ENGLISH The Evolution of Impact Investing 1.0 2.0 3.0 4.0

©Drs Alcanne J Houtzaager MA, Inclusive² Impact Investment, p.1

IMPACT INVESTING 1.0, 2.0, 3.0 & 4.0
How it started, developed and where it is going...
Recently the current state of impact investing came up in encounters with a headhunter, an ESG expert / activist
and an investment journalist. The first was looking for a fundraiser relationship manager for institutional clients, the
second researches industry development at the request of financial institutions and the third stated institutional
investors are ''on board'' and want news and comments on market developments.
Responding to the headhunters request I sketched the evolution of impact investing in steno and the vacancy is soo ;):
#Impact Investing 1.0 micro finance investments for institutional investors (High Net Worth Investors) broadening
to inclusive finance and financing small & medium sized enterprises. Offered by dedicated institutions
We've already moved into:
#Impact Investing 2.0 think vaccine bonds, green & climate bonds, community investment notes, social &
development impact bonds, charity bonds and all kinds of specialized sometimes rebranded thematic funds for
renewable energy, water, sustainable forestry etc. Dedicated instruments: focused on impact themes.
#Impact Investing 3.0 is a phase with rising inclusive & public equity impact investing such as in green bond &
SDG indexfunds & etf's It is characterized by Transparency: impactmetrics & rating & revenue based indices.
'Hot' is Synergy: merging themes in e.g. the UN's Global or Sustainable Development Goals bonds & ETF's
#Impact Investing 4.0 is inclusive² for investors & investees: the rise of impact fintechs: crowdfunding for impact
& robo advisors opening up the impact investing universe
My response to the headhunter also involved a lot of chauvinist Dutch namedropping of SRI impact investing
pioneers and Dutch financials getting on board the worldchampions team joining the Dutch financials SDGi
coalition. In this Pulse I will argue my views on the evolution of impact investing without to much of that.
As a political historian also educated in the international organization of development & alternative development
strategies I will start about 75 years ago with the founding of dedicated institutions such as the World Bank, its
regional development banks and the European Investment bank, followed by private initiatives for financial
innovation.

#IMPACT INVESTING 1.0
Characterized by the founding of dedicated institutions aiming for reconstruction after WOII and (economic)
development. Huge supra-national, later also multi & bilateral banks offering infrastructure projects attracting
mainly institutional investors & governments. Energy & Environment were popular investment themes and Social was
long time undervalued, but the importance of small & medium scale enterprises for economies is more and more
recognized creating new opportunities. (But) A private initiative started the inclusive micro finance sector with
Mohammed Yunus founding Grameen Bank. In 2000 Citibank started Community Development Finance in 2000. The
US 2008 law triggered Community Developement Finance Institutions.
US$ & EURO
A major player such as the Worldbank and its continental satelites have invested over one trillion US$ since
inception. In 2016 the group invested about 50billion US$, down from almost 60billion US$ at the peak of the financial
crisis in 2010. The European Investment Bank for the European Union is also a big investor, particularly active in
green transition & climate adaptation. It has about 500billion Euro on it's loanbook just as the Kreditanstallt
fur Wiederaufbauw. It is the German bank for Reconstruction founded after WOII, it has done pretty well :) It started
a development branch, but also develops the East German economy after the reunion. Pioneering Dutch dedicated
financial institutions started as early as 1960, together they hold about 50billion and are considered #impinv pioneers.
RETAIL
Oikocredit is a World Council of Churches born initiative founded in 1974 to finance smallholder farmers in developing
countries. Investments are 1000euro bonds at low yield, it is a revolving fund, and it just reached it 1billion US$ AuM
landmark moment offering mainly bodns in developing countries. The Grameen Bank was founded by Mohammed
Yunus in Bangladesh in 1986 who thus 'invented' microfinance and the bank now holds 2billion US$ AuM.
In the US The Calvert Foundation a charitable spin off from a financial group, started in 1990, launched Community
Developmet Notes in 1995 and now holds 1,4billion US$ AuM. It recently announced developing an institutional
investors investment product

