Investors Assess Their Climate Risks

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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.

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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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Green Grow the Climate Awareness Bonds

By Sunny Lewis

LUXEMBOURG, October 29, 2015 (Maximpact News) – The European Investment Bank is the first issuer to link its individual green bonds to the projects they finance for the sake of transparency and accountability ahead of the Paris climate talks.

As the planet warms, growing cities and developing countries need airports, roads, buildings, water systems and energy generation that can withstand rising temperatures and extreme weather.

Green bonds, called Climate Awareness Bonds or CABs, are a new and increasingly popular source of climate-friendly funding for these expensive projects.

Green bonds were created to increase funding by accessing the $80 trillion bond market and expanding the investor base for sustainable projects. They are dedicated exclusively to climate mitigation and adaption projects, and other environmentally beneficial activities.

The EU’s nonprofit long-term lending institution, the European Investment Bank (EIB), the world’s largest issuer of green bonds, has just announced that it is enhancing the transparency of its reporting on Green Bonds by showing bondholders precisely what their money does.

The bank is going this direction to be in step with the Paris Climate Summit set for November 30 through December 11. There, world leaders will sign a legally-binding universal agreement to limit global warming to 2 degrees Celsius above pre-industrial levels.

Bertrand de Mazières, director general of finance, European Investment Bank, said, “Ahead of the Paris climate conference, COP 21, EIB is supporting EU’s leadership in climate policy through innovation in the green bond market.”

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“Green bond issuance has grown substantially, and has the potential to contribute significantly to addressing the 2 degree Celsius target,” said de Mazières.

Transparency and accountability are key themes of the European Union’s position for the Paris climate conference, as adopted by the EU Council on September 18.

“The Paris Agreement must provide for a robust common rules-based regime, including transparency and accountability rules applicable to all Parties…” the EU Council declared.

In harmony with this declaration, earlier this month the EIB extended its transparency effort by reporting on the allocations of proceeds from individual CABs to individual projects, beginning with allocations made in the first half of 2015.

De Mazières explained why, saying, “Granular transparency on the allocation of the CAB-proceeds helps this process by bringing investors more precise insights and promoting best practice.”

The disclosure of the allocation of individual CAB-proceeds to individual projects establishes a direct link between the two.

EIB can deliver this level of information due to an upgrade of its internal procedures and IT-infrastructure following extensive due diligence in 2014 and 2015.

Today, the bank records CAB-eligible disbursements and allocates CAB-proceeds to them on a daily, first-in first-out basis.

This enables detailed monitoring and reporting of allocations, and helps to complete the set of information available to investors.

Eila Kreivi, EIB’s director and head of Capital Markets, said, “Investors are increasingly eager to receive clear information on the use of proceeds and the impact of eligible projects. EIB’s launch of detailed reporting in these areas this year has established an important reference.”

“Transparent management and reporting are essential to further grow the green bond market,” she said. “At the same time, one must be careful not to overload issuers with administrative hurdles. Striking the right balance will be a key challenge for the market.”

EIB’s first Climate Awareness Bond pioneered the green bond segment in 2007 and the EIB is the largest issuer of Green Bonds to date.

In September 2014, together with other multi-lateral development banks, the EIB committed to maintaining a developmental role to spur further sustainable growth of the green bond market.

In response to a recommendation in the Green Bond Principles “to help establish a model for impact reporting that others can adopt and/or adapt to their needs,” the African Development Bank, International Bank for Reconstruction and Development and the International Finance Corporation (IBRD) have joined EIB in a first harmonization proposal for bonds that fund renewable energy and energy efficiency projects. It is now being circulated for discussion.

Meanwhile, the EIB is popularizing its CABs across the world, entering the Canadian market for the first-time this week.

The Climate Change Support Team, working for United Nations Secretary General Ban Ki-moon has described green bonds as very attractive to institutional investors, with demand for green bonds much larger than the supply.

EIB’s issuance of €2.7 billion equivalent in Green Bonds this year to date has brought total CAB issuance to over €10 billion and confirms EIB’s position as the world’s largest issuer of Green Bonds.


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.

Featured image: shutterstock – royalty-free stock images
Slide Show images: a) Gemasolar, a 15 MW solar power tower that uses molten salt for receiving and storing energy, is located in the city of Fuentes de Andalucia, Seville, Spain. (Photo by Markel Redondo/Greenpeace under creative commons license via Flickr). b) Wind turbines generate electricity at Europoort, an area of the Port of Rotterdam and the adjoining industrial area in The Netherlands.  (Photo by Frans de Wit under creative commons license via Flickr)
Image 01: Bertrand de Mazières, director general of finance, European Investment Bank (Photo by Crédit Agricole, sometimes called the Green Bank, a French network of cooperative and mutual banks)

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?

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.

Monitoring for Social Enterprises: How to Protect Mission and Deliver Profit

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By Marta Maretich @maximpactdotcom

A growing body of sector research is shining light on the principles of how social enterprises can use outcome monitoring to strengthen mission and deliver a blended bottom line.

Up until now, the commitment to measuring and reporting outcomes has been one of the things that distinguished social investing from mainstream investing. Today, that’s changing. Increasing regulation and a global movement for integrated reporting are making impact monitoring everybody’s business, though in different ways and to different degrees. The will to verify is increasing, yet the questions of how and what to measure remain tricky ones for companies, even as measurement standards and services proliferate.

