accelerating impact impact investing & innovative financing for development
DESCRIPTION
The concept of innovative financing is a relatively recent addition to the development lexicon. Edward Jackson, a faculty member at the School of Public Policy and Administration at Carleton University, and Karim Harji, a co-founder and partner at Purpose Capital, will introduce the audience to innovative financing and impact investing through their report, Accelerating Impact: Achievements, Challenges and What’s Next in Building the Impact Investing Industry. The AKFC Seminars on Innovative Financing for Development, hosted by Aga Khan Foundation Canada in partnership with Carleton University’s School of Public Policy and Administration.TRANSCRIPT
ACCELERATING IMPACT: IMPACT INVESTING & INNOVATIVE FINANCING FOR DEVELOPMENT Edward Jackson Karim Harji 26th March 2013
Main Messages • Impact investing: a small, dynamic, growing industry with
impressive talent, products and networks
• Learning about impact investing opens the door to the broader world of innovative financing
• Impact investing needs accountability, transparency and critical engagement as it proceeds forward
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• Slow economic growth globally
• High unemployment and growing inequality
• Pressure to reduce western aid budgets
• Continued ascendance of new economic powers: China, India, Brazil, Korea, Indonesia
• Increased importance of G-20 in global governance
• Increased development assistance and trade on the part of the new powers
• Need and opportunity to lever private sector capital to address pressing social issues
Current Context
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• Ten years of R&D by UNDP, OECD, World Bank, think tanks
• GAVI vaccine bonds: $7B+ in long-term government pledges
• New options proposed that can be driven by G-20 countries:
• SWF Infrastructure Fund
• Financial Transaction Tax (Tobin Tax)
• Remittance Transfer Savings
• Diaspora Bonds
• Fuel Tax (Global Component)
New Options for Development Finance
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Source: Gates, 2011
Along with: • Government tax revenues • Domestic private investment • Foreign direct investment • Overseas development assistance • Charitable grants • Other innovative finance instruments
Impact Investing: Part of the Future of Development Funding
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Impact Investing: “actively placing capital in businesses and funds that generate social and/or environmental good and at least return nominal principal to the investor”
Source: Monitor Institute, 2009 7
Investments intended to create positive impact beyond financial return
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Provide capital • Transactions currently
tend to be private debt or equity investments
Businesses designed with intent • The business (fund
manager or company) into which the investment is made should be designed with intent to make a positive impact
… to generate positive social and/or environmental benefit • Positive social and/or
environmental impact should be part of the stated business strategy and should be measured
Expect financial returns • The investment should
be expected to return at least nominal principal
Source: JP Morgan, Rockefeller Foundation and GIIN, 2010
Intention Tangible Impacts
“Investments intended to create positive impact beyond financial returns”
Source: O’Donohoe, Leijonhufvud and Saltuk, 2010 9
Impact Investing: Core Definitional Elements
Low Impact and
Low Financial Returns Philanthropy
Social Returns
Financial Returns
Impact First
i
Financial First
Low High
High
• Subsidized Investments
• Grants
Below Market
Market Related
Traditional Investments
• SRI (“Do No Harm”)
Impact Investments
Impact Investing: Mapping Returns Source: adapted from Monitor Institute 2009, via Rockefeller Foundation , 2011
Source: Adapted from Monitor Institute (2009) via Rockefeller Foundation (2011)
Examples of Impact Investments
USA
INDIA
TANZANIA
Investee: M’tanga Farms Investors: Calvert Foundation, Lion’s Head Global Partners
Investee: Investors: and
Investee: Investors:
CHILE
Investee: LGBT Enterprises in Latin America
Investors: and supported by NESsT.org
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• Private debt (loans, guarantees) • Government debt (loans, guarantees)
• Equity-like debt (e.g., convertible bonds, warrants)
• Private equity (direct purchase of shares in enterprise)
• Program related investments of foundations/endowments
• Deposits in social banks, credit unions, CDFIs
• Community investment notes
• Disability savings plan (Canada)
• Social impact bonds (premium on financial return to private investors for non-profit achievement of outcome targets)
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Types of Impact Investment Products
Actors in the Impact Investing Industry
13 Source: ET Jackson & Associates, 2012
Supply of Capital
Intermediation
Demand for Capital
Building the Impact Investment Market
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• Impact investment funds of banks • Micro-enterprise, SME, non-profit
financing by credit unions • Micro-enterprise, SME and non-profit
financing by Business Development Bank of Canada
• Community economic development (CED) Investment Funds
• Program-Related Investments (PRIs) • Debt and equity investments by high net-
worth individuals • Social impact bonds
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Local Impact Investors
• The ability to unlock new types of capital to address a range of social issues, and to combine capital in creative ways
• An opportunity to address the limitations of traditional investment approaches that narrowly focus on financial returns
• A desire by more investors to generate both financial and measureable social returns
The Potential of Impact Investing
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• Not a silver bullet / panacea
• Not implying that every social issue can be solved through market-based approaches
• Not replacing the important role of philanthropy
• Not an excuse for governments to ignore their obligations to marginalized populations or their obligations to redistribute wealth
What Impact Investing is Not
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Accelerating Impact: Intentionally Deploy More Impact Investment
Source: JP Morgan and GIIN, 2011
• Impact investors provide the upfront capital to stimulate vaccine research and development
• Investments backed by international aid commitments
• 2008: International Finance Facility (IFFI) for Immunization issued bonds which raised the equivalent of over $1 billion
Accelerating Impact: Unlock New Capital at Scale
19 Source: GAVI, 2012
Intermediaries • Service
providers • Advisors Products • Institutional • Retail Platforms • Due diligence • Crowdfunding • Social impact
Accelerating Impact: Strengthen Intermediaries / Products / Platforms
20 Source: Shanmugalingam et al., 2011
Accelerating Impact: Options Beyond The Financial/Impact Trade-Off
21 Source: Monitor and Acumen Fund, 2012
Accelerating Impact: Capacity Development: Entrepreneurs & Teams
22 Source: Simpa Networks @ Dasra Social Impact, 2012
• Language: Impact Reporting and Investment Standards (IRIS)
• Enterprise Governance: B Corporations
• Investor Ratings: Global Impact Investing Ratings System (GIIRS)
• Approaches/Uses: Rating, Assessment, Management
• Tools: Social Return on Investment
Accelerating Impact: Coordinate and Balance Social Impact Measurement Initiatives
23 Source: GIIN and GIIRS, 2011
Accelerating Impact: Raise the Bar on Impact
24 Source: Root Capital, 2011
Accelerating Impact: Government & Policy as an Enabler
25 Source: Pacific Community Ventures, 2011
Accelerating Impact: Anticipate the challenges & opportunities of market building; and manage expectations!
