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Investors Report for the second quarter of 2014


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In our Investors Report for the second quarter of 2014:

  • Our Chief Investment and Operating Officer, Mark Coffey, highlights the important role intermediaries play within the impact investing sector, and presents five factors GP uses to evaluate our partners’ management and governance. (read here).
  • We take a deeper look at Contactar, a Colombian microfinance institution that integrates credit with a variety of services, including financial education, agricultural assistance and health education. (read here).
  • We made investments in two new partners and one renewed partner in the second quarter: CENFROCAFE, IDH and Fundenuse. Learn more about what they do, why we're investing in them, and more. (click here).
  • We provide updates on our Social Investment Funds' performance (read here).

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Blog Tags: Colombia   Contactar   governance   intermediaries   investors report   Latin America   management   

Luis and Francisca are clients of GP partner Contactar.
Luis and Francisca are clients of GP partner Contactar. Learn more about them in our latest Investors Report. © Global Partnerships.

In the glow of the kerosene lamp: Finding happiness and creating opportunity in Latin America


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by Annie O'Donnell, Capital Resource Intern, Global Partnerships

Annie O’Donnell is the Capital Resource Intern at Global Partnerships (GP), assisting GP with event planning and other fundraising activities. She became interested in GP’s work after returning to Seattle from serving as a Peace Corps Community Environmental Conservation volunteer in Panama for two years. Annie will begin her master’s degree in Sustainable International Development at Brandeis University this Fall.

For two years, I lived and worked in the small farming community of Caisán. It’s home to about 200 families and is nestled in a world of equatorial vibrant green in Panama’s western highlands. Those who live along the main road in Caisán are lucky to find themselves on the power grid, but most families live down dirt roads in homes without electricity. They are dimly lit by kerosene lamps but warm and inviting all the same.  

Making the evening meal in only the glow of a kerosene lamp never seemed a challenge for Chelena, my host mom. She enjoyed that time at the end of the day – when the animals were fed, her three children were home from school, her husband from the farm, and me from touring the town. My Panamanian familia and I would gather in the kitchen, and eat and laugh as we swapped stories from our day.

I came to cherish our mealtime together, when the stresses of the day would dissolve with the sun light. It didn’t matter that my Spanish was imperfect or that, as a blonde standing three feet taller than everyone else, I looked different. Chelena called me mi’ja, short for my daughter, and I called her mamá. Though their home was small and their resources tight, I was part of the familia. This meant I was not allowed to contribute financially. My family watched out for me. Mamá never let me leave the house without an umbrella. They don’t have many material possessions but they treasure family, and that makes them rich in all the ways that really matter.

Living in rural Caisán, I learned to wake up early every morning to fill buckets before the water ran out for the day. I made sure to always have a flashlight and to shake out my boots in case of snakes. In the evening, people left their front doors open as a symbol of invitation for a cup of coffee or lemongrass tea for passersby. During my evening strolls I would learn deep history of the intertwined families in my small town. Though I felt like I was millions of miles from home, I also felt like I was a part of the local community.

Family and community are highly valued by Panamanians and their neighbors, and I think that’s the reason the region holds the top seven spots of the 2014 Gallup Happiness Report. This is despite Latin America being rife with economic hardship, crime and drug trafficking. The report surveyed people from 138 countries; it measured frequency of their feelings of enjoyment, being treated with respect, and how often they laughed or smiled. The report makes a strong statement: though life in Latin America can be hard, happiness endures.

Yet, Panamanians—and other Latin Americans—living in poverty do yearn for better things. My host mother accepts kerosene lamps, but knows it would be easier for her children to study if they had electricity to light their home. She dreams of her children becoming professionals but there are few economic opportunities in Caisán; almost every family tends a small farm and sells produce to earn income. Life isn’t easy in rural, poor communities like Caisán. But despite the challenges, positivity, as I saw it, and as the Gallup article suggests, can overcome a great deal.

