3 Developments Point to Next Era of Impact Investing
Some of the latest developments in the impact investing field point to a trend that is increasingly gaining steam: impact investing 1.0 is coming to a close and version 2.0 is here. The evolution includes a shift in conversation from defining “who” impact investors are and “what” we do, to how we do it to create impact, and how we will define and measure that impact. This evolution to the next stage requires: a framework by which investors can more easily decide where to invest their money; strategies for exits; and cooperation from government and corporations. Here are 3 articles we read recently that expand on this trend in greater detail:
1. A newly-formed Social Impact Investment Taskforce (announced at SOCAP13) will provide recommendations on a policy framework that will “help foster a social investment market” by standardizing (1) how social impact is measured and (2) the methods by which foundations, institutions, and private investors can invest. The taskforce’s members come from high levels of government and foundations in France, Germany, Italy, the U.K. and the U.S, and they aim to present their policy framework within the next 12 months.
2. Sasha Dichter (Acumen) responded to a Stanford Social Innovation Review article about creating impact. Sasha argues that it’s time to shift the conversation to focus on defining and measuring impact, because ultimately "what we care about is whether, how, and why impact investments improve peoples' lives." He says, “Nearly all of the discussion in impact investing currently is focused on the capital-formation end of the value chain: Who is an impact investor? What are returns? And yet the things that matter the most happen at the other end of the value chain, at the level of customers and the enterprises that serve them [...] The [Global Impact Investing Network’s] IRIS taxonomy and its GIIRS ratings system serve as strong foundations for these efforts, but they are just a starting point.”
3. Three insights into the future of impact investing emerged from SOCAP13 that you should know about: (1) the discourse in the impact investing landscape is shifting from “who” constitutes an impact investor and “what” impact investors do, to “how” impact investing can be done in order to achieve both social impact and financial return. (2) Impact investors must address the need for successful exits and provide entrepreneurs with “the appropriate mix of capital—solutions such as royalties, demand dividends, etc.” (3) Capital is not enough; corporations and governments need to also participate.
Impact First? Return First? Hint: It’s Neither
by Jason Henning, director of investor relations, Global Partnerships
It happens more times than I care to admit. I am holding a promising conversation with a potential investor who signals alignment on impact objectives and geography. Timing works, the approval process is shared, and then it happens: we have the rate conversation. It quickly becomes very clear that our fund’s pricing does not match the investor’s fiduciary priority of maximizing returns.
For years now, an “impact first” vs. “return first” debate has played out within the industry. The former argument holds that below-market rates are required to truly achieve high social impact in poor, underserved markets. Those who subscribe to the latter believe that market rates of return are necessary to attract large pools of capital into the field.
To me, the problem with this debate is that it holds the investor as the central actor in the story, and suggests that we in the industry are structuring funds based on the return expectations of investors. As a nonprofit impact investor, Global Partnerships builds its programs – and by extension, its pricing and capital type – around the needs of clients.
Since its inception, Global Partnerships has made approximately $100 million in impact investments in over 65 partners, and among our key insights is that most high-performing institutions demonstrate a strong commitment to client satisfaction. We identify a problem to solve – lack of access to health services, poor market access for smallholder farmers – and we tailor our approach, including matching the capital intervention to the needs of those we’re serving. This may mean providing a startup grant to a credit and savings cooperative to launch a market-sustained health program. Or it could mean a low-cost working capital loan to a solar light distributor in an effort to address a bottleneck within the value chain. In each example our approach is driven by the desired outcome, not price expectations on the part of our investors.
A key to our approach is working with mission-aligned partners throughout the process. To ensure exceptional, results-driven social impact, we have created a portfolio of social enterprises with strong commitments to the needs of people living in poverty. And since the inception of our first fund, we have sourced capital from over 100 impact investors who value our funds’ stable, fixed income return as well as the thoughtfulness of our impact areas.
Impact first? Return first? Let’s identify the challenge, put the client first, and build our solutions from there.