For social enterprises with a double bottom line to account for, outcome monitoring remains even more challenging as well as more important. Proving impact and demonstrating sustainability are key to building brand reputation, attracting investment and winning customers. Beyond these well-known values, evidence now suggests that these activities can actually provide managers and directors with the tools they need to protect the mission while delivering profit.

Two kinds of social enterprise

To understand how this works in practice, the team behind a recent report—researchers Alnoor Ebrahim, Julie Battilana and Johanna Mair—first identify two distinct kinds of social enterprises and then reveal the best monitoring approach for each.

One kind of enterprise, the “differentiated hybrid”, keeps social activities separate from commercial ones. For them, the profits generated through selling products or services are used to pay for activities that help beneficiaries who are not their primary customers.

In a second kind of enterprise, the “integrated hybrid”, beneficiaries and customers are the same people. These businesses create social benefit directly through delivering their products or services. Many microfinance organizations work on this basis, providing loans to beneficiaries who couldn’t otherwise get them.

Facing the danger of mission drift

For both kinds of social enterprises, the report says, mission drift—the failure to realize social and environmental benefit goals—is a danger. But in each case, the threat takes a different form.

For differentiated hybrids, the danger comes from financial pressures leading the company to prioritize creating value for customers at the expense of delivering value to beneficiaries—for example, using increased revenues to grow the business rather than dedicating the money to mission delivery.

For integrated hybrids, risk arises when commercial activity is misaligned or “de-coupled” from social or environmental benefit goals. For example, if delivering the commercial good or service doesn’t reach the intended client group, or it proves too expensive for them to access, then the business has failed in its mission, even if it’s succeeded in the marketplace.

Two different approaches to monitoring

To avert the danger of mission drift, both kinds of social enterprises need to establish systems that deliver information about the effect of their activities—and this is where outcome monitoring comes in.

Differentiated hybrids need to monitor the outcomes of both financial and beneficial streams of activity and use these metrics to evaluate the way commercial activities are supporting beneficial ones. For example: How much profit did the business generate and what was the resulting increase to social or environmental benefit? Monitoring efforts will focus on managers: those heading the social and financial work and those whose job is to integrate the two areas.

Integrated hybrids need, first and foremost, a sound model to begin with, one that makes it possible to deliver benefit through commercial activities. They then need to monitor behaviour, the “how” of the way the business is done. For instance: Are sales agents targeting the intended client group? Do the products meet needs or, as in the case of inappropriate lending, do they make the situation of the client group worse? In this case, monitoring needs to cover those overseeing the behaviour of salespeople in the field and those delivering services.

A governance challenge

Monitoring is, obviously, a good idea for social enterprises: this research is more proof of that. But the really important insight here is how the monitoring information can be used, and who will use it, to preserve mission delivery.

This report forms part of a growing body of evidence that links outcome monitoring systems and data collection to organizational leadership and governance. With measurement data in hand, directors and managers can see for themselves whether mission is being met or not and take action. Just as importantly, in a climate where businesses are increasingly expected operate transparently, investors and customers will be able to see it, too. This could ultimately prove the strongest incentive for social benefit companies to adopt monitoring systems that help them keep on course.

Download the full report here.

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”.

Reducing Risk and Improving Performance: Mainstream Sustainability Comes Into its Own

By Marta Maretich @maximpactdotcom

Boy reaches up to touch battered statue of earthIt’s official: sustainability is mainstream. 2015 is tipped to be the “year of sustainability” according to UN chief Ban Ki-moon.  Following the publication of the UN report setting forth development goals to 2030, including substantial sustainability goals that link global prosperity with the protection of natural resources, the spotlight is on sustainability as a means to address a range of planetary ills and change the very nature of business.

What’s driving this move? Deepening concerns about vanishing natural resources, climate change and pollution are heightening awareness of sustainability issues on a popular level. This in turn is having an impact on the world of business, which is making sustainability more of a focus.  Many of the major themes dominating this week’s WEF conference in Davos—climate change, oil, development, wealth and social inequality —  touch on issues of sustainability. For Ban Ki-moon, the private sector will play a key role in sustainability, alongside governments, in creating a future that includes more jobs, increased gender equality and better health for world populations.

All this is validation for the green business sector and impact investors who have long embraced the sustainability agenda. Even more heartening —  and more indicative that the movement will endure and expand its influence — is a growing recognition that sustainable practices bring business advantages in two areas: attractiveness to investors and improved performance. While the principles behind sustainability have wide appeal, hard-nosed decision-makers in financial institutions will only factor sustainability in if it brings material benefits. Fortunately, a growing body of evidence reveals that it does, especially when it comes to mitigating risk.

More sustainability = less risk

For most mainstream investors sustainability is all about risk management.  A growing body of evidence shows that companies that ignore sustainability issues, or, worse, engage in unsustainable practices, present increased risks for investors in many areas. As a result, investors who formerly took no interest in non-financial performance are starting to pay attention. They now look carefully at sustainability, along with other factors including governance and social impact, because of the risks associated with these areas.  In a global trend, investors now expect company reports to disclose detailed information on non-financial information including ESG measures and impact. If it is missing, or unconvincing, they won’t commit.

In a knock-on effect, investor demand for more transparency and accountability on non-financial performance measures is driving a global trend toward increased disclosure and integrated reporting. SASB has established standard measures that allow companies to attribute “materiality” directly to sustainability issues. Meanwhile, the demand for third-party verification of sustainability performance information is fuelling the continuing expansion of a data validation industry.

The pressure to disclose places obvious burdens on the companies that have to establish sustainability systems, then track, validate and report sustainability information. However, the rewards of sustainability are becoming more apparent and may offset the added cost.

