in another sense, Davos may be less relevant to us than it first appears. As a guage of the status quo—what is now—nothing compares to it. But as a guage of what will be, it falls short. Piketty reminds us all that economics is, after all, not a hard science like mathematics, but a social science with historical underpinnings. Looking at the past is very helpful for understanding the present, as he ably proves. However it doesn’t necessarily help us predict the future with perfect certainty. For many, Davos is already the past. The future, if committed impact and social investors have their way, could be very, very different.

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Taking an Integrative Approach to Impact Investment

By guest contributor Harald Walkate, Head of Responsible Investment at Aegon Asset Management

Headshot of Harald Walkate

Harald Walkate is Head of Responsible Investing at Aegon Asset Management

In the last few years, great progress has been made in the area of impact investment. At first the exclusive domain of foundations, family offices and SRI-driven investors, it is now gaining recognition in mainstream finance as a tool that will help tackle social problems while realizing required investment returns.

This is a welcome but also necessary trend, because for this approach to have the impact (no pun intended) our community desires, much larger dollar amounts will need to be allocated. This will require the unlocking of the vast capital pools held by that mainstream sector — pension funds, insurance companies and sovereign wealth funds around the world. As Antony Bugg-Levine and Jed Emerson write in their book Impact Investing (2011), the key will be “determining where the high-potential capital pools sit, understanding how to motivate their managers to redeploy them, and supporting them do so.”

Exact numbers are hard to come by, but speaking in ballpark terms, today investment has reached the tens of billions. To seriously move the needle, we need to start thinking about how to engage the hundreds of billions, if not trillions, held by those asset owners.

For this, several things still need to happen.

Understanding the mainstream investor

First, the impact community should better understand this “mainstream” financial sector. It should recognize that, however socially-oriented and sustainable these organizations might be, or claim to be, their first priority is matching their investments to the liabilities on their balance sheet.

This is as it should be: whether for-profit or not, this is what they were created to do in order to pay out pensions and insurance claims at some point in the future. This means most mainstream investors take a hard-nosed and no-nonsense approach to asset management, where strict return requirements apply, volatility is thoroughly analyzed, difficult questions will be asked about liquidity, and regulatory requirements need to be scrupulously fulfilled.

Also, for more than a few asset owners, established asset classes such as equity (not even to speak of private equity or venture capital) are totally out of the question. The impact community needs to understand that, while this restriction often poses barriers to certain impact investments, these barriers are there for good reason and will not go away in the short to medium term.

Understanding this will help manage everyone’s expectations of what mainstream finance can do in impact investing. It will also help the impact community to become true “mainstream messengers” and to pitch their investment opportunities more effectively to institutional investors.

Looking for impact opportunities within existing portfolios

Second, asset owners should take an integrative approach to impact investment, looking for impact opportunities within existing portfolios and asset allocation processes, not in addition to them. The recent report Allocating for Impact by the Asset Allocation Working Group of the G8 Social Impact Investment Taskforce is enlightening in this respect. It provides an excellent framework for doing exactly that: “the traditional framework for portfolio construction can be used as the guide rails for making what an investor considers to be a reasonable allocation to impact investments.”

Working for a company that has applied this approach, I can vouch for its effectiveness.

It is worth pointing out that this also means the impact community should not ask asset owners to commit to a certain, separately-labeled, “impact asset allocation”. While such a commitment could have the positive short-term effects of putting the topic on the table, focusing minds with a target, and bringing additional billions into the impact pool, it will not unlock the larger amounts that are required. Separate allocation reinforces the still-common view that sustainable investments are not “real” investments but rather something for the CSR and PR people that should come out of marketing budgets. Finally, there is the risk that these asset owners, feeling they have fulfilled their “sustainability obligation”, will not look for further impact opportunities in their broader portfolios.

Getting the message to into the heart of mainstream institutions

Third, and most importantly, asset owners and asset managers need to get to work with the type of analysis described in Allocating for Impact. This is the hard part.

You’ve heard the expression “good strategy is 2% thinking, 98 % execution.” In this case, the thinking work has been done for us by the Asset Allocation Working Group, but the execution requires individuals within pension funds, insurance companies, asset management firms and sovereign wealth funds to take action.

But how do we reach them with this message? This is no mean task.

For a typical pension fund, insurance company or asset management firm, you need to imagine a very large, often somewhat bureaucratic, organization, with tens or hundreds of exceedingly specialized portfolio managers, analysts, actuaries and risk & compliance managers. They follow highly detailed and thoroughly documented investment mandates and procedures to allocate their capital through analysis and investment decision-making. Making even very minor changes to these complex systems is a significant task.

These people are inundated with information: research generated by internal research desks or external brokers, industry reports, academic papers, actuarial tables, continuously shifting regulatory demands, news nervously flashing across their dual screens. What are the chances they would find the Allocating for Impact report, let alone read it? My estimate is close to zero. The chances that they will take action based on its findings are even more remote.

No, bringing change will require positive and proactive action by the impact investment movement to approach individual CIOs, specialists on the fixed income or research desks, people responsible for asset allocation decisions, or other influential individuals within these organizations. Note here that people without the fancy title, but with an open mind and a creative bent, sometimes wield the most power to make little changes to big systems. They need to be persuaded to start discussions in their organizations about applying the Allocating for Impact analysis across their entire portfolio and to integrate it with their investment processes. Only by doing so will impact investment find its formal place within institutional portfolios.

Who will step up to this challenge?

About the author: Harald Walkate is Head of Responsible Investment at Aegon Asset Management and founder of Insurers’ Investors on Impact Investment (IIII). He has a longstanding interest in sustainability issues and has been specializing in responsible investment and ESG issues since 2009, when he joined AEGON Asset Management (AAM) as Head of the Corporate Office. Harald has worked on a in a variety of initiatives around strategy and governance, including the implementation of a Responsible Investment Framework.  A particular area of interest is engagement and ESG integration for credits. A former corporate attorney, Harald also has significant experience in international business development (M&A, joint ventures, greenfields), in particular in the Central & Eastern European region, and holds a law degree from Leiden University, the Netherlands and an MBA from the University of Chicago Booth School of Business.

The Evolving Meaning of Sustainability

By Marta Maretich  @maximpactdotcombaby hands plant

Sustainability is a key concept for our times. For impact investors who want to put their capital behind better ways of doing business, it’s an important indicator of investability. But what exactly do we mean when we say “sustainability” or “sustainable”?

The dictionary sheds a little light.

Sustainability:
1. Conserving an ecological balance by avoiding depletion of natural resources.
2. Able to be upheld or defended.

Originally taken from the biological sciences, the term sustainability first referred to conservation of natural resources. Though it retains this meaning, sustainability today can mean different things in different contexts. Sustainability in its classic sense and new uses of the term are proliferating as sustainability goes mainstream in business and popular culture.

The mainsteaming of classic sustainability

The definition is changing as the movement goes mainstream. More businesses are taking steps to incorporate sustainability into their operations as well as their performance metrics; national governments are regulating and incentivizing it in a number of new ways. Meanwhile investors are increasingly making non-financial performance, including sustainability, a priority when choosing where to place capital.

All this means that “sustainability” is an evolving idea with increasingly diverse interpretations. Most sustainability efforts still focus on the environment, however, with an emphasis on maintaining ecosystems and conserving natural resources for future use.

Sustainable forestry: Saving forest habitats has been an active area for impact investors. Despite the collapse of carbon markets, organizations like Rainforest Alliance are expanding their activities. Certification schemes like the FSC are helping sustainably sourced wood to become standard in building and consumer goods.

IrrigationSustainable agriculture: Impact intermediaries like Root Capital and development organizations like OPIC have developed successful models for promoting sustainability in agriculture. Encouraged by government regulation and subsidies, big agribusiness companies like Monsanto and multinationals like Coca Cola, are now pursuing sustainability strategies.

Sustainable water use: With changing climate in places like California driving the adoption of more sustainable water policies, businesses and services are springing up to meet a newly-defined demands. Driven by regulation, large multinationals including Unilever are beginning to look at water sustainability from a number of angles: their own use, water use by suppliers, and the water needed to use their products.

Sustainable mining: Mineral extraction is a sector with a raft of social and environmental issues and has been avoided by many social investors. That may change as groups like the IIED work to build the commitment to sustainability across the industry.

Sustainable energy: The focus is on wind, water, solar and other forms of generation and storage, such as hydrogen cell batteries. A popular area for impact investors, even designer Vivienne Westwood has committed GBP£1 million to sustainable energy. Big fossil fuel companies are also putting money into it. Though their motives are often questioned, it is a sign of how far the notion of sustainability is becoming part of the fabric of corporate life in the developed world.

Sustainable consumer goods

Sustainability has taken on a new meaning in consumer markets as it has become a persuasive selling point for everyday goods and services. Public enthusiasm remains high for brands with sustainability credentials and sustainable practices, far from being unusual, are now what consumers expect of businesses.

Sustainable fashion: The fashion industry has been thriving in a throwaway culture, but the photograph of a lady in a dress of flowerssustainable fashion movement hopes to change attitudes and move toward sustainability. To keep up with this vibrant movement, follow top tweeters in fashion sustainability and check out the five top sustainable fashion stories of 2014.

Sustainable building: Changing the way we build and design cities could make a huge difference to our future and, increasingly, governments are regulating for sustainability in construction processes, materials and design. This is reshaping the construction industry, especially in the developed world. Construction companies are adapting the way they source and use products and materials and new education centers, like this one at Harvard, and this one in Edinburgh, are training the sustainable builders of the future.

Sustainable tourism: More people are taking vacations than ever before, but increasingly tourists want to avoid damaging the environment, squandering natural resources or hurting local communities. The global travel industry is waking up to this fact and offering sustainable tourism to the masses. Portals such as Sustainable Tourism Online provide go-to resources for the public and professionals who want tourism to be good for the planet and the communities in host countries.

Evolving meanings: Financial sustainability

Beyond its original, environmental meaning, sustainability has recently developed a financial meaning that applies in some sectors. Governments strive to make public services “sustainable”. Non-profit organisations try to create “sustainable” programs to deliver mission. In this context, sustainable can mean both environmentally sound or financially viable for the future or both.

Sustainable healthcare: Concerns about being able to afford healthcare for citizens in the future is driving innovation in healthcare delivery and finance models.In a bold move, the UK health service, the NHS, is embracing both environmental and financial sustainability.

Sustainable transportation: Concerns about climate change, contracting budgets and public pressure are encouraging many governments, including China’s,  to organize public transportation policies around sustainable principles, in both the financial and evironmental senses.

Sustainable finance: In a final evolution, “sustainable finance” seeks to apply the principles of sustainability to banking and investment. Impact investing and its sister disciplines across the spectrum of social finance including responsible investing, ethical investing, social investing and microfinance form part of this growing movement, which seeks to revolutionize the use of market methods to create better social and environmental outcomes.  Sustainable finance methods are now being put to use in a wide, and growing, range of contexts, with new techniques and approaches developing across the sector. For more on sustainable finance,  browse the top five stories in sustainable finance for 2014.

Conclusion

Sustainability has moved from the margins to the mainstream and is now a widely-accepted approach being incorporated into many areas of business, finance and the consumer marketplace. As it continues to expand its influence, sustainability will continue to evolve new meanings and serve as a paradigm for conservation and wise stewardship of the environment, human and natural resources and, now, capital. This movement is positive, but for impact investors seeking sustainable investments, it will mean taking a closer look at all claims for sustainability and determining exactly what is meant.

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5 Top Schools for MBAs In Impact Investing—Plus One You May Not Have Heard of Yet

a mixed group of graduates celebrate

Where will you get your impact investing MBA?

Where business-minded millennials decide to pursue their MBA has far-reaching implications for where and how the largest wealth transfer in history unfolds. MBA graduates of the next ten to twenty years will change the face of impact investing and the schools they attend will help decide the flow of 21st century wealth.

From U.S. News and World Report’s 2014 ranking of the top business schools, we selected three U.S. based schools and two international schools where some of the social investing leaders of the future will learn their craft.

Harvard

Harvard Business School “pioneered the concept of social enterprise with the founding of its Social Enterprise Initiative in 1993.”

HBS creates a new breed of philanthropist-investors that create new financial instruments designed to generate returns from social investments. The school trains students to recognize that “socially-oriented investors are increasingly demanding opportunities to invest in projects that yield both social and financial returns.”

Impact investing demands new financial models, new social metrics, and new regulation. Students actively collaborate with professors, alumni, and business leaders to develop these new methods for impact investing.

“We need to be a force in drawing more people into being less risk averse, to try the new things that we need in order to create social change. And I think HBS can be a force in driving that change” Alvaro Rodriguez IGNIA MBA 1995

Wharton MBA Program

Wharton wants students to “make an impact in a rapidly changing world.” Wharton graduates generate social value in a business setting, assume positions of leadership in the non-profit sector, and become entrepreneurs that change the world of impact investing.

Wharton encourages hands-on, community engagement from day one both domestically and internationally.They apply business skills to promote economic development and improved quality of life.

Jacob Gray, Senior Director of the Wharton Social Impact Initiative, says, “Our goal is to provide the best experiential education available in the field of impact investment.”

Said Business School

Oxford’s Skoll Centre for Social Entrepreneurship at the Said Business School sees the next ten years as an “historic moment in business education.” The graduate program at Skoll champions entrepreneurship for developing new market systems, disruptive innovation, and new business models.

Students learn about new laws and regulations that guide socially responsible yet profitable investing. Graduates are “strategically positioned to take a leadership role in accelerating the creation of a new business architecture.” Cornerstones of the SAID program include entrepreneurship, collaboration, innovation, global focus, systemic impact, intellectual rigor, and honesty.

INSEAD

The Business School for the World

INSEAD, with locations on four continents, defines social entrepreneurship as the “use of business practices and market principles to bring about positive social change.”

INSEAD sees a need for impact investing in every sector and every market. To meet the needs of existing social leaders, who may lack the business, management, and strategy skills that wealth in the private capital markets, INSEAD leverages existing programs to train social entrepreneurs. The ISEP program, first launched in 2005, invites leading social entrepreneurs to join a network of support and knowledge sharing.

Leading with research and faculty involvement, INSEAD trains MBA candidates to develop a two-way dialogue that applies advanced management thinking to the challenges of social environments.

Yale Management School

Yale educates business leaders for society. They first introduced a school focused on public management in 1974 and although there is no single “social investing center,” like the other schools reviewed, Yale offers 13 electives ranging from “Financial Statements of Non-Profit Organizations” to the “Business of Not-for-Profit Management.”

Yale brings together entrepreneurship, business skills, and social responsibility to provide MBA candidates with one of the best educations available anywhere in the world.

And one you may not know about…

James Lee Sorenson Center for Impact Investing

The Sorenson Center at the University of Utah offers MBA candidates a comprehensive program with access to an “unparalleled learning opportunity.” Since practical experience in impact investing is difficult to create in classrooms alone, they designed a program where students interact with socially conscious leaders every day.

Students regularly collaborate with leading venture funds, banks, foundations, consulting firms and social entrepreneurs to identify, fund, and grow businesses for impact investing. Students work on live projects to develop strategies facing businesses in real-time settings.