Is characterized by specialization, and focus on doing good instead of just less harm (exclusion) and innovation in
the development of dedicated instruments. Sometimes fueled by (fiscal) lawmaking such as the Dutch GreenFund
Scheme, supranational collaboration for VaccineBonds (2006*), a financing mechanism for the climate transition (EIB
in 2007) Green Bonds supported by impact standards & metrics and financial market reassurance & support
through GreenBond Principles (2013). *Vaccination programmes have prevented 7 Million deaths and survivors have improved
health & opportunities as families shrink in size1
.
All kinds of thematic funds were created, sometimes for institutional investors and later on opened for retail investors
and many are rebranding as they are becoming more transparent on their impact of e.g. carbon emissions. Health &
biotech sectors are in demand, note that impact takes into account corporations activities to make healthtcare
afffordable & accessible. Also (mega)trend & indices funds appeared aiming for blue ocean value investments and the
catalysts for the next industrial revolution.
Niche instruments started in the United Kingdom in its social investment actionplan launched by the Conservatives in
2000 to attract private capital for public goals. A global success are Social impact Bonds (2009 private
philanthropic equity and a marginal but surging global market broadening to Development Impact Bonds.
Still 'local' are London Stock Exchange Charity Bonds. These bonds are retail, with 1000 or 2000UK£ nominal and on
average a 4% coupon, but highly favored by institutional investors and with demand surpassing placement. The UK now
has fiscal stimuli in place for social investments.
RETAIL
Market innovation led to the development of high yield foreign currency retailbonds in Japan 'uridashi'. These are also
offered by dedicated institutions the regional development banks, thus financing development, renewable energy
projects and even prevention as Japanese households were the only ones offered (retail) vaccine bonds financing
immunization programmes in the poorest countries saving millions of childrens lives since.
In the US the first sustainable companies index & fund, the KLDomini 400 was launched in 1990 offering a best
in class selection of 250 listed large & mid cap US companies. It is based on criteria we would nowadays describe as
environmental, social & governance ESG (the metrics have evolved over time).
1 https://www.gatesnotes.com/2017-Annual-Letter

ACCELERATORS & PLATFORMS
Metrics & rating are emerging forces supported by standards & criterias and accelerators promoting adoption
and piloting initiatives. Mixmarkets for microfinance, the UK Social Investment Taskforce resulting in social investor
BigSocietyCapital & G7 Taskforce (2013), the Climate Bonds Initiative (labeling & verification), the Global
Impact Investing Network (IRIS, standards & GIIRS, rating), EVPA European Venture Philanthropy,
Access2Indices for affordable & accesible healthcare, vaccines, seeds & healthy nutrition. RetailCharityBond plc
selects & launches ...
The impact 'theme' sustainability is supported by CSRHub offering retail investors ESG transparency of over 16000
corporations, Morningstar & MSCI rate 20.000 & 21.000 funds, but focus on ESG risks (doing less harm) and less on
ESG opportunity i.e. doing good impact.
US$, Euro's & UK£
Dedicated instruments are often developed by dedicated institutions and marketshares grew as private investors
and emittants stepped in. Think micro & inclusive finance, now a sector with 116Billion US$ AuM according to
mix.markets. The Global Sustainable Investment Alliance reports 331Billion US$ for thematic investments (all
impact themes*) and 248Billion US$ AuM for Community Development & Impact Investing (the smallest but
fastest growing strategy). *climate change, food, water, renewable energy/clean technology and agriculture.
Local & nichemarkets are the Dutch green funds cum. 7,5Billion Euro, uridashi (33billions but not all impact &
VaccineBonds (5,7Billion US$), SIBs & DIBs with 278Million US$ and LSE Charity bonds 180Million Ukp.
There are hundreds of funds listed in theGIIN ImpactBase & Obviam just announced flotation at the LSE of an EM
private impact equity fund of funds. There are 40 banks Banking on Value etc etc
The most successful dedicated instrument AuM wise are Green Bonds with 700Billion AuM with now 20% labeled,
verified. The market surged since 2013 when corporations entered to finance environmental goals as part of their core
activities or their operations eg decreasing carbon emission. Luxemburg 'rules' with it's GreenXange, but e.g.
Singapore & Kenya just launched grants initiatives to support local Green Bond emissions.

The present emerging phase of impact investing is catalysed by the launch of synergistic instruments such as
investment products based on the 17 UN Global or Sustainable Development Goals. These products are no longer
based on intentions but on revenues, serious indicators of intrinsic motivation :?), adding material transparency.
Exclusive investment products such as a recent World Bank SDG Framework & bond are based on private & public
equity holdings & transparent indices of 50 large caps (Solactive). Note it is also offered as a retail bond in Italy.
MSCI launched an index of 100 large caps attributing to the SDG's based on revenues, Blackrock offers the ETF.
Investing is becoming more inclusive and so is impact investing. The Global Echo ETF launched by a grandson of
nature conservation activist J.J. Cousteau was launched as early as 2012. The MSCI Blackrock Global Impact ETF in
2016. Green Bonds with 100.000 US$ or Euro highly exclusive for institutional investors are now also offered as Green
Bond ETF's for as little as 50Euro (Lyxor) and Blackrock (will follow).
An exiting market innovation are 100% transparent impact trend index funds and synergy in a fund combining
basic needs impact trends such as healthy food & welness, medical equipment, biotech, renewable & solar energy
and tech impact such as Robotics, 3D printing, Internet of Things, Cyber Security & Social Media in the Bright New
World Fund (previous Blue Value Fund) previously a closed end now an open inclusive fund with 2200E entry
investment and 2,2% costs. Swiss asset manager Pictet had launched (mega) trend funds as early as 1995, working
with the Copenhagen Institute for Future Studies, a consultancy founded in 1970 in partnership with the OECD for
years. Now it supports mega.online an open access information database on megatrends an initiative of the CIFS CEO,
a sustainability expert and journalists.
US$ & Euro's
This markets does not yet claim such impressive numbers as #impactinvesting2.0, but the roots and growth potential
are found there. For instance emittants of Green Bonds are also naming the Sustainable Development Goals they
invest in and expected results. Such as Enel energy corporation active in Latin America. Veon/Vimpelcom's a mobile
direct2smartphone company named it's SDG attribution through it's activities such as acceleration in developing
countries when listing in Amsterdam.