Boosting performance with sustainability

A growing body of research indicates that companies that voluntarily adopt social and environmental sustainability policies can outperform companies that don’t. A Deutsche Bank review academic literature, for example, concluded that firms with higher ratings for ESG exhibit both market-based and accounting-based outperformance. New Eurosif research shows sustainable investments outperforming the mainstream in European markets. In  3-year study by PWC, higher impact portfolios outperformed a traditional portfolio model on both return (higher by 1.6% per year) and risk (lower by 1.7% per year).

Improved performance must be the ultimate inducement to mainstream investors — and of course it’s yet another piece of evidence that the early advocates of sustainability were right all along. But this news is good for the sector in other ways.

For socially-minded investors who already use sustainability as a measure of investability, the normalization of sustainability will bring good things. The fact that businesses of all kinds are embracing sustainability will mean that impact and sustainable investors will be able to choose from a wider pool of suitable investments. The presence of mainstream investors will expand the reach of sustainability, offer opportunities for partnership and collaboration and bring the principles of sustainability to bear on a wide variety of global issues.

Nonetheless, the social and impact investing sector will go on playing a key role in maintaining standards, innovating techniques and leading the field in making sustainability a core value for global business. As Ban Ki-moon writes, “There is no country or society where sustainability is not important or necessary. We all share the responsibility to work for a sustainable future and we will all reap the benefits.”

Image credit: Hope of Deliverance by Matias Brum

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.

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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[Image Credit: 123RF]

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.

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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.

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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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.

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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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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 & 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 & 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’ experience as a management consultant with McKinsey & 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 & 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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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

 

What The World Needs Now: The Digital Survey That’s Changing Our Understanding of Global Priorities

By Marta Maretich

Impact investing is all about meeting needs. It places capital in businesses that provide human essentials such as water, power, food, education and healthcare. At the same time, it helps meet the needs of the planet and its non-human inhabitants by fostering business approaches that protect ecosystems and conserve natural resources.

Keeping a close eye on need; and the perception of need; is one of the keys to successful impact investing. Now a digital survey is shining new light on what people around the world think they need to have a better future.

Launched by the UN in 2012, My World is an ongoing global survey and data aggregation project. It lets users choose from a list of sixteen issues derived from research and polling exercises with poor populations, as well as the Millennium Development Goals with additional issues of sustainability, security, governance and transparency. Users rank the issues that they think “would make the most difference to their lives” and the results are aggregated into a live online database of results.

Taking the online survey is free and fun and it offers users an opportunity to set out personal priorities. But the real point of My World is to provide UN policymakers with grist for their mill. The project is set to run until 2015, the deadline for the Millennium Development Goals. It’s hoped that the results will help strengthen and focus policy development post-2015.

In the meantime, we can all log on, take the survey, and check out how the results are shaping up. Colorful graphs show the findings so far, with a breakdown of respondents by age and gender. The HDI, or Human Development Index, ranking of users; countries is also captured. A shaded world map shows how many responses have come from each country. A more detailed analysis can be found here.

At this writing, the data set is still far from complete. Yet the results already provide some food for thought for impact investors.

What is remarkable at first glance is the consistency of the responses. “A good education” is number one on the list of priorities for respondents of every age group, gender and development level with the exception of the over 55s. “Better healthcare” comes second in most categories. “Action taken on climate change” comes close to the bottom of the list for most respondents regardless of age, gender or country. “Protecting forests, rivers and oceans” ranks bottom for respondents from low-HDI countries and much higher for those from high-HDI countries. “An honest and responsive government” comes mid-list for most respondents, far above issues such as “reliable energy in the home” or “equality between the sexes”. (Note: These observations were accurate at the time of writing.)

For impact investors, as for UN policymakers, these responses could have practical implications. For example, it’s useful to know that much of the world hungers for education and better healthcare but isn’t that concerned (at least for the moment) with habitat conservation or climate change. This suggests that impact businesses focusing on healthcare and education will have more traction in more parts of the world than those targeting climate stabilization or conservation. Their business models may prove easier to scale and replicate across more countries because citizens are hungry for the goods and services they provide.

The jury is still out on the value of the My World project. It’s not yet clear whether the data it collects will prove conclusive or useful; much depends on how it is analyzed and applied. What is clear is that My World provides a taste of how technology is bringing clients and businesses, beneficiaries and development agencies, much closer together. Impact investors may be able to learn lessons from My World’s findings; and they can certainly follow its lead when it comes to using technology to find new ways to identify, and meet, global needs.

Add your voice to the survey
Read the My World blog

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Impact Investing in Disruptive Technologies

by Marta Maretich

Disruptive innovation is the talk of the tech world after Deloitte published its annual Tech Trends Report 2014 Entitled Inspiring Disruption, the report examines the changing landscape of technology with a focus on the how trends will develop over the next 18-24 months.

Drawing on the findings of an earlier report published by McKinzie last May, the study identifies 10 trends driven by multiple “disruptive” technologies. These are new technologies capable of creating new markets and value networks and, ultimately, replacing existing technologies. Cell phones, and the way they’ve supplanted fixed landlines, are a familiar example of a disruptive technology that has changed the world.