Students and organizations work together to identify new markets, marketing strategies, and develop competitive advantages.

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Why corruption is a problem for impact investors—and what we can do about it

Money in pocketBy Marta Maretich, Chief Editor @maximpactdotcom

“Corruption is a disaster for development. It wastes the resources that can build sustainable economies, guts confidence in government, and fuels inequality and conflict. So common sense dictates that massive global efforts to end poverty must find a way to fight corruption, or they will fail.”  —Dana Wilkins

So writes Dana Wilkins, an analyst for Global Witness, the anti-corruption campaigning organization, in her recent blog on the corrosive effect of corruption on global efforts to fight poverty. Her remarks highlight the problems corruption creates for development aid, but every word of it should set alarm bells ringing for impact investors, too.

Because, if corruption is a problem for the development aid sector, it’s twice the problem for impact investors. Here’s why:

Corruption strikes simultaneously at both of impact’s stated aims: profit and benefit. It cripples the growth of business and drains investor returns while it chokes off the possibility of creating social and environmental benefit. Sustainable, socially beneficial businesses are unlikely to thrive in corrupt contexts. Impact investors who put money into them run risks they may not initially see or understand, including reputational risks. Impact measurement and reporting, too, can be tainted by corruption, making it impossible to assess the real effects of an investment.

All this makes corruption fatal to the success of impact. Worse, by investing the wrong way, in the wrong places, investors could actually harm the communities they want to help.

Far from fostering economic development, careless investing actually makes corruption worse by propping up a sick system. As Wilkins told us during a recent conversation, “Investing blindly in corrupt contexts can exacerbate the political and economic conditions that undermine long-term development”. And, by pouring good money into corrupt systems, impact investors can come to be seen by local people as part of the problem rather than part of the solution.

Steering clear of rotten deals

So what can impact investors do to avoid getting caught in the corruption trap?

Due diligence is key, according to Wilkins, and should never be stinted on when making an investment. Careful due diligence processes that take account of corruption activity and provide insight into local conditions will help investors steer clear of rotten deals and find healthy ones. “Impact investments must be informed by due diligence and an in-depth understanding of the political economy of corruption in the country,” she told us.

This holds true for investments anywhere in the world, not only those in countries that are infamous for crooked dealing. Although many high profile corruption cases have come out of the developing world, like this one involving Nigeria, it’s important to remember corruption is a global scourge that taints developed economies, too.

Global Witness’s current campaign focuses on getting western economies, especially the US and the UK, to ban anonymous companies, the unaccountable entities often used to launder money stolen through corruption. And, as Global Witness founder Charmian Gooch points out in her award-winning TED talk, theft on such a massive scale is impossible without the collusion of reputable banks and multinationals.

For impact investors, this means taking a hard look at any investment before committing capital to it, regardless of the size, stature or location of the business. By making it a practice to look beneath the surface of deals—a thing all investors would be wise to do—they can choose investments knowledgeably and avoid putting money in the pockets of criminals.

Providing anti-corruption leadership

Avoiding bad deals is one thing, but what else can the impact sector do in the fight against corruption?

Driven by a dual commitment to good business and social and environmental benefit, our sector could (and should) take a leadership role in the anti-corruption movement. Establishing good governance and reporting practices across the impact investing industry will be key, but the first step is to embrace the principle of transparency, according to Wilkins.

“Impact investors should be 100% transparent about the way they do business and who they do business with,” she told us. “This can have a knock on impact of helping improve transparency and accountability more generally, and save investors being seen as complicit in the corruption that is bleeding so many developing countries dry.”

Beyond this, the sector can do more by supporting the work of anti-corruption campaigners like Global Witness and other groups, like Global Financial Integrity. Global Witness is now pushing for anti-corruption to be embedded in the UN’s Sustainable Development Goals, the post-2015 successor to MDGs, a move that could catalyze change across the development sector and give support to wider efforts to end corruption.

Joining the conversation about anti-corruption policy, like this one lead by the US government, is another way the sector can exert influence. Finally, supporting change from within industries through careful investment combined with vocal support for internal anti-corruption activists is another way to help. This will be crucial in industries where the instance of corruption is high—forestry, land, oil, and minerals top the list.

The world is sick of corruption. This survey of millions of people identified “honest and responsive government” as priority #4 out of 16; that means one free of graft, bribery, nepotism and fraud. And it implies a clean operating environment for business, too. The impact investing sector now has an opportunity to respond to this call for fair dealing and put its growing influence behind global efforts to bring change.

Read blogs by Dana Wilkins

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Equity Crowdfunding: Giving Small Impact Investors Entry to the Marketplace—Finally!

By Marta Maretich @maximpactdotcom

crowdfundingIt happens regularly: I am sitting next to someone I don’t know at dinner. When my turn comes to talk about what I do, I tell them about my work in impact investing.

Many of my dinner companions — who are usually intelligent, well-informed people — have never heard of impact (still!) though most are aware of the buzz around responsible or sustainable investing.  Yet, when I describe how the approach works, producing financial returns as well as measurable social and environmental benefit, almost invariably the response is: “What a good idea! How can I invest in impact?”

The problem is, up until recently, I haven’t had a good answer for them. Now, thanks to the explosion of innovative online investment platforms, I do: equity crowdfunding.

Engaging the small impact investor

From the beginning, impact investing has been the realm of the large private investor, mainly foundations, high-net-worth individuals and family offices.

The main reason for this was cost: due diligence and other deal costs only pay off if the overall investment is large enough — Tim Freundlich of ImpactAssets put the figure at around the $20 million mark. This has meant that making impact deals was expensive and small, individual investors, known in the trade as “retail investors”, had almost no opportunity to get involved.

Sector leaders have been trying to find ways to solve this problem. A year ago, we reported on ImpactAssets’ launch of Seed Ventures, a platform within their donor-advised fund, the Giving Fund, designed to aggregate smaller amounts of capital in a cost-effective way. Calvert Foundation offers Vested, an online investment platform, along with a brokerage account facility that aims to connect small investor capital with community investment schemes. Even internet giant EBay has made forays in this area, acquiring MicroPlace, a crowdfunding site for microlending, in 2006 — then, sadly, shutting it down early this year.

Despite the failure of MicroPlace, the crowdfunding model has been successful in other contexts. Platforms like Solar Mosaic and Crowdfunder have tapped into the public enthusiasm for supporting beneficial projects and, to a lesser extent, social businesses. Their popularity gives some indication of the potential of this method to raise capital in small increments. It’s my experience that crowdfunding is the first thing most people think of when they hear the term “socially beneficial investing”.

However, crowdfunding as we’ve known it so far had been limited — and the fate of MicroPlace reminds us that it isn’t a foolproof approach. Most models haven’t offered true impact investments — ones that produce both profit and benefit. Commonly, they offer rewards, such as products or services, instead of financial returns. Or they use crowdfunded capital to finance microlending schemes such as that managed by Kiva.

However, things are changing very fast in the world of crowdfunding, and these changes will profoundly affect the availability of impact investing opportunities for individuals.

The rise of equity crowdfunding

Development in the technology and regulation mean that now crowdfunding platforms can offer a range of types of investments for small investors including equity as well as debt.

Equity crowdfunding is taking off in the UK and Europe where sympathetic regulators are giving the green light to new investment approaches. Now would-be impact investors can log on to sites like Crowdcube, the Funding Tree and Seedrs, and invest as much capital as they want to — or as little, with £5 being enough to buy an equity stake in some businesses. The best of the sites offer a sophisticated range of investor services. Seedrs for example conducts due diligence on companies, handles payments, manages shareholder agreements and takes care of legal paperwork, all for a reasonable percentage-based fee.

All this is good for small investors and for businesses, but what has really transformed this market has been the proactive stance of UK regulators: all the sites mentioned are now regulated and authorized by the Financial Conduct Authority (FCA). This transforms the quality of investments made through them and opens the field for even more innovation and a greater role for the small investor.

Top 10 Equity Crowdfunding Websites for Startups

In the US, things aren’t moving as quickly. Congress and the SEC (Securities Exchange Commission) have been reluctant to pass the legislation that would allow equity crowdfunding to blossom. Despite playing host to the some of the biggest crowdfunding platforms, the US may now be in danger of lagging behind other parts of the world in the crowdfunding stakes. Yet public enthusiasm for the practice remains high, and this is pushing individual states to permit equity crowdfunding within their borders. US sites like Circleup and Equitynet are open for business and new sites are cropping up almost daily.

Let them all in

And what does all this crowd funding ferment have to do with impact investing? The boom in equity crowdfunding has the potential to strengthen the impact sector in important ways.

First, it could finally solve the problem of small investor access, providing a cost-effective way for ordinary people to invest modest amounts in companies at the seed and early stages of growth. This means that, for the first time, even small investors will now be able to engage directly in impact investing.

This new accessibility has benefits for the whole sector. It could mean that impact investments will become a familiar part of the investment portfolios of individuals. If this happens, more people will understand how impact works and its approach will become more widely accepted. Socially-minded investors will have the satisfaction of backing businesses they believe in. Meanwhile, more impact businesses will receive the finance they need.

In this way, equity crowdfunding may provide the missing link that connects impact investing to an untapped groundswell of public support — as well as a huge pool of capital held in private hands.

Democratizing the sector

This sends me back to those conversations over dinner.

What constantly surprises me is how few of the people I meet have even heard of impact investing. To someone like me who eats, sleeps and breathes impact, it seems incredible, but impact investing still lacks the public profile of approaches like microlending or reward-based crowdfunding.

Part of the reason must be that individual investors have so far been excluded from the world of impact. As a direct result (I think) some socially-conscious people view impact with suspicion, assuming it’s a ploy to siphon money away from philanthropic programs and channel it back into the pockets of rich capitalists.

When I hear this kind of talk, it sets alarm bells ringing in my head. In order to create the kind of impact markets we envision — and to build a more sustainable, prosperous future for the planet — we’re going to need grassroots public support on a global basis. The key to this will be finding ways to involve more people in impact and to do a better job of getting our message across.

As for my financially-minded dinner companions, I notice that impact makes gut sense to them; they immediately see it as a force for changing the world and they want to be part of it.

Now, with the advent of equity crowdfunding, that may finally be possible. Now, at last, I have one answer to the question, “How can I invest in impact?” All I need are a few more.

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Convincing Foundations to Take the Impact Investing Plunge

Convincing Foundations to Take the Impact Investing Plunge

By Marta Maretich, Chief Editor @maximpactdotcom

Impact investing was invented with foundations in mind: specifically, it was designed to unlock the vast pool of capital represented by their endowments (over  $662 billion in the US alone) and align that money with social mission.

Foundations have been slower on the uptake than the impact pioneers initially hoped. While the practice of impact seemed to explode into government circles and mainstream markets, foundations, traditionally very conservative investors, held back, constrained by risk aversion and, in some cases, a misunderstanding of fiduciary responsibilities.

But that’s beginning to change. Led by the brave examples of a few early-adopters, more foundations are now thinking about getting involved in mission-driven investing. There’s anecdotal evidence that many, often spurred on by progressive beneficiaries and trustees, are actively reviewing their portfolios with an eye to making the change to socially beneficial investing.

But it’s a big step for a foundation — and it involves a huge paradigm shift that can be a challenge to any institution. What will it take to encourage more foundations to take the plunge and unleash a wave of capital for social and environmental good?

Evidence

Foundations are duty-bound to protect their capital. They need solid reassurance that a mission-driven strategy can work financially, and the best form of assurance comes in the form of evidence.

Luckily, some leading foundations are documenting their mission investing experiences and making the information public for the benefit of others. Two detailed case studies from the report Impact Investing 2.0 provide examples of this commitment to transparency: W.K. Kellogg Foundation (WKKF) and RSF Social Finance (RSF) both offer insights into the ins and outs of their mission investing strategies, shining a light on how the process works for them and extracting lessons on what it takes to succeed. An upcoming book by the reports’ authors, The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism, gathers further lessons learned.

Demystification

Winning a commitment to impact investing from foundations is one thing, making it happen in practice is another. Leading foundations are helping here too by directly sharing their experiences with their peers and demystifying the practicalities of changing to mission-driven investing.

At a recent event organized by the charitable-sector law firm Bates Wells and Braithwaite (BWB), a small group of foundation personnel gathered to hear the personal accounts of three foundations who are in the process of reallocating assets into impact investments.

Anne Wade, of the Heron Foundation, Anne Tutt of the SIB foundation and James Perry of Panhapur all spoke candidly of their experiences and answered challenging audience questions about what works and what doesn’t in making the switch to mission-driven investing. This kind of peer-to-peer learning exchange can be a powerful tool for changing people’s minds about the viability of adopting a new approach to allocating capital.

Expert Advice

Yet foundations are going to need more than positive role models to effectively overhaul their investment strategies. To get the process right — which means making the change without compromising their endowments or failing in their fiduciary duties — they will need expert advice.

As an example, the BWB event included an update by Luke Fletcher, a partner in the firm and a social investment specialist, on the current legal status of trustees in the UK when it comes to making social investments. Based on recent clarifications from the Law Commission, Fletcher was able to offer reassurance that trustees had the freedom to allocate assets to mission-relevant investments if they so chose.

This kind of expert advice, coupled with the first-hand testimony of trailblazing foundations, is exactly the sort of support that gives foundations the confidence to pursue new strategies. If we want to see more movement of foundation capital into impact markets, we should all be doing more of this kind of person-to-person work, connecting directly with trustees and foundation asset managers to show them the evidence and give them a realistic understanding of their rights and responsibilities.

If this kind of networking happens on a wider basis, many more foundations will get the message that they have a green light to move their assets into impact investments. And if more foundations move into mission-driven investing, well, just think of the benefit that could bring to all of us.

[Credit Image: Flickr]

Impact Investors: What Did You Do in the Healthcare Revolution?

finger pushing digital button with cross symbol

By Marta Maretich, Chief Editor @maximpactdotcom

Healthcare is undergoing a global revolution. Demographic changes, including aging populations and rising levels of affluence in many countries, are altering health priorities for citizens and governments alike.

Meanwhile an explosion in healthcare technology — both in new devices and in the increasing importance of data — is transforming healthcare from the inside out, changing both capabilities and expectations and creating new opportunities as well as new ethical and practical challenges.

All this is driving a new wave of healthcare investment  — and setting the stage for impact investors to enter an exciting global marketplace.

A picture of health in 2014

Aging populations in developed and emerging economies are behind many of the changes now emerging in healthcare markets.  By 2017, there will be 560 million under-65s on the planet; by 2050 there will be 2 billion over-60s, according to World Health Organization (WHO) figures.  People everywhere are living longer, including those in emerging economies, due to improved access to medicine and better control of infectious diseases. That’s the good news.

The bad news is that this longevity will lay a heavy burden of healthcare demands and costs on states and individuals alike. A more affluent lifestyle for a bigger slice of the global population creates problems of its own, too.  Obesity is rising worldwide, especially among children, with far-reaching implications for the future health of populations. Similarly, chronic diseases are on the up, many of them, like diabetes and heart disease, associated with changing diets and a sedentary modern lifestyle.