Blog Tags: social impact
3 Things Learned at SOCAP13
by Jason Henning, director of investor relations, Global Partnerships
Last week I had the good fortune to attend SOCAP13, an event touted as the “intersection of money and meaning.” Over 1,800 people attended countless plenary sessions, panels, meetings, and receptions that facilitated idea exchanges on impact investing and social enterprise. Below are three of the major themes I took away from this year’s conference:
1. “This is not a sector, it’s a point of view.” – Tim Freundlich, President of ImpactAssets
As impact investing moves mainstream, most within the industry don’t see the approach as an asset class, but rather, a lens through which one views all asset allocation. There are a growing number of individuals, foundations and family offices that are all aligning 100% of their balance sheets on mission, and they were well represented at this year’s event.
2. Impact investing 2.0
Jed Emerson, Cathy Clark and Ben Thornley previewed their upcoming case studies focused on 13 high-performing investors. In what they coin “Impact Investing 2.0,” they see a maturing landscape of different stripes of capital with various motivations being managed by dynamic, cross-disciplinary fund managers. The trio also put a rest to the “impact first vs. finance first” debate by declaring “It’s mission first. And last.”
3. Deals are getting done
In a recent JP Morgan/GIIN impact investor survey, a “shortage of high quality investment opportunities” was cited as the second largest barrier to growth within the impact investment industry. But at SOCAP, there was no shortage of strong teams representing high-impact funds meeting difficult social challenges, from fresh food finance to aquaculture to investing in women. And the investors – from individuals to foundations to development banks – were in attendance and listening.
GP was represented among the conference's panelists by my colleague Lara Diaconu, vice president, Health Services Fund. She participated on a panel entitled, “Doing Well by Doing Good.” Lara spoke about how different types of capital (such as knowledge, philanthropic and debt capital) are required to meet different health challenges. Please feel free to watch the video recording of the panel.
Lastly, SOCAP has historically served as a welcoming venue to make new announcements. Continuing this tradition, B Lab announced its launch of B Analytics, a platform for measuring, benchmarking and reporting on impact. ImpactAssets followed by trumpeting the creation of Seed Ventures Platform, an online community that seeks to address the market gap in seed stage risk capital by connecting investors with impact entrepreneurs.
Interested in some of the top sessions from SOCAP13? Many of them were recorded and are available here.
Why is Measuring Impact so Complex? Learn More in our Fall Newsletter
There have been many discussions among our peer organizations and leaders in the impact investing community around measuring impact. And you, our supporters, have expressed interest in how we define and measure impact. We listened. So, in this newsletter, we devote all our content around the theme of impact:
Our feature article simplifies our very complex process for defining and measuring success. Read more >
We spoke with our partner, Espoir, to get their perspective on what makes for a successful partnership that delivers impact. Watch the video >
THE ROUND UP
Our Round Up highlights the latest thinking around measurement. Read more >
IMPACT IN ACTION
Inspiring us all, Florinda shares her story on the impact a solar home system has made in the life of her and her family. Read more >
FROM THE FIELD
Read about Jonathan’s work in our Nicaragua office and how we monitor for social impact. Read more >
Lastly, we’d like to invite you to come join us at our Business of Hope Luncheon on Oct. 8, where you’ll hear more about how your support helps create an impact. You can register online by visiting: http://www.globalpartnerships.org/boh
Thanks again for your generous support. As always, we welcome your questions, feedback and ideas. We hope you'll also consider keeping up with our latest news and insights by subscribing to our blog.
Putting the “Partner” in Global Partnerships
by Ricardo Visbal, vice president, portfolio management
Our partnerships with microfinance institutions, cooperatives and other social enterprises are what enable us to do what we do: expand opportunity for people living in poverty. Partnerships allow us to reach underserved populations by leveraging existing local channels. Our approach is bolstered by a recent Stanford Social Innovation Review article, which says, “To ramp up impact and create long-lasting change, organizations must explore ways to set the global standard in their field. This requires an ecosystem around the idea—replicating through partnerships.”
What do we look for when we seek out partners?