There’s more change coming, the report suggests, and it’s coming fast. Disruptive technologies are driving many of today’s important business trends; trends impact investors should be keeping an eye on. The report examines a number of these including:

Wearable computing bringing technology into new scenarios and transforming accessibility:

  • orchestrated cloud computing linking discrete systems for greater power and integration
  • artificial intelligence, machine learning, and natural language processing leading new, faster and more accurate real-time analytics
  • extended and highly integrated digital engagement facilitating closer relationships between organizations and customers
  • more influential roles for Chief Information Officers with a venture capital approach to leveraging IT assets

These technologies and the others mentioned are already starting to transform the way we work, shop, trade, communicate, travel and play, with accelerated change predicted for the near future. With such wide-ranging effects, it stands to reason that disruptive technologies will find applications in sectors close to the heart of social investors such as clean energy, healthcare, agriculture, conservation, education and even finance.

Disruptive technologies “present unprecedented opportunities to re-imagine how work gets done, how businesses grow, and how markets and industries evolve,” according to Kevin Walsh, head of technology consulting at Deloitte. Impact investors now have the opportunity to take an active role in that re-imagining by identifying and financing businesses that use the disruptive technologies to solve global problems.

Taking it further, now is the time for the sector to ask itself some important questions about disruptive technologies: How will we use them to transform the practice of investing for a triple bottom line, to make it more efficient, more profitable and more effective? How can they help us reach more beneficiaries, diversify our finance products and extend our markets? How will they improve our ability to capture and analyze data, build models and cement the business case for impact?

Finding the answers means the impact sector stands to create the most significant disruption of all: Replacing the old models of finance with new ones that can meet global needs and create a better future for the planet and its inhabitants.

Read the McKinsey report.
Read the Deloitte report.
Read about Clayton Christensen the Harvard professor who identified the concept of disruptive innovation.

Find disruptive impact deals.

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Making Safe: Seven Strategies for Managing Risk in Impact Investing

By Marta Maretich

Risk is the spice of life and a necessary factor in most investing. Investors are compensated for putting their capital in peril (to a degree) with higher levels of risk attracting higher returns. Without risk there would be little reward.

This makes the art of risk management one of the most important skills in modern finance. Delivering financial products that provide the right level of risk for different investors is key to the success of advisors, fund managers and investment firms. This is as true for impact investing as it is for mainstream finance, especially now that the sector is starting to diversify and attract more corporate, institutional and other large investors.

Yet impact investing faces special challenges when it comes to managing risk, as a recent report by Bridges Ventures highlights; and this unique risk profile calls for special handling when it comes to putting together impact investing products.

To start with, impact has more risks than other kinds of investing. Not only does it have all the risks usually associated with mainstream capital placement; capital risk, transactional cost risk, exit risk and others; it also has what is known as impact risk: the risk that the intended impact will fail to materialize, or that what benefits one set of stakeholders will have negative consequences for another.

In this way, impact risk can be directly related to another risk for investors: reputational risk. It can also pose a problem for institutional and philanthropic bodies who might otherwise use grants or subsidies to bring about intended outcomes in a more predictable way. While these forms of support may have their own drawbacks, impact risk can be a deterrent for this sector of the market, the study shows.

There are other ways risk is different in impact, too: Transactional cost risk can be higher in impact investing where deals are often smaller; exit risk is exacerbated when the need for liquidity conflicts with a commitment to impact outcomes, for example.

All this leaves little doubt that managing risk is a tricky business for impact investors, a fact the sector has known for some time; Jed Emerson has written on the subject of risk management in two reports for ImpactAssets. However, this research brings more detail to the picture through a close examination of 20 real-world impact investment products along with in-depth interviews with fund managers and investors. Crucially, it identifies seven strategies for managing risk in impact investing products:

1. Downside Protection

Provides a safety net if the investment doesn’t work out. A common strategy is to establish a “capital stack” with junior equity providing the first layer of downside protection, preferred equity or mezzanine debt the second and senior debt the third. Collateralisation is one version of this; an alternate version uses third-party guarantees.

2. Bundling

Traditional fund structures are “bundles” of investments rolled into one product, spreading risk. More broadly, “bundling” is the aggregation of products that are dissimilar enough to provide diversification. “For example,” the report says, “an intermediary could construct a multi-asset portfolio with property-backed debt balancing higher-risk equity investments, or with liquid product balancing illiquid”.

3. Track Record

Track record is still an issue in the impact space where few fund managers have had time to develop solid reputations for success. Yet the researchers found evidence that established mainstream fund managers are starting to partner with impact investment experts; an echo of Emerson’s multilingual teams. There are also cases where impact investors with a track records of delivering one kind of impact investment product are adding new products to their existing platform. “First-time fund managers (or first-time products) can build credibility with investors by bolting on to an existing platform (benefiting from the experience, networks and back-end), rather than starting from scratch.”

4. Liquidity

This report defines a liquid impact investment as any product that is “tradeable on a platform, where the platform may be a widely used exchange or a smaller listing that matches buyers with sellers by providing detailed product information (including financial and impact track record, as well as associated risks)”. Some products in this study used platforms like Ethex to achieve liquidity, others traded on open markets such as Capita’s online share portal and the Euro MTF Market in Luxembourg. Factors such as the quality and type of legal documentation, the number of trading platforms and market-makers, transaction costs and overall market transparency all influence liquidity.

5. Technical Assistance

Already a common strategy for organizations like Root Capital and Village Capital who blend market-building with impact finance, technical assistance strengthens businesses through interventions such as improving financial controls, upgrading management staff, improving corporate governance and providing impact assessment training. The research also highlighted a variation of technical assistance: impact investment products that form part of a larger investment management platform. In these cases, a new product benefits from an experienced investment team providing standardized best practice support across the platform.