And yet this picture of rising global affluence masks a sobering reality: as many as one billion people on the planet still a lack access to any kind of healthcare system. This problem remains particularly acute in developing countries, but it touches the developed world too. Women and the poor, especially in rural areas, are particularly at risk.

New needs, new costs

There’s evidence that governments around the world are already stretching to meet the changing healthcare needs of their populations.

In developed nations, healthcare is set to become the second-largest category of government spending overall. In the US, the Affordable Care Act is radically altering healthcare care access and delivery with cost implications for private, state and federal providers. In Europe, governments are struggling to maintain high healthcare standards in the face of a stagnant economy and budget cuts.

Meanwhile, developing nations, such as China and India, and regions like the Middle East, are set to increase healthcare spending significantly to meet growing local demand. In a parallel move, development agencies such as the WHO are looking for ways to do more to meet the healthcare needs of the world’s poorest populations.

In all these parts of the healthcare sector, private capital is set to play a bigger role as national governments as well as development agencies and healthcare nonprofits look for innovating ways to finance healthcare.

Impact steps up

Healthcare is a natural area for impact investors, as a few pioneers have already realized. In a recent survey of the sector, just 6% of impact assets under management were committed to healthcare (as opposed to 21% in finance and 11% in energy). It’s a modest beginning. However, interest is on the rise among fund managers, with 39% of those surveyed planning to increase their allocation in the coming year.

This upswing in interest is evident across the sector. New impact metrics have already been designed for healthcare and June 2014 marked the first convening of SOCAP Health, an event dedicated to social investing in the “untapped” health market. Pay for performance, community health initiatives, and the importance of gathering health and wellness data were some of the topics discussed, giving a taste of the conversation to come.

Foundations with a mission commitment to healthcare are also getting into the impact investing arena. California has recently been a proving ground for impact investing by foundations who are playing an important role in developing the impact market for other investors. A 2012 survey from the California Healthcare Foundation, itself an impact investor, revealed that 13 US foundations (and 3 non-foundations) made over $81 million dollars of investment in healthcare in 2012, some of it directly, some through intermediaries. Investment continues, especially in community health clinics in the wake of the ACA, with demand up and impact being carefully monitored.

Collaboration with governments

As the G8 taskforce report on social impact investing suggests, governments will be likely partners for impact investors of all kinds in the years ahead. With private finance playing a greater role in footing the bill for healthcare in many countries, impact investors will have many more opportunities to collaborate with governments, for example helping finance Social Impact Bonds (SIBs) and other pay for performance schemes.

The most successful impact investors are already doing this, according to a recent study of leading impact funds. Working with governments in sophisticated ways, they view the relationship as  “an ongoing, evolving partnership, directly or indirectly influencing the development of public policy at the investee, market, and field levels”.

This “policy symbiosis” between governments and impact investors has the potential to bring needed capital into the public sphere in many areas, but especially in the growing healthcare market. Development agencies, too, are liberalizing their approaches to financing social benefit work, and impact investors will have collaborative role to play here.

Are we fit for the future?

The private healthcare marketplace is taking off around the world. There’s no question that there will be multiple opportunities for all kinds of private investors to make money and, possibly, to do good.

But impact investing, with its blended value approach, has a special role to play in making sure the benefits of the healthcare boom reach the people who really need them. Working side by side with governments, nonprofits and development agencies, impact can take the lead in bringing affordable, accessible healthcare to a world in need.

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Why the Education Sector Urgently Needs Impact Capital

Afghan SchoolBy Marta Maretich @mmmaretich @maximpactdotcom

The world is crying out for education. For 4,738,116 respondents to the My World digital survey (and counting) “a good education” is, is the overwhelming choice for every age group and every sector for the change that “would make the most difference” to their lives.

The role of education in improving the people’s lives and encouraging economic development is widely recognized, making it a focus for national governments, philanthropic bodies and international development agencies. Increasingly, it’s viewed as an indispensible tool for easing poverty, reducing inequality and boosting economic sustainability. Research has shown that one year of education can increase wages by five to 15 percent, while each year of secondary school raises them by up to 25 percent.

What’s more, quality education for all—including marginalized groups, women and adult learners—can generate huge economic rewards for a country, increasing its gross domestic product per capita by 23 per cent over 40 years.

More investment is needed—right now

There’s little doubt about the value of education. Yet, despite making commitments to Millennium Development Goals in education, the global community has so far failed to come up with the investment needed to hit education targets. While spending on education by low-income countries has increased by an average of 2.9 percent to 3.8 percent of GDP over the last decade rich countries have not stepped up to the same degree.

In 2010 estimates showed that an additional $16 billion per year would be needed just to provide basic education for children, youths and adults by 2015. However, actual spending has hovered around the $3 billion mark annually. The result is a funding gap that has almost doubled in the intervening years. Today, estimates place the annual financing shortfall at a staggering $26 billion.

It now seems likely that the Millennium Development Goal for education will not be reached by the 2015 deadline and there are concerns on the part organizations like Education for All about what will happen to education development post-2015 and in years to come.

In a further development, low-income countries and poor populations aren’t the only ones facing an education crisis. The education systems in rich countries like the US, the UK and Australia, for instance, are also suffering from the effects of squeezed public budgets and skyrocketing costs, especially in the higher education sector. This has left educational attainment rates dropping, especially among poor people and minority groups, over a number of years.   Many would-be students are priced out of access to higher education just when the need for an educated workforce is on the rise.

Innovative finance solutions

So what can be done to help the poorest attain access to quality education and the better-off optimize their access to higher forms of learning? The key, recent research suggests, is to bring more private capital into the sector and to experiment with new kinds of investments that target specific educational problems and meet the needs of specific groups.

In many parts of the world, education has until now been the sole preserve of governments and development aid agencies, but there is evidence that this is beginning to change as new funding approaches — like impact investing— gain popularity and prove their viability. Though governments and development aid agencies will continue to play a central funding role, the education sector is now actively looking for ways to attract private capital, often in the form of impact investment, as a means to fill that yawning $26 billion funding chasm.

Though it’s early days, there’s already evidence that impact finance can be effective in education.  George Soros’ Open Society Foundations have produced some first findings on impact investing in developing countries’ education systems. The results suggest that workable models are evolving on a small scale, often in collaboration with governments, and some are already showing respectable track records of financial return and demonstrable benefit.

These indications are hopeful, yet impact investing in education is still in its infancy. Education accounted for only 3% of the investments of participants in the GIIN’s recent sector survey, a figure that suggests that impact investors have been hesitant to engage in this sector.

The OSF report confirms this image of tentative, early-stage activity in education by impact investors:  “Most deals remain small, and investments in schools currently dominate deal-making, with more innovative technology and management models just beginning to emerge. As yet, few business models deliver strong immediate financial return while reaching the most vulnerable beneficiaries.”

More worrying perhaps is the fact that impact’s involvement in education investing remains split into two camps, according to the report. On the one hand there are impact investors focused on “reaching the lowest income populations without expectation of any financial return”; on the other are investors who expect market rate returns and place capital into deals that “target middle and upper class populations.”

By now, this is a familiar situation for impact, with well-meaning investors in many sectors still struggling to find ways to engage with the middle ground and find models that meet needs while maintaining profitability. Yet, given the pressing global demand for education, there is enormous potential for innovation, both in terms of finance models and in terms of education delivery methods. With more impact engagement—and a renewed commitment by the education sector to finding new ways to finance and deliver good quality education on all levels—there is scope for significant  positive change in which impact investing can play a significant role.

By deepening its commitment to investing in education, the impact community has the opportunity to help solve one of the world’s greatest challenges.In the next blog in this series, we’ll be looking at the places where impact capital has the potential to be most effective in the education sector. As the need for education continues to grow, so will the range of methods and approaches for private capital, including public-private collaborations, an expanded role for impact intermediaries, and new technologies with the potential to deliver education to underserved communities as never before.
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What’s Keeping Impact Investors Away from Education?

 

Malawi SchoolBy Marta Maretich, Chief Editor, @mmmaretich

This is the second installment of a 3-part series on impact investing in the education sector. Read Part I: Why the Education Sector Urgently Needs Impact Capital and Part III: Opportunities for Impact Investment in Education

Impact investors have hardly engaged with the education sector. Why is this?

As we established in Part I of this series, there’s a growing global demand for education — in other words, a huge potential market that could be catalyzed by an influx of impact capital.  Add to this the fact that education is pretty much universally recognized as an effective means to break the cycle of poverty and improve lives — it may be the most powerful single tool we have — and the low level of impact involvement in the sector begins to seem surprising.

Yet that’s the reality: of $2.5 trillion is spent on education worldwide, impact capital accounts for just $3 million. In a recent survey of impact investors, only 3 percent of assets under management were in the education sector as compared to 21 percent in microfinance and 11 percent in energy. Only water and sanitation came in lower, at just 1 percent.

Small deals, few deals

A closer look at deals gives insight into what’s happened to date. According to a recent report from D. Capital and Open Society Foundations (OSF), impact investors have hardly entered the education market and when they do, deal sizes are small with direct investments typically ranging between the $.5 million and $5 million. Investment though intermediaries looks slightly more robust, with technology venture capital funds raising the stakes to $10 million, but it’s still a mere drop in the ocean.

Impact’s role in financing the education sector hasn’t only been small in size, it’s been limited in scope, largely focusing on school infrastructure programs and, to a lesser extent, people (for example teacher training schemes). Impact investors have largely ignored the potential for investment in the wider educational ecosystem and have only very limited involvement in areas such as developing new services, tools and technology. Impact investment has been sharply divided, too, between market-rate investors who target middle and upper class populations and those with an impact-first attitude who target populations at the base of the socio-economic pyramid.

What’s keeping impact investors away?

Several factors help explain this picture. First, impact is still a relatively new sector whose development has been largely uncoordinated and sometimes patchy: in other words, just because a sector is worthy of more impact capital, doesn’t mean it’s received it yet.

Impact investing is beginning to develop a track record in areas like agriculture, clean technology and finance but this is largely thanks to the determination of a few leading proponents like Acción, Root Capital and Acumen, who targeted their investments in specific areas. By contrast, few impact investors have made education their sole priority and few have developed well-defined deal sourcing strategies for education even though quite a few (21 out of the ImpactAssets 50 funds, for example) claim education as one area of focus among several others. This suggests that education is often a sideline for impact investors, with small-scale education investments tacked on to ones in more popular sectors such as finance.

Partly, this may be due to the perception that education investments have little potential to produce returns (an assumption new developments in the sector will challenge). Another reason could be that education, unlike other sectors, has traditionally been the sole preserve of governments and, to a lesser extent, international aid agencies. Until now, non-state investors have claimed a relatively small slice of the education pie with private commercial funding accounting for only $500 billion of the $2.5 trillion spending total. The state monopoly on education has created little incentive for innovation or entrepreneurial activity, with the result that there haven’t been enough education deals out there to engage the growing impact sector.

Such market issues may be contributing to the shortage of investable deals and limiting levels of investment now, but the picture looks set to change. Squeezed public budgets and a new spirit of openness on the part of the development aid community are generating more interest in market-based solutions to the education crisis. This raises the possibility of increased entrepreneurial activity in the education sector with impact investment playing a more important role in its financial profile, especially in the form of collaborative investing arrangement with governments, philanthropic bodies and other private investors. The question now is, what exactly should that role be?

Learning to do more

With opportunities at various points in the market, there’s evidence that impact capital can help education in a number of important ways. “Where government is absent,” write the authors of the D. Capital/OSF report, “impact capital can help fill a basic gap that the state cannot. Where the government provides basic services, there is also ample room to supplement public services through congruent education for at-risk children, vocational training or adult literacy services.”

Beyond this, impact investors can do their part to strengthen the sector by:

•    supporting early-stage experimentation and innovation in education
•    innovating new kinds of financial approaches that support education and the ecosystem around it
•    working in collaboration with governments and nonprofits to back socially motivated education programs with impact capital
•    investing alongside venture capitalists and venture philanthropists in scalable education businesses
•    catalyzing co-investment from other sources, such as mainstream banks, private investors and aid agencies
•    scaling approaches that show promise, adapting them and rolling them out in other contexts and other regions

This is Part II of a three-part series on impact investing in the education sector. Read Part I: Why the Education Sector Urgently Needs Impact Capital. Read Part III: Opportunities for Impact Investment in Education.

Impact Investing in the Justice Entrepreneurs

By Marta Maretich @maximpactdotcom

statue representing justice with scalesAgriculture, healthcare, cleantech and financial services are all now recognized sectors of impact investing with growing track records of success. Businesses from these sectors are frequently the choice of impact investors who want to put their money into related areas of social and environmental benefit such as poverty alleviation or natural resource protection.

But what about investors who are interested in causes such as fairness, the rule of law and universal access to justice? Surely, these aren’t areas where impact investors can place their capital, are they?

Now, thanks to a burgeoning trend for justice entrepreneurship, they just might be.

Once the only way for impact investors to support justice was indirectly, through careful ESG investment screening coupled with impact metrics to assess outcomes. Now thanks to the emergence of bold new approaches to delivering justice, impact investors have the opportunity to put capital behind businesses bringing cost-effective justice solutions to citizens and governments alike.

The justice shortage

Most of us assume that justice is a matter for governments or international bodies like the European Court of Human Rights. But, just as the state monopoly in education is giving way to a more entrepreneurial picture, things are be beginning to change in the justice sector. According to HiiL (The Hague Institute for the Internationalization of Law), a justice sector advisory and research institute, there are important drivers behind this shift.

In the developed world, the cost of delivering access to justice continues to grow while state budgets are contracting. In the US, the number of unrepresented defendants is increasing and more people are representing themselves in court, mainly for financial reasons. Basic legal services, like will writing and land conveyance, are also expensive—too expensive for many who need them.

This means that a growing number of people are unable to afford legal counsel or legal services, a situation that leaves them without basic legal safeguards. This shortfall comes with a high social cost, especially when it denies justice to the poorest and most vulnerable members of society. Governments are now actively looking for more cost-effective ways to deliver access to justice to their citizens.

In the developing world, the problem is even more serious, according to recent studies by the World Bank. Many communities are simply unable to get access to justice, even when their constitution guarantees it. They may live too far from courts and legal services to use them. In many countries, only money buys access to the formal legal system. In others, the justice system works so slowly, or is so corrupt, that it is no help to citizens.

All this means that there is large and growing global demand for justice services, both from citizens and from governments who want to ensure access. And where there is a demand, of course, there is a potential market. For impact investors, the question now is: Who is opening this new market and how do we engage with them?

Enter the justice innovators

The Innovating Justice Accelerator is an early entrant into the field of justice sector entrepreneurship. Responding to what it saw as an urgent need for solutions, HiiL established the intermediary body in 2010, providing a platform and network for justice innovators and sponsoring an annual innovation award.