Our first and foremost concern lies in creating impact for people living in poverty. This means that when we search for partner organizations, we seek out high-performing organizations that:
1. are mission-aligned;
2. emphasize social impact first; and
3. are dedicated to reaching underserved populations.
It's important that there is mutual interest based on mission alignment. Successful collaborations happen when all parties work together based on "recognizing that both sides have strengths, and by identifying both sides’ points of view and the areas in which they overlap,” as described by Francisco Moreno, executive director of Espoir, a GP partner in Ecuador.
What does our partner selection process look like?
To select the highest performing partners, we employ a very rigorous process that is rooted in answering the following question: does this organization match the profile we are seeking?
The ideal GP partner has:
1. strong social impact;
2. alignment with one or more of our four impact areas (health services, green technologies, rural livelihoods and microentrepreneurship); and
3. a sustainable business model.
Identifying potential partners
Finding partners that match all of our criteria can sometimes be challenging, but in order to achieve the social impact we seek, we put on our “dreamer” hat and believe that everything is possible. When we find potential candidates, we then take that hat off and get down to business, because “a dream without a plan is just a wish.”
That is to say, once we narrow down potential partners, we conduct field visits to systematically and critically analyze the organization to determine if they are truly a good fit. A typical field visit lasts one week and involves a(n):
1. Interview with the social program manager to learn:
- how extensive the program is;
- if its business model is or has the potential to be market-sustained;
- how many people benefit from the program; and
- if its reach can be scaled.
2. Interview with the executive director and a board member to comprehend the leaderships’ level of commitment to the organization’s non-financial programs, and whether or not they are key drivers in the organization’s goals. This interview also helps us determine the strength of the organization’s governance.
3. Interview with the financial manager to validate the organization’s financial performance.
4. Interview with the business manager to analyze the organizations competitiveness against other peer organizations.
5. Interview with the internal auditor manager to inquire about their balance and checks system.
6. Interview with the IT manager to learn if the organization’s information management system is robust enough to keep financial and other essential information organized.
7. Interview with the accountant to learn how accurate the financial statements are.
8. Visit to one or two branch offices to ensure that the credit process and policies are followed as described at the head office.
9. Most importantly, an interview with the clients. They are the best source of information to learn if the organization provides a valuable service—beyond access to credit and financial services—that yields positive and lasting impact.
If the field visit goes well, and we have enough evidence to believe that the organization has strong social impact, is aligned with our impact areas, utilizes a sustainable business model, and possesses strong portfolio quality, we are then delighted to invite them to join us as a partner.
Interested in becoming a GP partner?
We currently work with organizations throughout 11 countries in Latin America and the Caribbean. If you are a social enterprise that works in these regions, have reviewed our impact areas and believe your organization is a good fit, we encourage you to download this PDF and/or visit this link to fill out a pre-application. We will then be in touch with you after receiving your pre-application. If you work in other regions, please continue checking in with us as we continue to expand and grow.
GP Presents at SOCAP13 — Annual Conference that “Grows Social Good Economy” via Impact Investing & Social Enterprise
by Jason Henning, director of investor relations, Global Partnerships (GP)
UPDATE: Read our blog post on "3 Things Learned at SOCAP13" here.
As a fund development professional, my weeks are often filled with insular activities that lead to a rather intimate relationship with my keyboard and telephone. My day to day includes reviewing prospect lists, drafting investor reports, and setting up meetings with funders. Please don’t misunderstand me; these are all important aspects of my role at GP, but they often leave me wanting for face to face dialogue and discussion.
That’s why I look forward to real-world meetings and substantive impact investing events. Fortunately for those of us in this sector, the good folks at Social Capital Markets have been hosting the SOCAP conference series since 2008. SOCAP is a gathering of investors, foundations, institutions, and social entrepreneurs “dedicated to increasing the flow of capital toward social good.” Last year was my first time attending SOCAP, and I can honestly say that the quality of the conference content is equal to the ease with which you can make personal connections. Nearly 2,000 attendees are expected at this year’s event, dedicated to “Accelerating the Good Economy.” Among the attendees is my colleague, Lara Diaconu, vice president, Health Services Fund, who will participate on a panel on how different kinds of public and private sector investments can be used to create positive impact in global health.