6. Placement and Distribution

According the report, impact products are de-risked through the involvement of advisors who can “demystify and explain” them to investors, as well as those who have a wide distribution network. With mainstream markets, de-risking requires a bigger network in the form of “a number of advisors or underwriters” working together to sell the investment and potentially take responsibility for managing its liquidity needs.

7. Impact Evidence

Impact strategy, impact measurement, aggregating and analyzing social and environmental impact data; all these have long been the center of debate in the sector. The report offers more evidence of the centrality of impact with products incorporating impact measurement and reporting systems as a way of mitigating risk. Interestingly, products in the study used a number of methods including IRIS, ESG frameworks and nonspecific methods developed privately. Impact that could show a focus on wider stakeholder groups was seen to be most valuable when it came to managing risk.

Managing risk will continue to be a challenge for impact investors, yet this study represents an important step forward in sharing learning across the sector. More than just an academic exercise, it offers a rare opportunity to see inside the workings of a range of impact investment products. Its message is practical (it includes a “toolkit” for risk mitigation) and directed at asset managers, product developers and intermediaries. But we can all learn something about risk management and the practice of impact from its findings.

Download the Bridges Ventures report.
Find impact deals.
Read more about risk management in impact investing.

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Root Capital Proves the Business Case for Social and Environmental Due Diligence

by Marta Maretich

Like most social investors, Root Capital assumed the social and environmental due diligence it carried out when assessing potential loan clients was a necessary cost to the organization. When they took a close look at their loan book, the truth took them by surprise.

“We initially set out to build the impact case for social and environmental due diligence,” says Willy Foote, founder and CEO of Root Capital. “Along the way, we started to notice an emerging business case for social and environmental due diligence in the form of reduced risks and new growth opportunities.”

Analyzing its own data from a well-established and diverse portfolio of social lending projects, Root Capital was able to identify five areas where there were compelling synergies between social, environmental and financial interests:

1. Identifying and mitigating credit risk Social and environmental due diligence proved key to mitigating supply risk; related to smallholders selling their harvest to other buyers; and the risk of product rejection due to inadequate quality or certification violations, leading to financial losses.

2. Generating new business Root Capital found it attracts new clients because of their track record of caring about social and environmental factors. Their good reputation in the communities where they operate boosts their business.

3. Identifying businesses with growth potential Businesses at an early stage may not be able to present compelling financial statements. In these cases, due diligence can uncover growth potential; for example, a strong base of producers and the existence of potential higher-value markets.

4. Strengthening businesses Social and environmental due diligence provides an opportunity for clients to identify ways to improve their relationships with suppliers and manage their natural resources more efficiently, improving the viability of their businesses.

5. Deepening relationships with existing clients The social and environmental due diligence process reveals unmet financial needs among existing clients; and gives Root Capital an opportunity to meet them, thus building their loan portfolio with trusted clients.

All this sounds terrific; but what do the numbers tell us about the financial value of social and environmental due diligence?

According to the briefing, early analysis suggests that Root Capital’s social and environmental due diligence program covers its own costs. With five percent of their loan officers; time devoted to it; across a loan book of $120.8 million to 205 enterprises in 2012; initial analysis concludes that social and environmental due diligence helped Root Capital avoid write offs and generated enough incremental revenue to pay for itself.

This is potentially game-changing news for the impact and social investing sector which has long thought this kind of due diligence was a financial cost, not a benefit. It turns out that due diligence can be a means to bring local market knowledge, environmental awareness and community engagement into the financial equation, leading to better decisions for the lender and better impact outcomes.

The impact case for social and environmental due diligence is already strong; Root Capital, with its commitment to measurement and transparency has done much to validate it. With this briefing, and more like it planned for the future, Root Capital is now taking steps toward building the business case. For the impact sector, it is a further sign that the practice of impact and social investing is advancing and at the same time becoming a mainstream way of doing business.

It is also something of a challenge to the rest of us: When will other impact investors choose to reveal and make useful sense of their numbers? When you see how unexpected the results can be, you know that the sooner we all do it, the better.

For more on this and future briefings, go to Root Capital’s website.

Sustainability Drives Impact Investment in Natural Resources

by Marta Maretich

Natural resources have always been precious to mankind. Today, they are more in demand than ever. Population growth, climate change and the rising affluence of developing nations are putting a strain on the planet’s limited resources. Water, arable land, food, fuel and raw materials are seeing a period of unprecedented demand and there is worldwide concern about future shortages and the destruction of ecosystem services, such as photosynthesis, pollination, flood prevention and climate stabilization, that results from over-exploitation.

But while the pressures on our resources are getting bigger; and the consequences of depleting them are getting clearer; there are positive developments, too. A global movement for sustainability is now maturing and this is encouraging an explosion in the kind of responsible resource businesses that belong in our impact portfolios.

Sustainability goes mainstream

Once a thing of the green fringe, sustainability is now mainstream and this is one of the factors that makes natural resources attractive investments now. Governments are the key drivers of today’s sustainability agenda as they increasingly use policy, regulation and subsidy to support the development of new kinds of businesses and convert existing businesses to more sustainable practices. Working in concert with governments, international bodies like the UN, the WEF and the World Bank are launching programs designed encourage sustainability and establish standards in a range of resource sectors. Natural resources are seen as key to development for some of the world’s poorest communities; including rural smallholders and indigenous peoples; and this puts them at the center of international efforts to raise living standards.

Meanwhile, public awareness of sustainability issues increasingly drives consumer choices. Businesses; even those that once ignored the idea; now know that being able to demonstrate sustainability makes economic sense. Jobs in sustainability are multiplying as businesses hire analysts, consultants and other specialists to manage their sustainability and reporting commitments.