For any impact investor with an interest in justice and the rule of law, their website is an eye-opener. It features a range of innovative ideas and programs to improve justice and the rule of law, some of them potentially investable and scalable:

  • Prison Paralegal Justice Centers is a program that helps prisoners become legal advisors within the prison system.
  • I Paid A Bribe is a web-based tool to decrease corruption and make it more visible by using a platform for reporting instances of paying or not paying a bribe.
  • Aahung, a reproductive rights organization in Pakistan, is producing a TV series with a commercial production house to spread its message in a financially sustainable way throughout the region.
  • Made in a Free World, an anti-slavery organization, created the Forced Labor Risk Assessment Tool a software program for businesses that exposes forced labor in global supply chains and helps companies eliminate slavery from the way they do business.
  • Rechtwijzer 2.0  is a justice platform developed by HiiL, offering legal information and advice to people in the Netherlands. It enables people to work on solving their legal problems in their own words, at their own pace, from their own homes with the support of legal professionals.

Democratizing access to justice

These examples provide a sense of where the global justice marketplace is heading, with digital approaches to delivery and remote support systems democratizing access to justice and making it more affordable for more people.

But there are still barriers. While digital delivery capabilities bring new possibilities, to be successful many of the new approaches require the cooperation of national governments; some require changes to regulation and law. Hiil, which campaigns in these areas, recognizes that bringing real change will take time.

Yet when you consider the potential benefits of a more innovative justice sector—universal access to justice, effective service delivery, reduced costs, and metrics resulting in a more robust rule of law throughout the world—opening the market seems the obvious thing for impact investors to do. In these early days, they are well positioned to play a key role in what could be the birth of an important new impact sector. Watch this space.

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The Top Three NON-Financial Reasons Why Investors Say No to Deals

Asian investor thumbs downby Marta Maretich, Chief Editor @maximpactdotcom

Non-financial disclosure, including information about environmental, social and governance behavior (ESG), is becoming more important to large investors, new research shows, and this is affecting the way they choose investments.

Impact investors and other players in the social investing arena are already committed to non-financial reporting, but research from Ernst and Young (EY) suggests that today more big institutional investors are considering non-financial alongside financial information when they make decisions about where to place capital.

The EY survey canvassed the opinions of 163 institutional investors including portfolio managers, equity analysts, chief investment officers and managing directors, half of them from organizations with assets under management of over $10 billion. When asked which non-financial factors would cause them to “rule out or reconsider investments”, their answers are revealing:

1. The company lacks a clear strategy to create value in the short, medium and long term.
93.8% of those surveyed ranked this as their top reason for rejecting or reconsidering a deal. Most company reports concentrate on past performance and ignore the vital area of future performance. While past performance helps potential investors judge risk, it says nothing about the company’s plans for future value creation. Leaving this non-financial information out of reports is a fatal mistake for companies seeking investment.

2. The company has a history of poor governance.
96.3% of respondents cited this as a reason for saying no to an investment or thinking twice before committing to it. Inadequate governance is an important source of risk, so investors scrutinize the governance structures and processes of potential investees as well as their arrangements for executive pay. If they don’t see evidence that a company maintains healthy governance practices, they’re likely to walk away.

3. Risk or history of poor environmental performance.
86.4% of those surveyed said a poor record in this area would influence their view of the company negatively. Responses varied across industries, however: those closest to consumers, such as financial services and consumer products, said a poor environmental performance would make them “rule out an investment immediately”. Others, such as manufacturing and energy, said it would make them “reconsider”.

So what lessons do these findings hold for the social finance and impact investing sectors?

The EY report focuses on the attitudes of some of the largest institutional investors, but its conclusions indicate a changing culture for investors and companies everywhere.

In the future, non-financial performance and non-financial reporting will be more important than ever in most industries and in most parts of the world. More comprehensive reporting that includes both financial and non-financial disclosure looks set to become the norm—the IIRC’s Integrating Reporting approach is one example of the trend.

This means that companies that develop their skill in non-financial areas such as value creation, governance and environmental stewardship — and those who learn to demonstrate that performance though comprehensive reporting — will be more attractive to investors of all kinds.  This is something both investors and business leaders should be thinking about as the social investing movement continues its progress toward the mainstream and we shift into the next phase of building our financial future.

More findings from the EY report.
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Best Twitter Hashtags for Following Trends in Impact Investing

hashtagBy Marta Maretich @mmmaretich @maximpactdotcom

Twitter is hot in the impact investing sector. The overwhelming reaction to our post on the 30 must-follow twitter feeds for impact investing demonstrated once again that the impact world relies on Twitter to keep in touch. (To those of you who sent in your recommendations, thank you! A follow-up post is in the works.)

Using #hashtags (the metatags that categorize tweets) is a further way to tune into conversations in the impact space. Here at Maximpact, we try to keep up with the evolution of impact in its broadest sense, so we use many different Twitter hashtags in our social media. The hashtags are constantly changing, even as the as the sector changes, but here are some we find ourselves using on a daily basis:

#impinv, #impactinvesting: Impact investing news, dialogue, trends. The most common metatag for impact tweets.

#socfin, #socialfinance: A common metatag used for a variety of different types of activity around social investing including impact.

#socent, #socialenterprise: Social enterprise and social investing activity, often crosslinked with #impinv and #socfin.

#socinv, #socialinvesting: Social investing in its broad sense, often includes tweets on #impinv, #socent and other approaches.

#sustainableinvesting: Tweets on investing in sustainable businesses as well as sustainable strategies for investment.

#SRI: Activity around social and responsible investing as well as SRI programs and investment strategies.

#CSR: Corporate Social Responsibility many CSR programs are now experimenting with financial methods including impact.

#ESG: Information about ESG (environmental, social, governance) standards and companies or programs using them to support responsible investing.

#3bl, #tbli: Stands for triple bottom line investment, aka #peopleplanetprofit, one approach to responsible investing that can involve impact.

#ethicalfinance, #ethicalinvestment, #positiveinvestment: For more buzz about impact investing and other social finance approaches.

Major impact-focused events often establish their own hashtags and these can be a good way to connect with the conversation even if you’re not in the room. We never fail to tune in to #socap events.

Hashtags for specialist areas of impact investing: #cleantech, #greentech, #renewables, #natresources, #SIBs (social impact bonds), #SROI (social return on investment), #carbon, #climate, #climatechange, #crowdfunding. #zerowaste, #netzero. #sustainability, #susty, #financialinclusion.

This is only a small selection of the possibilities. Metatags abound, and new ones are being thought up every day by clever Tweeters and ones who recognize a new area of interest. Which hashtags are your favorites? Which are key to keeping in the loop? Let us know @maximpactdotcom.

For more on trending hashtags and tips on how to use Twitter click here.
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The Future of Investable Social Finance

by Marta Maretich, Chief Editor @mmmaretich @maximpacdotcom

The Future of Investable Social FinanceWith the beginnings of a track record to back up its claims (including that much longed-for evidence of successful exits) finance remains a solid bet for impact investors. The future looks positive as a new generation of impact-backed financial service providers hone their skills, diversify their products and discover untapped markets of underserved clients in different parts of the globe.

Many of these customers will be in emerging economies, where demand will be fueled by growing populations needing access to financial services. There will be a continued need for small-scale lending to individuals, such as that provided by groups like Kiva, as well as philanthropically motivated programs to provide vital financial services at the bottom of the pyramid. Increasingly, however, there will be a demand for more sophisticated services and products in emerging economies as populations there urbanize and become more affluent.

These consumers will be joined by successful local companies, which, as they scale up, will need access to more sophisticated services on a bigger scale. Evidence suggests that such companies may still lack access to mainstream banking services, and so will need to rely on specialist finance providers in order to grow and gain access to world markets. Experienced social finance providers, like Root Capital, are already beginning to expand and diversify their offerings to meet the needs of maturing market sectors.

To effectively serve these markets, financial providers will need local knowledge and a good feel for the needs of specific consumer groups in specific locales. Providers with experience in certain markets; for example those that have grown out of philanthropic programs to become self-sustaining for-profit businesses; will be well positioned to use their knowledge to successfully, and profitably, meet client needs. Impact investors should be on the lookout for finance providers with a track record that stretches over years and gives evidence of deep local knowledge and connection.

The developed world also holds growth potential for finance businesses with impact aims. Though countries like the UK and the US are well-served with mainstream providers, many individuals still lack access to affordable credit and other services. Some are forced to rely on expensive payday loan services and other potentially exploitative forms of credit, often compounding their debt problems. Meanwhile, many poor citizens remain “unbanked” for a variety of social and economic reasons. There is scope for alternative finance providers, some working in cooperation with local governments, to provide solutions to these and other finance-related issues.

Home finance should be another area of focus in developed economies. Kicked off by poor practice in mortgage lending, the financial crash saw mainstream lenders backing away from what they saw as risky markets, leaving a gap in service provision to poorer communities that can be filled by specialist financial providers under the umbrella of “community development finance“. Increasing environmental regulation, and the need to bring down energy spending, will drive government-backed home improvement initiatives (such as installing insulation and clean energy systems) and green construction programs, which in turn will require financial facilities to see them through.

Impact investors can expect to see more regulation and oversight in the social finance market in the future, especially in emerging economies. This is good news. Though it may affect profits, oversight will also make finance more attractive for mission-driven investors who want to back positive change. The application of impact metrics and quality ESG standards will be key to distinguishing good financial providers from not-so-good ones, and this will help investors choose the best places to put their capital. In time, the evolution of metrics, rankings and accreditation for social finance companies will help make practice on the ground more effective as the industry matures and grows.

These are just a few examples of what the future may bring for impact-backed financial service providers. In brief, there is great potential for impact investors to get behind innovative businesses bringing the benefits of appropriate, ethical finance to underserved markets. The potential for impact is huge; and the positive results are already being seen in some sectors. Having already come a long way from its humble origins in microlending, the practice of socially responsible finance provision continues to grow in popularity and evolve to meet a wide range of needs. Impact investors have played an important role in its success so far; and there’s no reason why they should stop now.

This blog is part of a three part series on impact investing in finance. Read part one: Why Finance is (and Always Has Been) an Important Sector for Impact Investors. Read part two: A Guide to the Different Forms of Impact-backed Finance.

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A Guide to the Different Forms of Impact-backed Finance

by Marta Maretich, Chief Editor @mmmaretich

Impact investors have put capital behind mission-driven finance providers since the earliest days of the social investing movement. Now the industry has grown and diversified to offer a wide range of finance provision models and approaches for investors to back.

Microcredit

Microcredit was one of the earliest forms of social impact finance and it remains one of the best known. The idea of lending as a way to improve the lot of the poor goes back to the origins of finance, but its modern version was crystallized in the 70’s when early advocates like Muhammad Yunus began to experiment with using finance provision as a tool to lift communities out of poverty.

Microcredit involves making small loans available to poor people, especially those traditionally excluded from access to bank loans, through programmes designed to meet their particular needs and circumstances. Loans are usually small and short-term. Collateral is often replaced by a system of collective guarantee groups whose members are mutually responsible for ensuring that loans are repaid. Alternatively, borrowers may find one or two personal guarantors. Often these are respected local community leaders.

Microcredit is designed to give borrowers an alternative to traditional informal forms of credit such as moneylenders, pawnshops, loans from friends and relatives. Crucially, it’s designed to keep vulnerable borrowers out of the clutches of exploitative lenders, such as loan sharks.

In important ways, microcredit is the mother of the diversified social investing sector we see today. Many of today’s leading social investors, including Ashoka and Accion, cut their financial teeth on microlending, using philanthropic money to establish lending programmes as a way to further their social missions. Microlending sowed the seeds for what has become an explosion of social investing innovation as more and more organizations turn to finance provision as a way to extend their reach and multiply their impact.

Microfinance

The term microfinance can refer to a range of financial services including loans, credit, savings, insurance, money transfers, remittances and other financial products.

In the field of social investing, these services have traditionally been targeted at poor and low-income communities, often in emerging markets, with the aim of making them affordable for people who don’t have access to mainstream providers. Many microfinance institutions have developed their models to combine philanthropic support with finance, providing capacity building grants, training and market-building activities along with capital and credit.

According a recent GIIN/JP Morgan survey, this picture of microfinance is still fairly accurate, but it is changing fast. Increasingly, for-profit finance providers are entering the sector in places like India and sub-Saharan Africa and the practice of microfinance is being rolled out in to serve customers in developed countries, too. This suggests that the microfinance model is both flexible and sustainable, and that it can be adapted to encourage a variety of beneficial outcomes in many different contexts.

Microfinance is not without its critics. There are those who feel that it threatens traditional philanthropy and fails to recognize the complex causes of poverty. Recent years have seen cases of fraud in the microfinance world: in 2011 an international scandal in the Indian microfinance market threatened to discredit the burgeoning industry. All this has led to calls for better regulation by national governments and sparked efforts by the social investing sector to establish standards for responsible microfinance practice.

Nonetheless microfinance has seen a real boom in the years since early adopters began to branch out beyond microlending and there are signs the industry is maturing. The Microfinance Information Exchange (MIX), on online a platform, now collects and validates standard financial, operational, product, client and social performance data from institutions across the globe.

Meanwhile, microfinance continues to gain popularity and attract new players to the marketplace with commercial banks like Citi now getting involved. This makes sense, since some of social finance’s greatest success stories are now coming out of the microfinance sector in the form of a string of profitable exits for impact investors like Bamboo Finance, Triodos and Lok Capital.

Growth Finance

Just as microlending led to microfinance, microfinance has paved the way for what might be called growth finance. In growth finance, providers offer financial services resembling those available through mainstream financial providers to customers in underserved markets. For example they may make bigger, longer-term personal loans or provide commercial credit facilities to growing businesses. In each case, services are structured in a way that makes them accessible and affordable to the client base.

Growth finance recognizes the fact that certain market sectors, especially those in poor communities and emerging economies, still don’t have access to mainstream finance even when they rise above the rock-bottom base of the pyramid. While microfinance is well equipped to meet the needs of the very poor, growth finance offers a way to support individuals and communities as they increase in prosperity and build more robust economies.

Growth finance also offers a way to extend vital financial services to impact businesses as they scale up and face the challenges of what’s been identified as the “pioneer gap“; the tricky mid-stage of growth where philanthropic financial support dries up and mainstream support remains out of reach. Recognizing this, many active microfinance institutions are extending their services to offer growth finance options to their markets. For example, seasoned social lender Root Capital is now preparing to offer more loans as well as larger, longer-term loans and other services to meet the changing needs of their rural client base.

The goal of impact is, of course, to build businesses and markets that are robust enough to one day attract finance from mainstream providers. Recent exits offer some evidence that this is already happening: Leapfrog, an impact investor in financial services companies in Africa, recently sold its stake in the Ghanaian company Express Life to FTSE 100 company Prudential.

This exit is another promising sign that the impact model can deliver, yet there is still much work to be done before all global markets have access to finance through mainstream providers; and some may never get there. For this reason, impact investors continue to play a key role in capitalizing businesses that offer the right kind of financial services for developing markets and underserved communities. But what does the future hold for impact investing in financial service providers?

To find out, see part three of this series: The Future of Investable Social Finance. Or read part one, Why Finance is (And Always Has Been) an Important Sector for Impact Investing.