26 Source: ET Jackson & Associates, 2012
• Bad things can happen to good ideas and good people • Managing the social and business dimensions at the
same time is challenging
• Business environments are volatile
• The private sector fails all the time, but it is private!
• Capital and measurement are not enough
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When Things Go Wrong
• Evaluate on a case-by-case basis and programs as a whole • Protect vulnerable parties
• Undertake SROI and other value-analysis studies
• Rebuild the business plan, reposition the enterprise
• Ensure strong business leadership, financial reporting
• Draw lessons for future investments and programs
• Strengthen regulation and monitoring
• Get back on the horse and keep riding!
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What To Do? Short-Term Responses
• Build a cohort of new leaders in business, finance and the social sector with the skills and commitment to design and execute impact investments and social enterprises successfully
• Develop targeted training programs jointly designed by community, government, business and educational stakeholders, using case studies of both failure and success
• Increase resources for monitoring, evaluation, regulation and mentoring
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What to Do? Long-Term Responses
Increase the velocity of: • Evaluating, monitoring, learning and improving
• Scaling up capital pools
• Diversifying investment products and services
• Strengthening the capacity of social enterprises to receive and use capital
• Refining cost-effective impact-measurement tools
• Building the leaders of the future
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Accelerating Impact Investing
What Now? What Next? Learn. Act. Reflect. Repeat.
Accelerating Impact: Achievements, Challenges and What’s Next in Building the Impact Investing Industry
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http://www.rockefellerfoundation.org/news/publications/accelerating-impact-achievements
Resources
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• Bugg-Levine, A. and J. Emerson. Impact Investing: Transforming How We Make Money While Making a Difference, 2011.
• Gates, B. “Innovation with Impact: Financing 21st Century Development,” Report to the G-20 Leaders, Cannes, 2011.
• JP Morgan, GIIN, Rockefeller Foundation. “Impact Investments: An Emerging Asset Class,” 2010.
• Monitor and the Acumen Fund. “From Blueprint to Scale: The Case for Philanthropy in Impact Investing,” 2012.
• Monitor Institute. “Investing for Social and Environmental Impact: A Design For Catalyzing An Emerging Industry,” 2009.
• Monitor Group. “Promise and Progress: Market-Sased Solutions to Poverty in Africa,” 2011.
• Pacific Community Ventures. “Impact Investing: A Framework For Policy Design and Analysis,” 2011.
• United National Development Program. “Innovative Financing for Development: A New Model for Development Finance,” 2012.
• UN Department of Economic and Social Affairs. “World Economic and Social Survey 2012: In Search of New Development Finance,” 2012.
Organizations and Networks
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• AKF USA Impact Investing Initiative: akdn.org/usa_impact_investment.asp
• Carleton Centre for Community Innovation (3ci): Carleton.ca/3ci
• Purpose Capital: PurposeCap.com
• Aspen Network for Development Entrepreneurs (ANDE): aspeninstitute.org/policy-work/aspen-network-development-entrepreneurs
• B Lab / B Corporation: bcorporation.net
• Global Impact Investing Network (GIIN): thegiin.org
• Global Impact Investing Ratings System (GIIRS): giirs.org
• ImpactBase: impactbase.org
• Impact Investing Policy Collaborative (IIPC): iipcollaborative.org
• MaRS Centre for Impact Investing (CII): impactinvesting.marsdd.com
• SocialFinance.ca: socialfinance.ca
Edward Jackson Senior Research Fellow Carleton Centre for Community Innovation Carleton University [email protected]
Karim Harji Co-Founder and Partner, Purpose Capital Senior Research Associate, Carleton Centre for Community Innovation [email protected]
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Contact Information