The themes for next week’s conference include:
- Health: investing in health and well-being
- Oceans: investing in the link between people and planet
- Communities: place-based innovation and development
- Meaning: the connection between mission and me
- Investing: impact investing and philanthropy
From my experience it’s rare for a conference to provide both a platform for rich, meaningful dialogue on topical issues and the opportunity to engage with fellow attendees and practitioners. SOCAP gets this right.
I look forward to sharing anecdotes and insights from SOCAP13 real-time via the GP Twitter account (@GPSocialImpact). I’ll also provide a summary of the event after its conclusion, so please subscribe to our blog if you haven’t already—you won’t want to miss out.
You can attend SOCAP13 virtually by:
- Getting live tweets from SOCAP13 via our Twitter page @GPSocialImpact
- Following the conversation on Twitter with #SOCAP13
An Inside Look at the 6th Latin American Forum on Village Banks
Our team returned earlier this month from the 6th Latin American Village Banking Forum held this year in Guayaquil, Ecuador. Wonder what happened? Here’s a photo recap.
Who attended the conference?
- Mark Coffey, chief investment and operations officer
- Lara Diaconu, vice president of GP’s Health Services Fund
- Ricardo Visbal, vice president of portfolio management
You can learn more about our team here.
Here's what our team did:
1. Met with current partners that also attended the conference and got updates from them
2. Conducted field visits with partners to see their impact in action
3. Met new potential partners
4. Moderated a panel called “Sustainable Models of Village Bank and Health Services”
5. Celebrated Latin American culture
All photos © Global Partnerships 2013
One Way our Partners are Redefining “Productivity”
by Lara Diaconu, vice president, Health Services Fund, Global Partnerships
A couple weeks ago I moderated a panel on sustainable health services models at the 6th Village Banking Forum held this year in Guayaquil, Ecuador. Two of our partners, Pro Mujer in Nicaragua and ESPOIR, presented what they had learned about what it takes to implement high performing health services programs via the village bank platform. While much was shared, one main takeaway I had was the importance of investing in staff capacity, particularly investing in those on the “frontline” of integrated service delivery with clients.
One striking example was made by Gloria Ruiz, general manager of Pro Mujer in Nicaragua. She shared how one day of every week is spent training their credit officers – on health topics, on sales techniques, on participatory education techniques, on human development and financial education - skills, values, and knowledge that credit officers need to be able to stimulate conversations among clients, transmit key information about how to prevent and manage prevalent health conditions, and promote health services and behavior changes that can improve lives.
Investing in staff capacity may sound like a no-brainer. However, dedicating one day a week to staff development is a strategic (and costly) decision but one they believe is worth it to better serve their clients. Quick calculations indicate that the economic tradeoff for investing in building staff capacity results in a loss of thousands of dollars in potential income for the institution. This means an increase in costs per client which decreases productivity and efficiency, standard measures used to assess microfinance institutions.
That is to say that “productivity” of credit officers is generally interpreted to be a key indicator of institutional strength, as the more clients each credit officer can manage, the lower the costs per client to deliver a loan, and therefore, potentially the more profitable the institution. Lower costs per client is also key for those institutions with a mission to serve lower income segments, as it renders it more economically feasible to deliver lower average loan sizes. These key operational indicators signal to both senior management and the microfinance industry how streamlined an institution’s processes are, and how competitively they can price their financial services in the market. To all of this, Gloria simply stated, “We have redefined productivity.” In this instance, productivity is defined by strengthening their staff capacity to provide the essential knowledge, information and services to meet the needs of their clients effectively even if it means less income for the institution.
Pro Mujer’s approach enables them to deliver quality education and services that improve the health opportunities for women micro-entrepreneurs in Nicaragua. It’s a bold, strategic decision but it is very much aligned with their commitment to do what it takes to be more than just a financial services provider.