Imagine the impact that could be possible if positivity were paired with opportunity – such as the chance to study at night with solar lights or receive training on sustainable farming techniques to grow more food.

By learning about my family and my community’s hopes and dreams, but also seeing the challenges they face, I recognize the importance of GP’s market-based approach to help people who don’t have access to essential services and goods. By investing in their futures GP is effectively working to help eliminate the very conditions that allow poverty to thrive. It is an honor to be a part of Global Partnerships’ work.

Blog Tags: kerosene lamp   Latin America   Panama   peace corps   poverty   

Annie and Chelena
Chelena (left) treated Annie like one of her own children, and baked a cake and cooked a special tamale to celebrate Annie's birthday. Chelena's kerosene lantern can be seen hanging in the background. © Annie O'Donnell

Evaluating impact investing [Part 5/5 Perspectives in Impact Investing series]


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Note from Global Partnerships: This is the fifth and final installment of our "Perspectives in Impact Investing" series, which presents the variety of perspectives of different actors in the impact investing space


Part 5: Evaluating impact investing

by Srik Gopalakrishnan, Director, Strategic Evaluation, FSG

Over the past few years, as the field of impact investing has grown in size and complexity, a lingering question has followed in its wake, “How do you evaluate impact investing?” Finding a way to effectively evaluate impact investing is important not only to ensure that investment resources are being put to good use, but also to continue to find ways to develop, improve, and refine the approach. Below are three distinct but related ideas that those seeking to evaluate impact investing may want to bear in mind:

1. Apply the right evaluation approach: It is important to consider the particular context and circumstances of the impact investment while choosing the right evaluation approach. In other words, not every impact investment might warrant an impact evaluation. As Richard Gomes from the Shell Foundation pointed out earlier in this blog series, it took several years of piloting new technologies and testing business models before a viable approach was found for a clean cookstoves business with a global reach. This is often true of many social innovations; there is a period of trial and error before settling in on a “scalable” solution. In such cases, a “developmental evaluation” approach that provides real-time feedback in a non-threatening way may likely be the appropriate evaluation approach. As the social innovation matures, one could shift gears to move to “formative evaluation” approach, and ultimately move towards a “summative evaluation”. The graphic below shows how this progression may happen over time.

Progression of Evaluation

(Click image to enlarge)

2. Go beyond performance indicators: Impact investors are naturally inclined to look for indicators of impact, just as they would look for indicators of financial return. While it is tempting to provide easy dashboards with impact and financial metrics side by side, one should recognize that the impact indicators, while useful, may be limited in their validity. Performance indicators, in general, are considered valid when the theory of change that underlies the initiative is “correct”, and they are collected in a rigorous manner (for e.g., triangulated using multiple measures). Neither of these conditions might hold true for social innovations, at least until they are reasonably well established. Hence, it is important to take a more holistic approach to evaluation - one that includes the examination of contextual and qualitative information, and avoids over-simplification of impact.

3. Expand the definition of “impact”: A characteristic of working in complex social systems is that unintended outcomes are as or more likely to happen as intended ones. A social entrepreneur who works on getting medical care in a timely and affordable way to villages in Africa might find that school attendance, and consequently learning, is improving, as children who were previously forced to stay home sick, are now able to go to school. This is a “ripple effect” benefit that may not be captured by a narrow definition if impact. As Loren Rodwin from OPIC illustrates earlier in this blog series, an initial investment in a promising social enterprise may act as a catalyst that attracts other types of funding. This could very well count as “impact” under a broader definition. On the flip side, there may also be unintended consequences that aren’t as desirable, but still need to be captured and understood in order to improve and replicate the initiative.

The salience of the above points is highlighted nowhere more eloquently than in the “origin story” of impact investing itself. In a recent article titled in the Stanford Social Innovation Review, my FSG colleagues tell the story of the Rockefeller Foundation’s role in fostering the field of impact investing. Rather than use traditional philanthropic tools of grantmaking, the foundation chose instead to convene key field leaders, build cross-sector partnerships, created a global network, and influence government policy, eventually spurring investments worth billions of dollars, a multi-fold return on the few millions that were spent by Rockefeller.