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Investing With a Purpose: A detailed look at the San Francisco Bay Area Impact Investing Landscape

By Ana LaRue, Digital Media Manager at Maximpact, @larue_ana

While a large part of the San Francisco Bay Area is busy discussing the latest definition of “hipster” and inflated tech valuations, there is another trend currently creating a lot of buzz. This one is related to the notion of “doing well, while doing good” by addressing social and environmental challenges through the deployment of capital.

Doing well while doing good: Trend or mainstream investing approach?

Impact investing is an investment approach that intentionally seeks to create both financial return and positive social and/or environmental impact. It typically focuses investment on for-profit, social- or environmental-mission-driven businesses. Impact investments can be made in both emerging and developed markets and, like other types of investments, impact investing returns can range from below to above market rates. (It is estimated that 79% of impact investors are already targeting market rates of returns.)

Investors interested in making a difference in the world can focus on a variety of sectors, such as energy, natural resources, water, sustainable agriculture, clean technology, biomimicry and financial services. Regardless of the chosen sector, impact investing focuses on building new markets and supporting socially and environmentally beneficial businesses as they scale, something that resonates with responsible investors in the Bay Area.

Recent successes show that the field has a lot of potential and that the buzz is justified. This investment approach could unlock significant sums of investment capital, complementing efforts by public bodies and philanthropic organizations to address the most pressing global challenges. To make it even more attractive, estimates show that the impact investing industry could grow to US$500 billion in assets by 2020 (from around US$50 billion in assets back in 2007 when the definition of impact investing first emerged).

Impact investing vs. venture capital

Why is this trend so significant for the Silicon Valley area, you might ask? A recent article published by Sir Ronald Cohen, a man widely regarded as the “father of social investment”, created quite a stir when he stated that “social impact Investing is the new venture capital.” Cohen argued that impact investing will play a transformative role in the future of our society, similar to the one venture capital has in the past.

While there are similarities between impact investing and principles traditionally applied to venture capital, there is more to the story. Most promising technology entrepreneurs have no problem coming up with a compelling exit strategy: acquisitions and IPOs are a well-known path to success in Silicon Valley. However, investments that blend financial returns with intentional social or environmental impacts tend to be more complex, often calling for longer repayment schedules than those used by venture capital (VC) deals, especially when the investment is in less mature markets where business models need more time to develop.

Impact investors are also often willing to take on significantly more risk than a traditional VC if the social mission aligns closely with the investor’s vision and his commitment to developing non-traditional sectors. Finally, even if a company appears attractive from a purely financial perspective, impact investors won’t invest unless positive outcomes (impacts) can be quantified and demonstrated.

Find impact investing opportunities in the Bay Area

If impact investing is on your radar, the Bay Area is a great place to start looking for ways to get involved. The region is home to a substantial pool of potential funders as well as many highly creative impact entrepreneurs, giving investors plenty of choices. Below we list* just some of the biggest impact players in the Bay Area.

Venture Philanthropy Organizations: Non-profits that invest using a VC strategy

Impact Investors: Organizations investing in for-profit companies that have social impact potential

Impact Intermediaries: second-party organizations (accelerators, incubators, venture capital consulting companies and others) operating in the impact investing arena

Non-Profits and Foundations with unique models that incorporate venture capital principles

Social Entrepreneur Organizations with existing venture capital support

Connectors: Organizations that bring together impact investors with social entrepreneurs

Looking beyond the Bay Area

The Bay Area offers rich pickings for impact investing, but remember that impact is a global game: would-be impact investors shouldn’t limit their search to a single geographic area.

Today there are literally hundreds of impact funds across the globe, with diverse areas of interest and investment philosophies. They are run by specialized asset managers as well as mainstream financial institutions such as J.P. Morgan, UBS, Credit Suisse and Deutsche Bank. The same goes for innovative networking platforms that connect impact investors and entrepreneurs looking to make a difference. Maximpact is just one example of such a service, offering an online deal listing platform where a broad array of global opportunities can be examined in one place. So if impact investing intrigues you, don’t hesitate to look more broadly and take advantage of innovative tools available to impact investors today.

*This list is partial and there are plenty more innovative impact investing focused businesses serving the Bay Area. If you have additional suggestions, we would love to hear about them.

Why Finance is (and Always Has Been) an Important Sector for Impact Investors

By Marta Maretich, Chief Editor @mmmaretich

If you were asked to guess which sector attracted the biggest proportion of impact investment, which would you say it was?

Looking at the websites of major impact intermediaries and financial institutions you might guess the answer was agriculture, clean energy, water, or healthcare. But you’d be wrong.

Finance still makes up the biggest single slice of the impact investing pie. According to the recent survey by GIIN and JP Morgan, 42% of all impact investing assets under management in their sample were finance, with microfinance and financial services each accounting for 21% of the total. This compares to just 8% for agriculture, 11% for energy, 6% for healthcare and just 3% for water. This means that a significant proportion of impact investments are actually made into finance institutions, and not directly to companies or individuals.

This answer may surprise you; it may even disappoint you; but it shouldn’t.

The social investing movement has its origins in banking, with well-meaning pioneers trying to find ways to use the tools they understood; financial tools; to better the lot of their fellow men and women. Providing finance, whether in the form of small loans or more sophisticated services like consumer credit or banking, was the possibly earliest form of social investing and it still makes sense to many responsible investors who choose to put their capital into finance businesses.

Popular with investors

As the GIIN/JP Morgan survey indicates, there are also practical reasons finance is attractive to impact investors. Microfinance, according to their information, appeals to “closer-to-market” investors while financial services attracts “competitive return” investors. Although the research sample isn’t large, the findings indicate a reality: As one of the longest-established sectors of social investing, finance now has a track record. With experienced service providers like the Grameen Bank, Triodos and PAX World returning stable profits over a number of years (17 years in the case of veteran Grameen), finance has made a place for itself as a mainstay of impact investment portfolios that may also include riskier and low-return investments.

Financial provision has also proven a flexible tool the face of a changing world, especially in an era where the practice of economics is seen as an important lever for social change. Recent years have seen an explosion of innovative ways to “do finance using models designed to reach underserved markets, especially ones in developing economies. Today, alternative finance intermediaries, including banks and insurers, are proliferating across the social investing sector and impact investors are following that expansion.

This trend reflects a deeper development in the social investing space. Once a controversial idea, now the notion that financial services are a necessary part of human life; or even, as Nobel Laureate Muhammed Yunus states, a “human right”; is widespread. Social finance in all its forms is one of the most familiar aspects of the social investing movement in the eyes of the public, for whom many of its more arcane forms, like catalytic capital and public-private partnership deals, are too complex to grasp and hold little human interest.

But which types of financial services are popular in the impact investing sector? And how is the relationship between impact investors and financial service providers set to change in the future?

To find out, see part two of this series: A Guide to the Different Forms of Impact-backed Finance and part three: The Future of Investable Social Finance.

Find impact deals in financial services.
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Social Investing Infographic

How to find impact investing deals (or develop the deals you’ve already got)

BinocularsThe impact and sustainable investing market is crowded these days with big business, social entrepreneurs, private investors and governments all getting into the act. Yet recent research indicates that serious investors are still finding deal-sourcing a challenge. At the same time, intermediaries and entrepreneurs are still struggling to develop deals and find the right partners and collaborators to bring them to scale.

As Maximpact founder Tom Holland says in recent blog, “Despite the growth in the sector, many parts of it are still working in separate silos. Activity is up, more capital is invested, but the sector is still very fragmented. Many impact organizations don’t connect with the wider impact community or take advantage of the many possibilities it offers.”

As Holland points out, the disconnect between investors and investees; and the one that exists between those developing deals and the expert support and collaborative partners they need to succeed; is a persistent problem in the sector that may only be fully resolved with more market maturity. However, some infrastructure groups, like Holland’s own Maximpact, have been trying to tackle the problem head-on.

Maximpact Deals, for example, is an online community that aims to create a more sustainable future by fostering the growth of impact investing through sharing, collaborating and co-investing. Maximpact hosts this online listing platform, which allows entrepreneurs and intermediaries to showcase projects and ventures, giving them the opportunity to connect directly with partners and funders in the impact and sustainability industry.

The technology behind Maximpact Deals allows investors, CSR programs, intermediaries and philanthropists to engage directly with sustainable investment opportunities all over the world. A sophisticated search function allows users to pinpoint exactly the right investments and opportunities on the site and make immediate connections. Members can also use the platform to network and share resources with other members. And, because all registrants are approved and vetted by the Maximpact team, users can feel confident that they will interact with organizations whose values align with theirs. The site boasts 17 areas of focus, reflecting a wide range of causes and mission interests. Registration is completely free, and there are no commission fees.

Since its launch in September 2012, Maximpact Deals has grown and evolved to facilitate high-impact collaborations with its open-collaboration model. Today it plays host to more than 500 individual deals of all sizes, offering over 1500 business opportunities. More than 350 financial institutions, including World Vision, LGT and Triodos Bank and many more, are active members.

As the sector continues to evolve, Maximpact is committed to evolving with it: in the fall of 2014, the group will be launching a new project development area that will make starting, organizing and developing new sustainability and impact projects easier than ever. Not only will users have access to collaborators all across the globe, but they will also be in touch with a diverse pool of experts that can provide the tools they need to effectively launch and develop new projects, organize virtual teams, attract finance, receive advice on any issue and connect with like-minded groups and individuals. At the same time Maximpact will also be offering marketing and media, finance and consulting services to those who seek support, assistance and advice in these areas.

Through Maximpact Deals and, soon, through a raft of new project development capabilities, Maximpact continues its work with an aim to foster a more sustainable future by accelerating the rate of impact and sustainable investing, expanding the industry’s impact overall and, through its media outreach, raising the profile and popularity of impact investing. With more of this kind of sector-building activity, it hopes to contribute to the growth of the whole social investing sector; and to facilitate the flow of more capital into businesses bringing needed solutions to planetary problems.

Learn more about Maximpact.

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30 Must-Follow Twitter Feeds for Impact Investing

TwitterBlog

By Ana LaRue

The impact investing sector is evolving at lightning speed. It’s an exciting time for all of us, but keeping up with the pace of change can be challenging, even for enthusiasts.

Thank heavens for Twitter. Like many media-savvy celebrities before them, the movers and shakers of impact investing are now communicating through tweets, making Twitter a great way to keep up with everything that’s happening in the sector.

The following list features thirty of the top Twitter influencers in the impact investing space. Add them to your feed and tune in to the latest news and views on impact today.

Organizations with must-follow Twitter feeds for Impact Investing

Individuals with must-follow Twitter feeds for Impact Investing

  • @ab_noble – Abigail V Noble, Head ofImpact Investing at World Economic Forum (@WEF@davos)
  • @ABLImpact – Antony Bugg-Levine, CEOof Nonprofit Finance Fund (@nff_news)
  • @adamspence – Adam Spence, Founder ofthe @theSVX and Associate Director at MaRSCentre for Impact Investing (@MaRSDD )
  • @BlendedValue – Jed Emerson, Impact Investing and Entrepreneurship Thought Leader
  • @cathyhc – Cathy Clark, Director, #CASEi3 Initiative onImpact Investing
  • @franseegull -Fran Seegull, Chief Investment Officer and Managing Director, ImpactAssets (@IAimpactassets )
  • @HarveyKoh – HarveyKoh, Director, @InclusiveMkts part of Monitor Deloitte
  • @ImpactInSight – BenThornley, Director, InSight at Pacific Community Ventures (@PCVtweets)
  • @jnovogratz – Jacqueline Novogratz, Founder and CEO of @Acumen
  • @LisaGreenHall – Lisa Hall, Impact investing expert, former Chief Strategy Officer Calvert Foundation (@calvert_fdn)
  • @pdgoldman – Paula Goldman, SeniorDirector at @OmidyarNetwork
  • @pierre – Pierre Omidyar, Founder of @OmidyarNetwork

Of course, we know this list is partial: there are plenty more interesting tweeters out there using social media to deliver new perspectives on impact investing. If you have suggestions, we’d like to hear about them. Get in touch to let us know who’s on your must-follow Twitter list @Maximpactdotcom.

Image credit: Anatolii Babii, 123FR

A Guide to the Different Types of Social Investing

By Marta Maretich @mmmaretich, Chief Editor, Maximpact

Social investing has come a long way in recent years. What started as a fringe activity linked to religious societies such as the Quakers is now a mainstream practice as well as a rapidly growing and diversifying financial industry.

Today, those who want to invest their capital for good have a broad; some would say bewildering; range of choices. New social investing approaches are emerging and search terms like “socially responsible”, “ethical”, “green” and “sustainable” investing bring up dozens of results.

But what do these terms really mean when it comes to investing? And, with so many different approaches to choose from, how can investors be sure they’re choosing the right one?

To help answer these questions, we’ve compiled the following list of definitions.

Social Investing

Social investing is an umbrella term that simply means providing finance to achieve a combination of economic and social and/or environmental goals. As popularly used, it encompasses more specialized approaches such as ethical investing, sustainable and responsible investing (SRI), impact investing, social enterprise investing, triple bottom line investing and more. It’s often loosely interchanged with other blanket terms such as “green”, “clean”, “socially conscious” and “socially responsible” investing.

Sustainable and Responsible Investing

Sustainable and responsible investing (SRI) is an investment discipline that uses a set of environmental, social and corporate governance (ESG) criteria to choose companies for investment.

A typical SRI approach uses negative screening to rule out investments in companies that produce or sell harmful substances, like tobacco, and those that engage in damaging activities, such as polluting or violating human rights. SRI does not necessarily include positive criteria designed to seek out companies that engage in desirable activities, such as those using sustainable practices, or those that produce specific products or services, such as clean technologies. Organizational governance and shareholder engagement are taken into consideration when choosing SRI investments.

There are no standard ESG measures for use in SRI, which can make it difficult for investors to assess companies accurately, even when they report ESG performance results. Efforts to establish standards and indices in areas like climate change and human rights are being pushed forward by organizations like FTSE, Standard and Poor and Ceres, as well as by the growing community of socially conscious investors.

SRI is a well-developed approach that now spans a growing range of products and asset classes including mainstream financial products such as publicly traded stocks as well as cash, fixed income and alternative investments, such as private equity, venture capital and real estate. Investments can be made in a range of individual companies or through socially conscious mutual funds or exchange-traded funds (ETFs).

Impact Investing

Impact investing is an investment approach that intentionally seeks to create both financial return and positive social and/or environmental impacts that are actively measured. Impact investments may generate financial returns that are market-rate or sub-market-rate.

Key to this definition are the words “intentionally” and “actively measured”. Impact investors seek to create specific, positive impacts using financial mechanisms, then they require companies to report evidence that these impacts have actually been produced. Impact investing is distinct from SRI where negative impacts are avoided but positive impacts are not necessarily required. Impact investing is associated with efforts to build markets in areas such as renewable energy, sustainable agriculture and “cleantech”.

The term “impact investing” was first coined in 2007 and its early practitioners were largely philanthropic bodies and family offices. Today there are hundreds of impact funds with diverse areas of interest and investment philosophies. They are run by specialized asset managers such as Calvert, Triodos, and Root Capital and mainstream financial institutions such as J.P. Morgan, UBS, and Deutsche Bank. They focus on a variety of sectors, such as energy, natural resources and water, and they make investments in a range of asset classes.