Some numbers we do know: 163Million Euro was raised by the Worldbank from institutional investors for it's
SDG bond. Enel raised 1,25Billion Euro for its 2017 Green SDG bond. The 2012 Global Echo ETF manages almost
5Million US$ The Blackrock Global Impact ETF, dec '16 holds 20Million US$, the March '17 Lyxor Green bond ETF
10,8Million Euro. Blackrock Green bond AuM data is not yet available, it sector funds manage billion. It is one of the
worlds largest asset managers with 5418 billion US$ AuM and it has an Impact Investing Platform. Pictet Funds
manage 462billion CHF.
Looking further ahead impact investing will become INCLUSIVE² small investors investing for small investees. Many is
more. The poorest half of the globe’s population, 3,5billion people, hold 1.5 trillion US$ as much wealth as the richest 8
men in the world according to Oxfam2
. The richest man in the world, Microsoft founder Bill Gates worth 426Billion US$,
is an impact investing champion, investor & accelerator. 'Priming the pump' to quote Pierre E-bay Omydiar's
Network. Other top 8-ers such as Slim, Bezos, Zuckerberg & Bloomberg 'get it' and are impact investors.
Bill Gates is great friends with superinvestor Warren Buffet who doesn't believe in impact investing (yet:), but is
appealing to billionaires to sign the Giving Pledge giving away half their fortune to charities. Charities are needed for
the expertise, experience & grant freedom I.e. to loose money investing in 'Stars' to use BostonConsultingGroup
jargon. Stars that will fulfill impact investment themes & UN Global Goals. Gates used a Buffet grant to finance GAVI,
the Global Alliance Vaccination & Immunization3
that was financed by iFFi ie vaccine bonds (see #impin2.0)
The 'wisdom of crowds'4
will push more & more money to inclusive growth & basic needs (by and for those that need it)
and impact tech (well off investors looking for exponential growth markets). Financial inclusion will make this possible
and small amounts are more flexible than complex investment structures that require one Million or even a 100Million
US$ investments...
The World Economic Forum is promoting inclusive growth through a digital infrastructure for the next industrial
revolution, finance & digital infrastructure offers ample opportunities in impact crowdfunding & fintechs.
2 https://www.theguardian.com/global-development/2017/jan/16/worlds-eight-richest-people-have-same-wealth-as-poorest-50
3 https://www.gatesnotes.com/2017-Annual-Letter
4 https://en.wikipedia.org/wiki/The_Wisdom_of_Crowds

To quote Alphabet's EricSchmidt 'technology can only solve
the problems to which it is applied'.
I posted an Impact Fintech Starterskit with ESG
databases & benchmarks, ESG indices expressing
impact + return & risk & impact portfolios in February this
year. In Dutch, sorry. It has attracted over 2000 views.
Crowdfunding for impact funds renewable energy,
mesofinance in developing countries, sustainable services &
products, access to basic needs, community development
etc etc etc
Robo advisors select funds meeting investors demands for
exclusion of controversial issues and inclusion of impact
sectors and sustainable companies. The Us has a dozen of
robo investors for impact, a list was comprised by an
institutional investors advisor...
Adapting Oikocredit, one of the oldest retail impact
investors 1BAuM now offers 10euro monthly or 200Euro
investment options to invest in their 1000Euro bonds.
US$ & Euros
#Impactinvesting4.0 is still a niche market with niche products so no impresive data, just hunches of trends and a
future to come. A low guestimate of cumulative Dutch crowdfunding for impact in the last 5 years is 120Milllion Euro or
25% of the market. Based on cultural & community investments, renewable energy, sustainable products, a hospital
(10ME) & SME finance for developing countries. This is a low number because SME start & scale up finance is an
impact investment in itself so the other 75% also holds impact and solves a finance bottle neck. Dutch big banks
partner with crowdfundingplatforms & crowdfunding is becoming an integral part of staplefinance: public investment
funds + (big) banks + private equity/informal/angel investors and crowdfunding initiatives. Private Equity platforms are
known to 'shop' at crowdfunding platforms of even consider buy-ins.

T b way to pr your future i to create it.
Abra Lincoln, President of the United States

ENGLISH The Evolution of Impact Investing 1.0 2.0 3.0 4.0

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ENGLISH The Evolution of Impact Investing 1.0 2.0 3.0 4.0