Resources take center stage

With sustainability a growth area for world markets; and a priority for many world governments; there is a new focus on natural resource investing. The emphasis now is on finding ways to make more of nature’s gifts while preserving and maintaining them for the future. New businesses; and new ways of doing business; are springing up, encouraged by government policy and shaped by the expertise of development and philanthropic organizations who have blazed trails in the areas of sustainable use of resources.

This is good news for impact investors looking to place their capital in the natural resources sector. Here are some of the trends and developments in four resource areas: Oceans, Minerals, Forestry and Land.

Oceans

The world’s salty waters have been a focal point for resources-based activity in recent months. Concerns about overfishing and acidification, a consequence of the seas absorbing high CO2 emissions, are leading governments, environmental campaigners and business leaders to place a new emphasis on the oceans and this is changing the investing landscape.

On the governmental side, 2013 saw the US instituting the National Oceans Policy, joining other governments including Australia, South Africa, Namibia and the Philippines in establishing comprehensive, future-focused policies for ocean resource management. The social enterprise sector kept in step, highlighting the issue by including an ocean themed “track” at SOCAP13. For the first time veteran campaigners and ocean champions discussed ocean topics along with journalists, entrepreneurs, and impact investors from other sectors including small scale agriculture, health, and poverty alleviation; all of which are connected to ocean and coastal issues. Meanwhile, in the private sector, The Economist is throwing its weight behind sustainability issues as it plays host to the World Oceans Summit in California in February of this year.

These developments set the stage for a mini-boom in sustainable marine businesses in areas like fishing, aquaculture and energy and mineral extraction. New government regulations will also drive growth in compliance industries, such as environmental remediation and business-to-business services providing sustainability reports and the like.

Minerals

Mining; and its products, mineral; have a bad reputation in the world of sustainability. Mineral extraction is widely associated with human rights violations, environmental damage and conflict. For those reasons it remains a largely unexplored sector for impact investors. Yet in the mainstream financial markets, mining is big business, with growth driven by demand from the resource-hungry emerging economies like China, India and Brazil; demand that is not going away anytime soon. This fact, plus the alluring possibility of helping to bring change to the mining sector, means that impact and sustainable investors should think again about minerals when looking for places to commit their capital.

The tools for change may already be in our hands. An excellent piece of research conducted by the International Institute for Environment and Development (IIED) charts the significant progress made in mining policy, oversight and governance over the last decade, especially by the International Council on Mining and Metals (ICMM), a coalition of mining companies that has embraced sustainability standards and put issues like indigenous rights, community development and climate change on its agenda.

The IIED report indicates a rising awareness and acceptance of sustainability in the industry itself; a hopeful sign for the future. The challenge for the next 10 years, it concludes, will be implementing those standards we now have more widely. Such a move could transform the mining industry; and impact investors, with an insistence on standards and reporting, could play an important part in this transformation.

Groups like the Alliance for Responsible Mining (ARM), which works on behalf of an estimated 20 million small-scale and artisanal miners worldwide, are already hard at work bringing change. They have developed supply chains for sustainably mined products and created the Fairtrade and Fairmined gold standards for the industry. Deals have already been struck with jewellery manufactures and, like conflict-free diamonds before them, these ethical products should find favor with consumers as they hit the marketplace in the near future.

Conflict minerals have been a contentious issue for some time and a measure of progress has been made in addressing the human and environmental costs of mineral extraction in places like the Congo. Electronics industry giant Intel has now moved to make all its microprocessors free of conflict minerals. The industry pressure group, the Electronics Industry Citizen Coalition (EICC), has compiled a useful list of conflict-free smelters and refiners, while the NGO the Enough Project has ranked companies for their use of conflict-free minerals.

Yet the path ahead is not yet clear for sustainable mining; and this is another reason for impact and social investors to enter this market. A powerful coalition of business leaders recently petitioned a panel of federal judges to overturn a provision of the 2010 Dodd-Frank law that requires companies to disclose their use of minerals from Africa. This would be a major setback for the movement for sustainable mining. However, the presence of more social investors and conscientious corporations in this resource sector could make all the difference to the way mining develops in the future.

Forestry

Unlike mining, forestry is already a popular focus for impact investors. Many sustainable forestry enterprises have cropped up in recent years, working to conserve; and sustainably exploit; wooded environments across the globe and these remain attractive investments.

It hasn’t all been plain sailing, though. Carbon offset schemes were central to many forestry enterprises and the collapse of the world carbon markets in 2012 was a blow to the sector. Some forestry sustainability accreditation programs have come under fire, too, and there has been a shakeout in certification schemes that many hope will lead to a more reliable system.

Despite this, impact investors, like the Packard Foundation, have largely stuck with forestry because of its many wider benefits. Sustainable forest management supports biodiversity and habitat conservation, creates local jobs, protects indigenous communities, fosters eco-tourism and recreation, contributes to food stability, and aids climate stabilization; as well as having the potential to generate diverse revenue streams and attract tax breaks.

Meanwhile new technologies are expanding the horizons of sustainable forestry. Innovations, such as the use of drones and sophisticated geo-mapping techniques, are advancing the science of forest management, making it possible to do more with woodlands while we protect them. Eco-tourism and boutique woodland businesses are taking off in many parts of the world. The link between agriculture and forest habitats is contributing to the search for ways to bring prosperity to some of the world’s poorest communities. At the same time, big multinationals such as paper manufacturers are bowing to regulatory pressure and seeking ways to develop more sustainable supply chains, a shift which will have implications for sustainable forestry businesses.