In impact investing, as on other forms of social investing, measuring social and environmental impact is difficult. IRIS, a standardized measurement system, has been developed to facilitate impact measurement and provide comparable impact performance data. Businesses also use their own measurement systems, drawing from methods developed for other approaches (like SRI), and working with organizations like Ceres and the Global Reporting Initiative (GRI), to find ways to measure and demonstrate impact.

Ethical Investing

In ethical investing, investments are selected or excluded according to the individual investors personal beliefs and values. This makes it especially suitable for private investors with a strong personal commitment to particular causes or movements.

Ethical investing may mean ruling out investment in certain industries (such as firearms) or in companies involved in certain activities (such as contractors working in war zones). Ethical investment is associated with the movement to divest in South African companies during apartheid and with the current fossil fuel divestment movement. On the positive side, ethical investment can mean directing capital toward companies that meet ethical criteria.

The term ethical investing is sometimes used interchangeably with sustainable and responsible investing, but the SRI approach typically uses one overarching set of guidelines to select investments, while ethical investing tends to be more issue-based and produces a more personalized result.

Triple Bottom Line Investing

Triple Bottom Line (TBL) investing means making investments in companies that follow the reporting practice of TBL, also known as “3BL,” “People, Planet, Profit”, “The Three Pillars” and “Integrated Bottom Line”.

TBL is an accounting framework that allows businesses to measure and report three dimensions of performance: social, environmental and financial. The aim is to make an overall assessment of a company’s sustainability by measuring the impact of its activities on the world, including its profitability and shareholder values as well as its social, human and environmental capital. The idea was first framed by John Elkington in 1994.

While accounting for profitability in TBL is straightforward, coming up with a bottom line for social and environmental impacts has proven difficult. There is no universal standard method for calculating impacts in TBL and no universally accepted standard for the measures that are included in the three categories. Companies are free to choose what to measure and to adopt their own methods for measurement. Today, however, more companies are using standardized measurement tools, industry standards and indices such as the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines.

Blended Value Investing

Blended value investing is an approach to impact investing that puts the concept of value at the heart of investment decisions.

In the words of its originator, Jed Emerson, this means recognizing that: “All organizations, for-profit and nonprofit alike, create value that consists of economic, social, and environmental components. All investors, whether market rate, charitable, or some mix of the two, generate all three forms of value”. The challenge in blended value investing is to make investments that generate the kind of values; positive ones; that you intend.

Blended value investing is more of a philosophy than a distinct investment methodology. In practice, however, its effect is to break down the barriers between traditional social investing and mainstream investing, opening up the field for social investors to interact with a range of markets using a values-based approach to guide investment decisions.

Social Enterprise Investing

Social enterprise investing means providing capital to support the growth of businesses that have positive social or environmental effects.

Initially a movement led by philanthropies, such as Ashoka, to support economic development in deprived communities in emerging economies, social enterprise investing often takes the form of short-term loans to seed-stage businesses and individual entrepreneurs. Grants and other forms of philanthropic support, such as advice, training for businesspeople and market-building programs, are often combined with financial support. Distinct from impact investing and SRI, social enterprise investing does not necessarily seek to generate a financial profit.

Social enterprise investing is associated with the microfinance movement championed by Muhammed Yunis. In recent times, governments and social enterprise incubators, like Nesta, have begun to use the tools of social enterprise investing to encourage innovation and growth in industries in the developed world, for example supporting businesses in renewable energy.

Crowdfunding

Crowdfunding usually involves using web-based technology to allow small investors to invest their money directly in businesses in exchange for a reward determined by the investee. Investors browse sites such as Trillion Fund to select investments and use online payment facilities to send money. Their reward may be in the form of financial profit, such as an annual dividend or equity stake in the company, or in some other form, for example, an item the business is selling. Crowdfunding platforms, like the solar funding platform Mosaic, specialize in specific industries. Others, like Abundance, offer a range of investing opportunities.

Our list of definitions is not exhaustive (our alert readers will let us know what we’ve left out) and it’s probably not uncontroversial (again, we look forward to to hearing from you) but it does demonstrate the range of options available to social investors. It also holds important clues about the current state of social investing. For more on this, keep an eye out for our next blog on the options open to social investors.

For more information on Social Investing check out our Infographic.

Looking for social investment opportunities?

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Ashoka financing agency, FASE, closes first impact deal

By Ellinor Dienst and Markus Freiburg, FASE Team

von unruh

Attila von Unruh

Ashoka, one of the pioneers of social entrepreneurship, launched the Financing Agency for Social Entrepreneurship GmbH (FASE) to make growth of social enterprises financially viable in Germany. The FASE model allows co-investments by impact investors and philanthropists through an open pipeline of investment-ready social entrepreneurs, and it develops innovative financing models specifically suitable for social enterprises. The objective is to create a complete ecosystem for financing social enterprises.

Now FASE has successfully closed its first deal, financing the efforts of German social entrepreneur and Ashoka Fellow Attila von Unruh (pictured) as he establishes a private consultancy that helps social enterprise businesses in crisis.

Extending services for entrepreneurs

Von Unruh’s new enterprise builds on a solid track record of social entrepreneurship. Three years ago the Ashoka Fellow founded BV INSO (the German Association for New Opportunities for People in Bankruptcy), a nonprofit that offers advice and personal support to entrepreneurs in crisis. So far, BV INSO has helped over 8,000 people both before and during bankruptcy.

The overwhelming success of these services led to increasing demand for individual counseling, and, because counseling isn’t funded by donations or membership fees, von Unruh saw a business opportunity. With financing from FASE, he founded the for-profit turnaround consultancy firm, Von Unruh &amp; Team, to offer advice and support for entrepreneurs, self-employed businesspeople and freelancers who find themselves in business crisis or threatened by bankruptcy. Its main goals are preventing business failures through early consultation and providing assistance to restart businesses after bankruptcy.

The founder describes his approach as follows: “We offer eye-level crisis and turnaround advice, with a focus on the person and the creative power of the entrepreneur. Our specially-trained consultants have their own crisis experience, and our clients are usually supported right up until their personal and entrepreneurial comeback. With this approach, von Unruh &amp; Team actively and effectively creates a ‘second chance’ culture.”

His approach; preventing the insolvency of small and medium-sized enterprises with advice from entrepreneurs who have their own experience of crisis; is unique in Germany and beyond. The company von Unruh; Team works as a social enterprise subject to market conditions. Any profit generated is invested in the further expansion of the business or donated to the organization’s nonprofit regional support groups, BV INSO and von Unruh’s other nonprofit, the Stiftung Finanzverstand (the Financial Literacy Foundation). This income supports projects to develop the consultants’ financial expertise.

Innovative models for social investment

While von Unruh’s not-for-profits are funded by membership fees and private donations, private seed capital,in the form of impact investments, was raised for the establishment of the new private consultancy firm.

For the first financing round, FASE developed a financing model on the basis of a conditional revenue sharing agreement to meet the needs of social enterprises. Two investors were then selected from the recently established Ashoka Angels Network to provide seed capital for the development and expansion of von Unruh’s business. Both strongly believed in the scalability and social impact of the business model as well as the personal integrity of the entrepreneur. This entrepreneurial solution to the social challenge was crucial for von Unruh, who wanted to attract investors who would personally act as the company’s Social Business Angels.

FASE developed the financing structure to accommodate the accounts of the business model by giving the social entrepreneur flexibility, but still giving the investors a fair share in the success of the business. This conditional profit participation agreement involves investors with a predefined share of up to a predetermined amount of the company’s revenues.

This form of revenue sharing leads to very flexible financing costs for a social enterprise, especially in the initial stages. The limitation of payments and very flexible repayment options, as well as increased sales, will keep valuable liquidity in the company which can be invested in the expansion of business activities. The social mission and the scaling of the business model are substantially supported by the chosen financial instrument.

The international legal consulting firm Hogan Lovells accompanied this transaction as a pro-bono consultant. Key aspects and components of the financing contract are available as an open source document from the FASE website for adaptation by other social enterprises and social investors.

About the authors: Ellinor Dienst started the Financing Agency for Social Entrepreneurship together with Dr Markus Freiburg in February 2013. Markus studied Economics at Witten/Herdecke (Dipl’k.) and Cambridge University (M.Phil) and promoted at the WHU Koblenz on investments by institutional investors in Private-Equity-Funds (Dr. rer. pol.). Markus has over seven years&rsquo; experience as a management consultant with McKinsey &amp; Company, where he spent more than four years doing pro-bono consulting for social entrepreneurs. Ellinor studied in Lausanne and Oxford University, completing a degree in Hotel &amp; Restaurant management. After a career in marketing for luxury goods, she worked as an independent marketing and fundraising consultant for social enterprises in Germany.

About Ashoka and the Social Business Angel Network: Ashoka is the world’s first and leading organization for the promotion of social entrepreneurship. It is supported by an international circle of successful entrepreneurs and leaders who also support Ashoka Fellows as mentors. Many of these sponsors are also interested in financing social enterprises through direct investment and acting as Social Business Angels: so the. Ashoka Angels Network was founded. Based on their personal investment preferences, the members of this “investment club” are regularly informed by the FASE of investment opportunities from the Ashoka environment and beyond, with outstanding social impact.

Learn more about Ashoka and FASE.

The New Energy Landscape: A Roadmap for Impact and Sustainable Investors

By Marta Maretich, Maximpact Chief Editor @maximpactdotcom

Energy is set to be a key global concern for the foreseeable future; and to continue to be an important focus for the impact and sustainable investing sector.

The reasons for this are familiar by now: fossil fuels are becoming scarcer, energy costs are rising, levels of industrialization are increasing, as is global prosperity, bringing increased demand for energy as well as unwanted side effects from its use, like pollution.

Climate change is another factor driving interest in energy. A series of reports from the IPCC are shining a light on the urgent need to change the way we use energy as well as the types of energy we use. According its recent report, energy is responsible for 47% of the increase in anthropogenic (man-made) CO2 emissions; fossil fuel byproducts linked to climate change. High carbon-intensity energy, related to economic growth in developing countries, is an important contributor. These statistics mean that energy use is set to become an important front in the battle against runaway climate change.

Whether or not you accept the idea of man-made climate change, there’s little doubt that the IPCC’s reports will affect the outlook for investing in the energy sector. Right now, the UN is using them to inform its process of forging a new international convention on climate change. When this framework emerges in 2015, this in turn will have implications as governments react by establishing new policies, setting regulation and, probably, funneling more public money into mitigation measures.

All these factors; plus the fact that new technologies and approaches are proliferating; are making energy a focus for investors of all kinds, despite the fact that some alternative energy markets have proven volatile in the past. Today there are more ways to invest in energy than ever before and everyone seems to be looking for the technologies that will replace fossil fuels in our investment portfolios as well as our economies.

A multitude of solutions

Developments recent years seem to indicate that seeking a single solution to the energy question is the wrong approach. It’s more probable that there will be a wide array of approaches that form a patchwork of solutions for different applications. Many of these will be local, rooted in culture and geography, and investors who know how to spot an opportunity at the local level will reap the benefits, as will those who know how to support energy businesses as they scale up and roll out products and services on a wider basis.

But there is much more still to do if we are to meet growing energy demands while at the same time cutting emissions. Fortunately, there’s also increased scope for investing as the clean and green energy market grows and diversifies. Here are some of the areas to watch:

Known values

Solar power, wind power and hydroelectric generation businesses have long been staples in impact and sustainable investment portfolios. Global growth in the uptake of these technologies has been significant overall, at least partly due to government subsidies and policy support, and the worldwide demand for solar and wind power continues to skyrocket. Since 2009, global solar photovoltaic installations increased about 40% per year on average, and the installed capacity of wind turbines has doubled.

Against this background, some investors, like Triodos with its renewable energy fund, have already garnered considerable experience in investing in diverse energy solutions including hydroelectric, wind and solar. Others, like the Global Environment Facility (GEF) have been instrumental in financing specific energy technologies to fit local needs in countries as diverse as China, Mexico and Egypt.

Impact capital has played a role in bringing these technologies forward and rolling them out into new markets, sometimes riding the roller coaster of a new investment sector, as in the case of solar power. As a result, renewables now represent an evolved market and continue to have strong returns. With future outlooks positive, especially in light of advances such as new approaches to managing existing grids and new technologies coming online to improve energy storage thus making wind power more viable, these sectors remain good bets as we move into 2014.

IPCC top energy picks

The IPCC weighs into the energy debate with a new report flagging its top picks for alternative energy sources to lead climate change mitigation measures. In it, zero-carbon technologies join low-carbon ones, with both seen as essential to success. The list of top technologies they cite is controversial (even deeply flawed, according to some critics), yet the IPCC’s recommendations may turn out to be influential as the global conversation about new energy sources evolves. Certainly, it pays impact and sustainable investors to consider how they could usefully engage with these sectors.

Nuclear power

In a post-Fukushima world, nuclear power is more controversial than ever. Germany, a global leader in greening its energy sector, is set to phase out nuclear power entirely by 2030.

Nonetheless nuclear power is central to the IPCC’s plans for climate change mitigation. Though certainly not a “renewable”, as the report claims it is, nuclear is nonetheless a zero-carbon source of power and may be an option in some situations. Despite its drawbacks of danger and waste, it appeals to countries worried about energy security as well as those trying to wean themselves away from using polluting coal as a main source of energy. For these reasons, worldwide nuclear capacity is increasing annually, with countries such as Spain and the USA stepping up production. New reactors are going up in many counties including Taiwan, China, South Korea and Russia.

All this activity may hold opportunities for impact and sustainable investors who believe that nuclear may offer the best hope for a carbon-neutral future; as well as those who are willing to back an unpopular industry as it develops better, safer technologies. The good news is that advances in technology may change the outlook for nuclear soon. Molten salt reactors; which so far exist only on paper; could produce 20 times more power per plant, cast half the price of existing reactors and consume, rather than produce, nuclear waste. It’s worth noting that China has pledged to build one before 2050 and western countries too fastidious to take the risk may miss an important opportunity here.

Energy efficiency

The drive toward greater efficiency in energy use is already underway as rising fuel costs push consumers in every sector to find ways to get more out of their energy spending. The search for energy efficiency will create business opportunities in a number of industries including construction, where energy-saving design is becoming the norm, and transportation, where more efficient vehicles are cutting fuel bills for individual consumers, companies and municipalities.

Manufacturing will be an important growth area when in comes to energy efficiency. According to a recent survey, energy use is becoming an issue for top managers who now see it as key to bottom-line success. The drive for efficiency will create opportunities for growing businesses in consultancy and service delivery, too, as companies seek expert advice on how to optimize their specific processes: just six percent would know where to turn for more tailored advice, a recent survey reveals, and this is seen by managers as a significant barrier to investing in energy saving measures.

Biofuels

Biofuels have come in for a lot of criticism in recent years and now the United Nations has released a report officially warning that growing crops to make “green” biofuel harms the environment and drives up food prices. Still, biofuels are central to the mitigation pathways proposed by the IPCC, a fact that some critics, like environmental groups Biofuel Watch and the Global Forest Coalition, have attacked as “false” and “confused”.

