Accelerating Impact Impact Investing & Innovative Financing for Development

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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 …

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.

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  • 1. ACCELERATING IMPACT:IMPACT INVESTING & INNOVATIVEFINANCING FOR DEVELOPMENTEdward JacksonKarim Harji26th March 2013
  • 2. 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 2
  • 3. Current Context•  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 3
  • 4. New Options for Development Finance•  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) 4
  • 5. Source: Gates, 2011
  • 6. Impact Investing: Part of theFuture of Development FundingAlong with:•  Government tax revenues•  Domestic private investment•  Foreign direct investment•  Overseas development assistance•  Charitable grants•  Other innovative finance instruments 6
  • 7. 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
  • 8. Investments intended to create positive impact beyond financial return Provide capital Expect financial returns •  Transactions currently •  The investment should tend to be private debt be expected to return at or equity investments least nominal principal Businesses designed … to generate positive with intent social and/or environmental •  The business (fund benefit manager or company) •  Positive social and/or into which the investment environmental impact is made should be should be part of the stated designed with intent to business strategy and make a positive impact should be measuredSource: JP Morgan, Rockefeller Foundation and GIIN, 2010 8
  • 9. Impact Investing: Core Definitional Elements Tangible Impacts Intention “Investments intended to create positive impact beyond financial returns”Source: O’Donohoe, Leijonhufvud and Saltuk, 2010 9
  • 10. Impact Investing: Mapping Returns Source: adapted from Monitor Institute 2009, via Rockefeller Foundation , 2011 High Financial Market First Related i Traditional Impact Investments Investments •  SRI Impact First Financial (“Do No Harm”) Returns • Subsidized Investments Low Impact and Philanthropy Below Market Low Financial Returns • Grants Low High Social ReturnsSource: Adapted from Monitor Institute (2009) via Rockefeller Foundation (2011)
  • 11. Examples of Impact Investments Investee: Investee: Investors: Investors: and USA INDIA TANZANIA Investee: LGBT Enterprises in Investee: M’tanga Farms Latin America Investors: Calvert Foundation,Investors:and Lion’s Head Global Partners CHILE supported by NESsT.org 11
  • 12. Types of Impact Investment Products•  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) 12
  • 13. Actors in the Impact Investing IndustrySource: ET Jackson & Associates, 2012 13
  • 14. Building the Impact Investment Market Intermediation Demand for Supply of Capital Capital 14
  • 15. Local Impact Investors•  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 15
  • 16. The Potential of Impact Investing•  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 16
  • 17. What Impact Investing is Not•  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 17
  • 18. Accelerating Impact: Intentionally Deploy More Impact InvestmentSource: JP Morgan and GIIN, 2011 18
  • 19. Accelerating Impact: Unlock New Capital at Scale •  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 billionSource: GAVI, 2012 19
  • 20. Accelerating Impact: Strengthen Intermediaries / Products / Platforms Intermediaries •  Service providers •  Advisors Products •  Institutional •  Retail Platforms •  Due diligence •  Crowdfunding •  Social impactSource: Shanmugalingam et al., 2011 20
  • 21. Accelerating Impact: Options Beyond The Financial/Impact Trade-OffSource: Monitor and Acumen Fund, 2012 21
  • 22. Accelerating Impact: Capacity Development: Entrepreneurs & TeamsSource: Simpa Networks @ Dasra Social Impact, 2012 22
  • 23. Accelerating Impact: Coordinate and Balance Social Impact Measurement Initiatives •  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 InvestmentSource: GIIN and GIIRS, 2011 23
  • 24. Accelerating Impact: Raise the Bar on ImpactSource: Root Capital, 2011 24
  • 25. Accelerating Impact: Government & Policy as an EnablerSource: Pacific Community Ventures, 2011 25
  • 26. Accelerating Impact: Anticipate the challenges & opportunities of market building; and manage expectations!Source: ET Jackson & Associates, 2012 26
  • 27. When Things Go Wrong•  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 27
  • 28. What To Do? Short-Term Responses•  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! 28
  • 29. What to Do? Long-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 29
  • 30. Accelerating Impact InvestingIncrease 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 30
  • 31. What Now? What Next?Learn. Act. Reflect. Repeat.
  • 32. Accelerating Impact: Achievements, Challenges andWhat’s Next in Building the Impact Investing Industryhttp://www.rockefellerfoundation.org/news/publications/accelerating-impact-achievements 32
  • 33. Resources•  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. 33
  • 34. Organizations and Networks•  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 34
  • 35. Contact InformationEdward JacksonSenior Research FellowCarleton Centre for Community InnovationCarleton Universityedward_jackson@carleton.caKarim HarjiCo-Founder and Partner, Purpose CapitalSenior Research Associate, Carleton Centre for Community Innovationkarim@purposecap.com 35