Land

Land is a resource that offers a host of opportunities for impact investing both in emerging and developed economies. Essential to human life and prosperity, land produces food, water, wood, fibre, fuel and minerals and, when managed responsibly, it also provides vital ecosystem services such as photosynthesis, pollination, nutrient cycling, water purification, soil formation, climate stabilisation and flood prevention.

Increasingly, land use and ownership is seen as the key to solving many of the world’s most pressing environmental and social problems. Large international organizations like the United Nations Convention to Combat Desertification (UNCCD) are now promoting responsible land investments as a way to halt land degradation and preserve the integrity of our natural capital. Land and property rights are also central to poverty alleviation, and securing land for use by rural populations is a priority for many development organizations.

Yet, as is true across the natural resources sector, there is a right way and a wrong way to invest in land. Oxfam has raised concerns about a global land grab where big investors, often foreign governments and pension funds, buy up large tracts of farmland, especially in parts Africa, Latin America and Asia, squeezing local people out. Their report drew attention to the negative impact on local communities of the wrong kind of investing and led to a call to the World Bank to end its participation in these deals.

To make sure they are part of the solution, not part of the problem, impact investors need to be aware of the issues. The right kind of investing respects the rights of locals to “Free and Prior Informed Consent”, promotes land rights and good land governance and fosters food security both locally and internationally. To avoid possible pitfalls, investors would do well to tune into the conversation about land use here and here, and subscribe to sets of principles like these and these.

In the developed world, land investment is often part of a move to a more green and sustainable lifestyle. Iroquois Valley Farms, chosen as one of the Impact Assets 50, leases farmland to organic farmers, while Beartooth Capital acquires western ranches for conservation and use as eco-tourism destinations. In cities, land acquisition plays a part in neighborhood regeneration and community home ownership schemes. With these models turning profits, and the movements behind them gaining popularity, we can expect to see more opportunities for land investment in developed economies in the future.

Conclusion

Natural resources have long been a promising sector for impact investors, especially those with an emphasis on the environment. What’s new is the increasing involvement of governments in supporting sustainability. For some natural resource industries, this is putting sustainability on the map for the first time. For others, government support and improved standards are advancing the development of sustainable practices and sparking innovation. All of this is good news for impact investors who want to put their capital behind businesses that contribute to the future health and prosperity of the planet and its inhabitants.

Image credit: 123RF

MINT Condition: Impact Investing Leads the Pack in the New Emerging Economies


By Marta Maretich

BRIC, CIVETS, MIST: The world of finance loves a catchy acronym almost as much as it loves a new set of emerging economies, ripe for investment.

Recently the talk has been all about MINT, a grouping of Mexico, Indonesia, Nigeria and Turkey, economies touted as the new powerhouses of the global marketplace. According to Jim O’Neill, the man who identified the successful BRIC grouping, MINTs are hot this year, offering attractive investment opportunities in lively, fast-growing markets.

As financial advisors worldwide race to download country reports from the Economist Intelligence Unit, impact investors and development finance specialists can indulge in a moment of self-congratulation. While mainstream investors may not have taken the MINTs seriously until now, a good number of social benefit investors already have financial commitments; and solid track records; in these countries. A snapshot of the sector shows the depth and breadth of the impact and sustainable investing activity already happening in the MINTs.

Mexico:

IGNIA, a venture capital firm based in Monterrey, Mexico, supports the founding and expansion of high growth social enterprises serving communities at the base of the socio-economic pyramid. Established in 2007, IGNIA’s portfolio has grown to include a diverse range of businesses offering everything from high-quality eyeglasses and affordable financial services to core infrastructure, such as water grids and housing, to poor communities. IGNIA’s aims are in line with the impact sector’s; to serve these communities while returning an attractive profit to investors; and their track record demonstrates that this is do-able.

Indonesia:

This long list of organizations investing in Indonesia, courtesy of the AVPN, shows that social investors have been awake to the potential in this Asian economy for some time. Respected impact investors, like LGT Venture Philanthropy, have been offering support to entrepreneurs in Indonesia for years, while many green and social benefit enterprises are scaling up their operations in the country: Blue Life makes aquatic greenhouses for sustainable food production; Oryza Lestari manages resin-producing agarwood forests ecologically. Both are currently seeking funding in the global impact markets to grow their businesses in Indonesia.

Nigeria:

Tony Elumelu and his charismatic brand of “Africapitalism” are taking Nigerian impact and sustainable investing markets by storm. The massive fund he established with the Rockefeller Foundation has the potential to catalyze investment in the country; and transform the lives of its poorest citizens, provided it’s deployed using proper metrics to guage impact. Other investors, like Leapfrog Investments, have already shown the value of investing in this populous country. Leapfrog’s Nigerian insurance business, ARM Life, provides affordable financial services, including life insurance pensions and retirement planning, to a young, rapidly growing, and underserved market of Nigerians.

Turkey:

In contrast to the rest of the MINT grouping, Turkey is something of a new frontier for impact and sustainable investors. So far, there are few Turkish examples of impact enterprises and only a few funds placing capital specifically in sustainable, green or social Turkish businesses. Yet the impact and social investing sector has been busy in Turkey doing the sort of essential groundwork that opens new markets. With support from the Impact Investing Policy Collaborative (IIPC), Anja Koenig conducted pioneering research into the social impact marketplace in Turkey. Her work has raised awareness of opportunities in the country and paved the way for policy changes that will remove obstacles to future investment; just in time for Turkey to become the new darling of global investors as the T in MINT.