This may not be sufficient reason to exclude biofuels from a green energy future, however. Promising new technologies, particularly those that convert waste into biofuel, may yet put this sector back on the map for impact and sustainable investors. A recent study found that biofuels derived from paper, wood and food waste could provide 16% of fuel needed for road transportation in Europe by 2030. On the other hand, the report warns that the successful commercialisation of these advanced biofuel technologies now depends on political leadership and adequate policies, a scenario that industry insiders fear is a long way off.

BECCS

Bioenergy with carbon capture and storage (BECCS or Bio-CCS) is another controversial technology central to the IPCC’s mitigation measures report. The process involves power plants burning biomass to generate electricity with the carbon created being extracted and stored underground for “geological timescales”. BECCS could potentially provide large amounts of carbon-zero electricity, yet there are doubts about how viable, or safe, it would prove in practice and so far no working plants are up and running. It may be years before BECCS can prove its worth; but watch this space as the idea of carbon capture as a necessary measure for achieving carbon neutrality gains ground.

And don’t forget…

In many ways, the IPCC recommendations for the future are notable for the many technologies they leave out of their vision of a low- and zero-carbon energy future. A quick scan of the alternative energy sector reveals a wealth of new approaches and processes the report ignores: micro-generation, hydrogen fuel cells and smart grids, to name only a few. There’s evidence, too, that large public utility companies are starting to change the way they provide energy, making them justifiable investments for impact and sustainable investors. Lifestyle changes leading to reduced energy consumption will also create attractive business opportunities, for example in the areas of smart metering, transportation and green building.

The list is long; and, happily, getting longer. Impact and sustainable investors would do well to have a good look around before deciding where to put their capital.

How to pick a winner

With all of these opportunities open to impact and sustainable investors, the challenge may be finding an effective focus when investing in energy. Where should we invest for maximum impact and delivering the most benefit?

To answer this question, investors should review their core values, determine their appetite for risk, and keep in mind the definitions provided by bodies like the World Economic Forum and GIIN. Employing evaluative tools like ESG and SROI can help narrow the search for the right place to put your capital, especially when it comes to mainstream investments.

In a rapidly changing energy landscape, however, there is no substitute for keeping informed. New technologies are coming online almost weekly. Known technologies are evolving, as is the political and regulatory climate. Investors with their ear glued to the ground and their feelers out will have the best chance of making the impact they want to make.

But the point isn’t just to pick a winner. Regardless of how effective the social investing sector is in bringing needed capital to a new energy landscape, there’s a bigger problem on the horizon, one that should concern all of us.

Despite massive IPCC reports and high-profile efforts by international bodies like the UN, there’s concern that the political will to deal with the problems caused by our energy use just isn’t there. C02 emissions have risen since 2010 and, with the upturn in the world economy, it doesn’t look like they’ll be falling any time soon. Global surveys indicate most world citizens are more concerned about economic development than they are about climate change. And look what happened to the flawed carbon trading system and the now defunct Kyoto agreement, our last attempts to tackle this issue.

Clearly, business as usual will only result in the deepening of our shared crisis. If impact and sustainable investors really want to make a difference to our future, they will have to do their part to fundamentally change the way business and finance works; and to convince others; governments, businesspeople, the public; that our way can deliver sustainable development and a viable future for the planet. To succeed at this, we will have to demonstrate that impact and sustainable approaches to finance really work. Let’s just hope we can do it in time.

Live energy sector deals on Maximpact.

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Maximpact Deals: Recent Successes and Measurable Impact

By Ana LaRue, Digital Media Manager, Maximpact, @larue_ana

What is Maximpact Deals?

Maximpact Deals is an online platform that lets you list your project or venture and enables you to connect directly; free of charge and commission-free; with partners and potential funders in the impact and sustainability industry.

With a mission to foster collaboration between different parts of the growing impact and sustainability sectors, our platform is wide open, making it a shared community where everyone is invited to participate and benefit from direct connections and high-impact collaborations.

The platform brings together entrepreneurs, nonprofits and investors in a way that gives everyone a chance to promote their projects, network with others, share resources and identify opportunities. It is a win-win situation for all.

How does Maximpact Deals help you achieve impact?

Since its launch in 2012, Maximpact Deals has had role in developing a number of deals and fostering many productive partnerships. As the platform grows and evolves, it’s becoming clear that there are many benefits to our open collaboration model.

Connect directly: One of the comments we often hear from our members is that the platform truly facilitates direct connections for high-impact collaborations. Because the registration allows you to personally connect with individuals by giving you their direct contact information, the experience is very direct and highly effective.

As one of our members told us: “The platform lets you tap into the Maximpact ecosystem and find your perfect partners very quickly and without having to search the entire web.” So far, a handful of such connections have already evolved into long-term partnerships and our goal is to continue connecting the dots and setting the stage for more high-impact collaborations.

Promote your business: Maximpact Deals is different from some deal platforms in that it does not act as an intermediary; a fact our users appreciate. Rather, it serves as a showcase where projects can be discovered by investment funds, intermediaries, incubators and accelerators. Kiva is just one example of the many organizations currently sourcing ventures and projects through Maximpact.
On the funding side, our current membership includes over 350 financial intermediaries and funds such as World Vision, Triodos Bank, LGT, Big Society Capital and others. So by listing your project or venture you not only tap into our network, but also increase your chances of being noticed by other intermediaries, accelerators and incubators, thus extending your reach and multiplying your chances of success.

Secure funding or source attractive new deals: As Maximpact Deals continues to develop, the strength of our network is becoming more and more apparent. At the moment, Maximpact offers access to over 500 live projects. Because a single project is often seeking funding in various geographic locations, this adds up to over 1500 business opportunities.

Start connecting today

If Maximpact Deals is that simple and that good, how do I get started, you may ask? A simple registration process allows you to immediately start sharing information about your projects and begin contacting the network.

Begin by registering your organization. Once your registration has been vetted and approved, you will receive a notification allowing you to log in and list your projects and ventures and search for deals on our secure, password protected platform.

Let’s make it even better; together!

The strength of Maximpact Deals lies in its community of users. Without our loyal members and supporters, we would not be celebrating the success stories that give us so much satisfaction. With every deal and connection made, we come one step closer to achieving our mission: facilitating communication and increasing deal flow across this previously fragmented sector.

With this motivating us, we go on trying to improve the user experience. We welcome suggestions and would love to hear about your own success stories using the platform. Let us hear from you at: media@maximpact.com

Thinking Systemically About Water: An interview with J. Carl Ganter

By Marta Maretich, Chief Editor, Maximpact, @mmmaretich

Water sector investments continue to be high on the wish-list of many impact investors. But what are the wider issues surrounding investment in water? Maximpact talks to J. Carl Ganter, award-winning CEO and Founder of Circle of Blue and member of the World Economic Forum’s Global Agenda Council on Water Security.

What’s your view of water sector investing?

A few years ago, some venture capital firms invited me to make the rounds in California. I visited three different firms. Two of them had practically the same list of 68 companies to invest in, which they slid across the table with great gravitas. They asked me to comment, to tell them which ones I thought were winners.

What struck me at the time was that all these investments were what I think of as traditional. They were investments in a new type of pump or a new type of filter, for example, or a desalination plant. The venture capital firms, at least at this point, still had a very old world, 20th century, incremental way of thinking about investing in water. They were looking for ways to turn the water crisis into an opportunity by doing what they had always done.

I flipped their perspective and asked, “What if you had known in advance that Australia was under severe drought and its entire rice industry was going to collapse and this was going to ripple across world markets, affecting not only commodities traders, but impacting on the way the UNHCR manages its budgets for human disasters, its ability to buy food for refugees. How would that have changed your water investment choices?”

I don’t think they had ever thought about the wider ramifications of investing in water. Clearly, they weren’t thinking systemically about water. Hopefully, impact investors will take a more sophisticated approach.

What do you mean by “thinking systemically about water”?

I am seeing this as one of the biggest trends in the water sector today. I have an unusual perspective right now, with one foot in the “water buffalo” crowd; the community of water experts and people on the inside of the conversation; and the other in the world of journalism, which requires more of an everyman’s perspective.

In the water buffalo crowd, we’re hearing a lot more talk of a nexus of water, food and energy in a changing climate. In other words, it’s better not to think of water in isolation, but to consider it as part of a system in which those four pieces; water, food, energy and the effects of climate change; are interlinked.

And why is that important for impact investors?

From my experience, it seems that many in the investment community are still trying to figure out where the big play is in the water sector. But by thinking this way, they’re missing a massive opportunity.

If we understand there is a system in operation here, a competition, it’s possible to take a very different approach to everything we do. It’s become our mantra at the WEF, where I’m a member of the Global Agenda Council on Water Security. We joke about tattooing it on our foreheads; water, food and energy in a changing climate. We can’t think exclusively about water anymore; even the dedicated water buffalo’s can’t; we all have to think about the four-part system.

When it comes to impact investing, we need to embed that meta-message so that people looking for capital and impact investors are all thinking systemically. For example, if you’re in micro-finance and your focus is on women’s issues, then you really need to have water and sanitation embedded in your thinking. If you don’t, your work won’t be as effective as it could be. Or it may fail all together.

Why is that? When you bring water to communities in an appropriate way, you bring health, gender equality and education to girls and women. Girls will come to school because there are bathrooms that are safe for them to use. They have time for education because they aren’t carrying water all day. By thinking about these issues systemically, you can really have an outsized impact with the same level of investment.

Apart from thinking systemically, what can we do to be more effective when it comes to investing in water?

At the WEF, we’ve identified two major areas where change needs to happen. Both of these have implications for impact investing.

The first is governance. How do we break down the siloes within governments so that the water ministry talks to the infrastructure ministry and the education ministry? How do we remove the obstacles that prevent institutions from different sectors collaborating? Governance; the systems and processes that encourage cooperation and safeguard accountability; is key to breaking down siloes and creating conditions where collaboration can happen.

The other issue is values: What is the value of water? How much should people pay for water services? To what degree is water a human right? The answers to these questions tell us how much we value water for human use, industrial use, agricultural use and ecological use. Considering the value of water helps us include water in all of our conversations so that it isn’t an afterthought. It shouldn’t come down to a crisis situation if that can be avoided with foresight.

What would you like to say to an impact fund manager trying to put a portfolio together that includes water?

I’d advise someone on the sharp end of investing to think about water impact risk. By this I don’t mean only for water investments, I mean for all investments.

From the micro finance to large-scale bonds, it’s possible to go down the line with each investment, not only in the water world, and rate each one by risk of water impact.

For example, you might have an investment in an energy company. If you’re drawing a percentage of energy from hydro-electric energy, you need to consider how a prolonged drought like the one in California would affect electricity output. If you have investments in manufacturing businesses overseas you need to think about how drought in those parts of the world might ripple through your investments.

Organizations like Ceres have been successful in getting companies to disclose their water and climate risks in their annual reports. They’ve developed a method for assessment that impact investors could learn from.

Any other advice?

Our biggest obstacle lies in what we don’t know about what’s happening around the planet in this competition between water, food and energy. Our first step should be to invest heavily in understanding what is really going on. To this end, the White House recently announced its landmark Climate Data Initiative. Circle of Blue is participating and supporting this initiative with a new data dashboard that displays in real-time California’s water supplies.

This kind of information scaled will provide the key to finding solutions for the water issues we’re facing today. Not only that, but data projects like these will offer deeper insight for investment and return. Impact investors should consider how they can capitalize companies and projects that are collecting data and putting it in context.

One last thing: Do water experts really call themselves Water Buffalos?

(Laughs) Circle of Blue recently did two huge conference calls on water issues that each included about 400 people from around the world, with such experts as Peter Gleick, Jay Famiglietti and Lynn Ingram. I polled the participants beforehand, and many preferred, only half joking, to be identified as water buffalo’s. Perhaps it symbolizes persistence and strength while wading through vast pools of water and mud.

Circle of Blue announces new initiative exploring the water-food-energy nexus in India.

Ceres President Mindy Lubber will participate in the opening plenary of the 2014 Skoll World Forum in Oxford, U.K., from April. Hear what she has to say.

J. Carl Ganter

About J. Carl Ganter: J. Carl Ganter is co-founder and director of Circle of Blue, an internationally recognized center for original front-line reporting, research, and analysis on resource issues, with a focus on the intersection between water, food, and energy. He is a member of the World Economic Forum Global Agenda Council on Water Security and, for more than five years, served on the Woodrow Wilson International Center for Scholars Navigating Peace Water Working Group. In 2012 he received the Rockefeller Foundation Centennial Innovation Award

Liquid Assets: Impact Investing in the Water Sector

By Marta Maretich

Water is a hot issue in investing circles these days. Once considered a free natural resource, water is increasingly a focus for finance and speculation; hardly surprising in a world where water stress is a reality, global demand for water is on the increase and investment in water-related infrastructure is urgently needed, according to sector-watchers such as the World Bank-sponsored 2030 Water Resources Group.

There are a number of well-known “tailwinds” pushing this trend. Population growth, uneven distribution of resources, increasing urbanization and new government regulations are some of the factors influencing the rise in demand for water. Pollution, deforestation and climate change are taking a toll on supply, with many dry regions, like California and Australia, experiencing the longest droughts in their history.

Large international development organizations like the UN, the WEC and the WHO have been vocal about the need for more water investment and cross-national cooperation and now key players, like China and the US, are waking up to the urgent need to invest in infrastructure and water security. Collecting water data will be part of this. Earlier this month the US launched a climate data collection initiative to “stimulate innovation and private-sector entrepreneurship in support of national climate-change preparedness.” The results will certainly influence future government spending on water-related issues, and probably increase it. In drought-hit states, like California, the spending has already begun and the trend toward more state investment activity is likely to continue, spurring overall market growth in the water sector.

Doing good and preventing harm

All these factors are coming together to produce what some commentators have called a “blue gold rush“; a sharp rise in interest in water investing among mainstream investors that clearly holds opportunities for impact investors, too. The reasons for this are obvious: Clean, plentiful water is necessary to all forms of life on the planet. Animals, plants, ecosystems and habitats all require adequate water to thrive. Human societies need water, too, for health, agriculture, industry and economic development. Investing in water is clearly a way to create a whole range of positive impacts.

There’s another compelling reason for impact investors to get involved now: Preventing harm. Water sector investment is undergoing a boom and, if the right safeguards aren’t applied, social and environmental concerns could fall by the wayside. Water that serves people has to come from somewhere, for example, and irresponsible extraction or dam building can lead to destruction of habitats and communities. Polluted water; such as agricultural runoff, which is often full of nitrates; can devastate whole ecosystems and destroy species. Competition for water can mean the poor and marginalized are denied fair access. Water grabs, linked to land grabs, are becoming more common in places where resources are scarce. Pricing is an issue in a sector where many analysts agree that consumers have not been paying enough for the water they consume; a situation that is set to change as water becomes more market-oriented.

Addressing the risks of privatization

As business becomes more involved in the supply and management of water, there’s concern about negative consequences of treating water as a commodity. Water hoarding and monopolizing, and the exploitation of water rights, could all be harmful to human communities, to the environment and even to world peace.