Mainstream finance may be all aflutter with excitement about the MINTs, those promising new kids on the world economic block. Yet in the social benefit investing sector, we’ve known about them for years; decades in some cases. More importantly, we’ve helped them build the markets that are now so famously taking off. And we will continue to do this, especially those parts if the market that often get overlooked in a boom: those serving the poor and marginalized at the bottom of the socio-economic pyramid.

Fads come and go in finance just as they do in fashion. Next year, there will doubtless be another grouping of “it” countries with another clever acronym; it’s the sort of story that drives the trade. However, really building businesses, markets and prosperity in emerging economies is something that takes long-term commitment, commitment that the impact sector has already demonstrated; and will go on demonstrating long after the craze for the MINTs is a memory for mainstream investors.

For more on the MINT countries, listen this excellent series of programs by Jim O’Neill aired on BBC radio 4.

To find live deals in all of the MINT countries, log in to Maximpact.com.

Image credit: 123RF

World Vision Projects Ready for Investment

Are you looking to put your investment dollars towards improving the lives of children and communities? If so, this recent addition to the Maximpact deal-listing portfolio may be of interest to you.

World Vision is an international humanitarian aid, development, and advocacy organization currently seeking investment with its handful of different projects. The organization is dedicated to the sustained wellbeing of children, especially the most vulnerable. By working with families, communities, and partners World Vision is able to overcome poverty and injustice and ensure that children enjoy good health, are educated for life and are cared for, protected, and participating. Various project, many of which are currently listing with Maximpact focus on community development and help break the cycle of poverty.
Today, World Vision has an impact on nearly 100 countries worldwide. If their initiatives relate to the type of impact that that you would like to create, here is a list of different opportunities to get involved with:

Strengthening of Pakistan communities through recycling: This initiative includes two projects, one focused on raising awareness about economic value of recyclable material and activation of recycling plants and the other on the establishment of a recycling unit at tertiary educational institute to increase awareness and mobilize private sector interest and investment.

Resilience building for Lesotho communities affected by climate change: This project is focused on reducing drought vulnerability. The initiative will introduce relevant adaptive measures, approaches, and interventions, reducing climatic risks and securing livelihoods, food and income.

Improving watershed management and rural livelihood of Kilimanjaro: A project to restore and protect the existing watershed and build the capacity of local communities and institutions to better manage natural resources in an effort to increase nutrition and food security from improved agricultural productivity.

Peace building project for children of Kosovo: An ongoing award-winning project that contributes to the development of child-led structures for peace and promotes tolerance and inclusion in five different municipalities of Kosovo. Its next implementation phase expands the program into four more municipalities.

Ethiopian community-managed reforestation project: The 6000-hectare project is designed to combat the environmental degradation associated with the farming and grazing practices currently employed on the project area, while providing local communities with the economic benefits associated with the sale of carbon credits. The project involves participation of local smallholder farmers whose livelihoods consist largely of subsistence production of food crops or cash crops and animal husbandry.

Improvement of health workforce in Kenya: Kenya faces a decline in the numbers of health workers in the public service. There are approximately 18 doctors for every 100,000 people with around 128 nurses per 100,000. The project will focus on distribution of the health workers and effective human resources planning, staff orientations, job descriptions and management in the health sector.

All of the deals mentioned above are currently seeking partners and investment of $25.000 to $5 million.

For more information about World Vision deals and projects and ways to get in touch please login to Maximpact.com and visit the deal section.

View other Maximpact spotlight deals.

 

World Vision’s global development areas of focus.

[Image credit: Courtesy of World Vision]

Calling All Experts: Register Now!

Maximpact invites experts and consultants from all industries, positions and sectors of focus to register now as members of our exciting new project development area, Maximpact Eco.

We are building a worldwide network of experts and consultants focused on delivering specialized services and online resources for impact and sustainable enterprises and projects.

At the moment we are in the process of collecting early registrations, which are free of charge (until further notice).

Experts who register early will:

– Benefit from the launch of our new project development area
– Be invited to provide feedback on our beta version of the Experts Network
– Connect with other high-profile experts in similar areas of expertise
– Have access to additional services such as exposure to Maximpact’s global media and promotional networks.

And finally as a member of Maximpact Experts Network you will also be able to list your services and connect with new clients, collaborators and business opportunities from across the growing impact sector.

HOW DOES IT WORK?

Register and list your services
– Receive and review inquiries
– Apply for the position
– Get selected
– Negotiate your own terms
– Benefit from a global network

WHO CAN JOIN?

Anyone who has experience providing specialized services and online resources for impact and sustainable enterprises and projects.

Our network is used by recruiters, companies, ventures, projects, consultants and consulting companies, market researchers, managers, financial professionals, lawyers, institutional and individual investors, engineers, scientists, writers and journalists, programmers, website designers, creative designers, governments and non-profit organizations, agriculture, energy, cleantech, CSR, environment professionals and many others. If you are unsure whether you fit the profile just ask and we will be happy to help.

WHY SHOULD I JOIN?

– Benefit from new global business opportunities
– Access projects from all sectors and sizes
– Search and connect with new clients
– Negotiate your own terms and conditions
– Join research and development projects in your specific areas of focus
– Benefit from global exposure
– Join projects of your choice: early-, mid- and late- stage ventures
– Search over 1500 global business opportunities already in the Maximpact network

So help us make our network even stronger, join now and make sure you’re part of global impact equation.