There are certainly wrong; as well as bizarre; ways to invest in water. And some business leaders have shown a distinct lack of understanding of the complex issues surrounding water. Yet there are moves in many parts of the business community to manage the risks of privatization. Ceres, a US nonprofit that encourages sustainability, works with businesses to identify and address negative water impacts across their operations. The CPD, a UK charity, works with investors and companies to uncover risk and catalyze corporate water stewardship. It holds the largest collection of self-reported climate change, forestry and water risk data in the world.

Water activist Maude Barlow takes a different tack. Starting from the premise that water is a human right, she recommends limits to its commoditization and calls for businesses and governments to adopt a new “water ethic“:

“Water must never be bought, hoarded, sold or traded as a commodity on the open market,” she writes, “and governments must maintain the water commons for the public good, not private gain. While private businesses have a role in helping find solutions to our water crisis, they shouldn’t be allowed to determine access to this basic public service. The public good trumps the corporate drive to make profits when it comes to water.”

Building robust impact portfolios with water

Whatever one’s stance on the commercialization of water, it’s clear that the water sector is now at a turning point and this means impact investors have a golden opportunity to shape its future. What’s more, water investments may be the ideal basis for building robust, profitable impact portfolios. In the words of Steve Falci, head of strategy development: sustainable investments, for Kleinwort Benson Investors, “Water is probably the biggest win-win of all the sectors in terms of delivering reliable financial returns and positive impact.”

In a recent white paper, Integrating Publicly Traded Water and Agribusiness Equities Into Impact Investor Portfolios, impact advocate Jed Emerson and Falci explore the potential of including water sector investments in impact portfolios. Water, the paper argues, has much to offer impact in financial terms. First, it’s a huge sector that boasts a wide range of investment opportunities in companies that provide the operations, equipment, chemicals, and services that make water available for municipal, industrial, and agricultural markets worldwide. These include:

-Water waste and water utilities: Companies managing infrastructure and delivery of water and or treating wastewater or reuse and safe remediation back into the environment
-Water infrastructure: Companies providing pipes, filters, pumps, seals, valves, water purification and desalination equipment, design engineering and construction services
-Water technology: Companies providing filtration, disinfection, test and measurement products and metering.

Next, not only does the water sector offer a vast array of different companies to invest in, it also offers a complete spectrum of different types of investments to choose from.

Without straying from the water sector, investors can elect to place their money in seed stage businesses, mid-sized growth businesses or large, established corporations. They can combine investments from different asset classes, each carrying a different level of risk and reward, and choose defensive and cyclical holdings to create a solid portfolio that gives reliable returns. For an explanation of how this works, see Matt Sheldon’s article on how he constructs Calvert’s successful Global Water Fund.

Including publicly traded equities

Most importantly, Falci and Emerson stress, impact investors can expand their horizons by including investments in publicly traded companies in their portfolios. As Falci explained, “Impact’s success so far has been in channeling private capital to small businesses that lacked access to other sources of finance. Many impact investors have focused entirely on investing in private markets, but publicly traded equities, chosen carefully, can help strengthen and balance an impact investment portfolio without sacrificing the commitment to positive impacts or small businesses.”

Falci and Emerson aren’t alone in advocating impact’s expansion into publicly traded equities. Others, including Michael Van Patten of Markets With Mission, have made similar suggestions. However using this method with water equities may work particularly well, according to Falci, because few water sector companies engage in activities considered negative or even controversial.

And what about managing negative social or environmental impacts of capitalizing on water? The authors suggest using SRI and ESG screening, both well established in mainstream business, to provide assurance. “Public equity managers increasingly have the tools to assess areas such as companies; carbon footprints, water usage and Base of the Pyramid activities,” they write. Undesirable consequences may be addressed through “engagement with company management; an element of investor strategy that has been a central part of most sustainable/responsible investing approaches for years.”

Whether one agrees with this “total portfolio management” approach or not, what’s interesting is the way it brings together several strands of the larger social and sustainable investing movements. Emerson and Falci are both social investing veterans with track records that predate the “invention” of impact. Their approach calls for the judicious application of various systems for ensuring positive outcomes and avoiding negative ones; including established systems like SRI and ESG and newer ones, like ISIS; to evaluate a variety of impact investments across a diverse impact portfolio. The water sector, with its great size and diversity, as well as its benign reputation, offers the perfect opportunity to experiment with this sophisticated approach to investing for impact.

Conclusion

The issues surrounding water; its use and abuse, its scarcity, its relative availability, its cost to consumers; are set to be high on the global agenda for the foreseeable future. With the situation becoming more critical, governments, international development agencies and businesses are all stepping up efforts to find solutions. This will create a buoyant marketplace for water-related investing in coming years. Impact investing, with its pragmatic approach to profit and its commitment to delivering social and environmental benefit, has a unique opportunity to engage with this market and influence its development for the better.

Read the white paper on water investing by Jed Emerson and Steve Falci

10 Things You Should Know About Water Infographic from Circle of Blue

To find live impact deals in the water sector, logon to Maximpact.

Image Credit: 123rf stock photography

 

Water Sector Spotlight Deal: HydroMentia

Imagine a water treatment technology that costs less than traditional chemical treatment methods but which improves water quality by delivering low treatment levels using a natural and sustainable solution.

Our latest spotlight deal; HydroMentia; can do just that. The company delivers sustainable, commercial-scale water treatment using natural algae to remove high levels of nitrogen and phosphorus from wastewater, surface water and other water bodies.

Algal blooms are a problem in the Gulf of Mexico and thousands of other water bodies across the world. Caused by increased nutrient levels in the water, these blooms can contaminate seafood, spread disease and lead to marine mammal and seabird deaths as well as extensive fish kills, according to the EPA. Now HydroMentia has found a way to turn the destructive characteristics of algae into a water treatment powerhouse by making a virtue of what these organisms do best: Recovering excess nutrients.

HydroMentia has spent several years perfecting their water treatment technology to harness nature’s power for nutrient pollution control by optimizing algae’s natural capabilities. With a growing reputation, the process has been described as “best in its class” for improving water quality at low treatment levels using sustainable attached algae systems.

The system is based on shallow, sloped pools in which contaminated water is passed over dense beds of attached algae. As they reproduce, the algae remove nitrogen and phosphorus (as well as CO2) from the water. The algal biomass is then recovered and processed to recover organic and inorganic by-products, a practice that maintains the algae in an accelerated growth phase. The algal biomass is then processed into marketable commodities such as soil-enhancing compost or livestock feed. The process is less expensive than more established chemical treatment methods and uses far less land areas than traditional treatment wetlands.

The Algal Turf Scrubber, one of the company’s leading products has been demonstrated at commercial and pilot scale from Florida to New York and from Chesapeake Bay to California. One county in Florida has successfully operated this product for several years, with a second system being installed in 2014. Other clients in the pipeline include a mining company and an environmentally responsible real estate development.

The company is well positioned to expand both within the US and globally due to their widely applicable solution to a growing challenge. In order to do that they are seeking 1 million to 5 million USD in investment and have their eyes set on the impact investing community.

At the moment HydroMentia is still looking for investors and collaborators, so if you would like to learn more about this deal, register with Maximpact today further explore their potential.

View more Maximpact water sector deals.

Funding Water and Sanitation Business at the Bottom of the Pyramid

By Katie Bessert, Maximpact guest blogger

Today’s global water and sanitation crisis claims over 3 million lives every year according to data from the World Health Organization (WHO), the majority of these in communities at the bottom of the socio-economic pyramid (BoP). Finding answers to this problem will require more than government funds and charitable donations. According to recent World Bank research, in order to improve quality and availability for the poorest communities, we need to build sustainable independent businesses that meet a variety of water-related needs.

My colleagues from the Colorado State University Global, Social and Sustainable Enterprise program and I are now taking part in a project to identify innovative ways to fund small and medium-sized enterprises (SMEs) bringing solutions across the water and sanitation sector to BoP communities. Our findings so far shine a light on the water challenges facing the world, and they provide insight into how impact investors and funds can be part of the solution.

The need for private intervention

The WASH (water, sanitation and hygiene) sector has historically been an expensive and risky market for investment. Yet it has potential: For every $1 USD invested in global water and sanitation efforts $9 of economic value are returned.

However, to tap into this inherent economic value it has usually been necessary to leverage local government funding to finance massive infrastructure projects that often take several years to complete. These infrastructure projects are rarely directed towards the poorest BoP communities where the vast majority of deaths and illnesses from water-related diseases occur. For example, the majority (73%) of Calvert Investment’s water fund is invested in infrastructure projects and utility companies, of which 48% are based primarily in the U.S.

There is evidence, too, that the private sector is already bearing the costs and reaping the rewards of WASH projects. A large percentage of funding for improving water sources and increasing access to sanitation already comes from the domestic private sector in the form of tariffs, initial capital investments, and recurrent costs. A 2012 WHO report on sanitation and drinking water found that 44% of reported funding for the WASH sector came from household contributions in comparison to just 18% contributed by government. Currently, the WHO reports, the median government investment for water and sanitation is only 0.48% of GDP, indicating a lack funding for the projects that are necessary to reach the Millennium Development Goals for water and sanitation.

This makes it clear that it is time to shift focus away from government funding towards partnering with the private sector.

Promising models

Addressing this water issues at the base of the pyramid means first identifying appropriate technologies and solutions for individual communities. There are a variety of local solutions for these global problems; including in-house latrines, public latrines, borehole wells, decentralized water purification systems, safe household water appliances, water vending machines and community-based water distribution centers; and it’s important to find the right one for each case. Assuming that there is a blanket cure for the diverse problems of water access and sanitation can prevent growth in this important market while evaluating the specific needs and capabilities of each community is key to furthering models with promising financial return and successful impact. Once the right approach is identified, investors can provide working capital to those SMEs that offer appropriate solutions.

Several promising models are now emerging for investable WASH sector SMEs:

Sanergy employs a unique franchise model that allows for the installment of affordable latrines. These public latrines are owned and operated by individual entrepreneurs. The units are serviced on a daily basis and when possible human waste is converted into a biofuel or organic fertilizer which provides another revenue stream for the franchisee. 35% of the world’s population lacks access to adequate sanitation facilities so the market potential for businesses like Sanergy is massive.

Grundfos LIFELINK delivers clean water to rural communities by setting up community water distribution systems from uncompromised groundwater sources. Each project is funded through partnerships with local banks and private investments. Community members purchase water credits through mobile money transfers (M-Pesa) and once a month the money spent on purchases for the water credits are forwarded to the local community bank account and the savings from this account are used to repay the loans.

Montana-based Habihut LLC has successfully launched three solar powered water kiosks in Kenya. These kiosks deliver water, contain a solar-powered cell phone charging station, and sell prepaid phone cards. Based on this successful initial launch the company plans to deploy their technology with a Hot Spring Micro-Franchise initiative. Franchisees can generate revenue from four distinct streams: Billboard advertising, cell phone charging, prepaid cell phone card sales, and water sales.

Beyond capital

Poor communities and entrepreneurs serving the BoP are often in need of not only working capital but advice on the business skills necessary to make the projects self-sufficient. The lack of local financial expertise and business acumen is a challenge to this grassroots method of delivering sustainable change. The success of this approach depends upon a conscientious deployment of capital, yet it is crucial to leverage the local entrepreneurial capacity against the challenges facing each community to deliver significant social and financial return.

About the author: Katie Bessert is a graduate student in the Colorado State University Global, Social and Sustainable Enterprise program. This summer she will be working with the charity Water for People as part of research team investigating the uses of crowdfunding as a source of capital for small businesses in the WASH sector.

To view SME deals in the WASH sector, login to Maximpact now.

Image credit: benedektibor / 123RF Stock Photo

Getting it Together: Public-Private Partnerships and Cross-Sector Collaboration are the Future of Impact

By Ana LaRue, Digital Media Manager, Maximpact

An impressive, cross-sectoral group of panelists gathered at Stanford on March 5th, 2014 for an impact investing round table titled: What is Impact? Definitions, Intentions and Everything. Standing room was the only option for those who arrived late, as attendants from various asset classes filled Stanford’s Center on Philanthropy and Civil Society to its limits.

Co-hosted by the Bay Area Impact Investing Initiative and the Flora Family Foundation, the event focused on taking a deep dive into impact definitions, measurement and the steps needed to shift more investment portfolios toward impact. Kim Meredith, Executive Director of Stanford Center on Philanthropy and Civil Society opened the conference. Pointing to the immense growth of the sector, and noting that philanthropy can’t be the sole driver of social innovation, she underlined the great potential for using impact investment to scale social enterprise.

Moderator of the evening, Paula Goldman, Senior Director of Knowledge; Advocacy at Omidyar Network kicked off the conversation by asking what is needed to bring impact investing to scale. As the panelists addressed her question, the importance of public-private partnerships emerged as an important theme.

The public-private partnership debate is something that we are seeing more and more of recently. In 2007, for example, the impact industry had little support from government. Seven years on, it’s clear that individual investing heroes and small family offices can no longer go it alone and government involvement is becoming increasingly important. A recent article co-authored by Cathy Clark and Jed Emerson titled Success in Impact Investing Through Policy Symbiosis shows that the role of public policy is already significant in underserved markets where impact investors operate.

So what else would the panelists like to see happen in regards to impact investing sector development? Other key points included:

      Increased funder collaboration: Coming together across sectors, more collaboration and better coordination are needed to propel the sector forward. This is something that our team at Maximpact is extremely excited about, as it truly summarizes the mission of our platform and our network.

      Increased deal flow: A shortage of products and services is a difficulty many impact investors continue to face yet there are investment opportunities ready and waiting now. The sector needs to find ways for players to take advantage of the growing interest in impact investing.

      Patience: More patience is still needed, especially when it comes to expecting returns in developing countries. While impact investors in developed countries can afford to demand quicker returns, patience remains an important aspect of scaling impact in developing countries.

      Improvements in measurement: The difficulty of measuring impact is still high on the agenda and will likely stay there through 2014. We have in the past discussed emerging impact measurement standards such as IRIS and the importance of their continuous development. The panel showed that his is very much an issue that continues to be a priority of the impact agenda.

      Maximization of impact: The effectiveness of impact is variable. All companies create impact: The key question impact investors should ask themselves is whether their investments make the greatest impact possible. As impact investing extends its reach, finding ways to maximize our impact will be ever more important to investors and impact businesses alike.

Among other things, the Stanford panel discussion showed the value of bringing together a diverse, cross-sectoral group of impact professionals (in this case a philanthropist-academic, a venture capitalist, a corporate engagement financial advisor and a public-private policy consultant as well as an audience from various sectors) to discuss the changing face of impact. The debate was dynamic and stimulating; and it is this level of exchange that sparks innovation and forges new kinds of partnership. In our opinion, bringing people from various sectors under one roof is exactly what is needed to scale impact investing and we hope to see many more such events taking place throughout the world in the future.

The Panelists of the evening:

For information about future impact investing events at Sanford Center on Philanthropy and Civil Society visit their website.

For latest impact investing deals visit Maximpact&rsquo;s deal listing platform.

Image credit: Vector image 123RF – Images taken at the event by Ana LaRue