This would likely have been impossible if the foundation had chosen the wrong evaluation approach, focused solely on performance indicators, and stuck with a narrow definition of impact. It’s a lesson that the various actors in the impact investing field may want to keep in mind.

About FSG
FSG is a non-profit consulting firm dedicated to discovering better ways to solve social problems. FSG meets its mission by working with philanthropic funders, non-profits, and corporations to develop high impact strategies, tailor operations, and measure and evaluate results. FSG offers a wide range of evaluation and learning services, which include designing and implementing developmental, formative, and summative evaluations; conducting retrospectives and strategic reviews; building organization-wide learning and evaluation systems; and developing shared measurement systems.


Read the rest of the Perspectives in Impact Investing Series

Blog Tags: Developmental evaluation   formative evaluation   impact   impact evaluation   impact measurement   measuring impact   metrics   performance indicators   summative evaluation   

An Aprocassi member and his family.
Global Partnerships (GP) meets with clients of our partners as one component of evaluating their impact. This APROCASSI member (blue and white shirt) says the cooperative is "like a new school" and has had a significant positive impact on his yield, prices, and well-being. APROCASSI is a GP partner in Peru. Photo © Global Partnerships.

Challenges and opportunities for social enterprises [Part 4/5 Perspectives in Impact Investing series]


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Note from Global Partnerships: This is the fourth installment of our "Perspectives in Impact Investing" series, which presents the variety of perspectives of different actors in the impact investing space. Read:


Part 4: Challenges and opportunities for social enterprises

by Sebastian Africano, Founder & Managing Director, Luciérnaga LLC

Luciérnaga LLC is a wholesale distributor of Barefoot Power and Greenlight Planet household solar lighting and charging products to Latin America with a current focus on Central America. We aim to be the lowest cost provider of inventory to organizations that serve rural, off-grid communities throughout the region – providing short lead times on purchases, full-service logistics, local customer service and convenient warranty support.  

While rural families in off-grid areas represent our ultimate market, our target customers are the organizations and networks that serve these communities already. By ordering high-quality product in bulk to a central warehouse, then re-exporting to customers in any country in the region, we can benefit from low unit costs that come from a streamlined supply chain. We pass those savings along to customers importing to any country with proximity to Central America, adding convenience and efficiency to a fragmented, redundant and competitive marketplace.  

For a young social enterprise, capital and the terms attached to it are the principal fuel for growth. Many start-ups see this as a catch-22, where we need to demonstrate impact to attract capital, but we need capital to generate that impact. The flexible terms one needs to prove a risky model are often inversely related to the terms and interest rates pegged to inherently risky social ventures.

To the extent that we’ve had conversations with allocators of impact capital, the most helpful have been those willing to engage in a candid discussion around our capacities and limitations, and the gaps that exist for us to fit their risk profiles. Even more valuable are those conversations that lead to a sustained exchange and brainstorming of how to craft a mutually beneficial relationship.  

Social enterprise accelerators such as the ones offered by Agora Partnerships, Santa Clara University’s Global Social Benefit Institute and The Unreasonable Institute, to name a few, provide a great venue for those early, objective conversations to happen. It allows the entrepreneur to voice questions and concerns openly, and also to begin visualizing the range of the types of investors and investment terms (potentially) available to them.  

At Luciérnaga we are fortunate to have the support of our incubator and parent company Trees, Water & People (TWP) to lower immediate capital needs, and to broaden our fundraising options. After 16 years of work in Central America, TWP has built infrastructure, partnerships, networks and rapport in the region, which all serve as assets to Luciérnaga’s growth. Likewise, in the US, TWP has built a vast donor pool, an impressive track record and brand equity, which are also beneficial to its subsidiary, Luciérnaga LLC.

So far our capital needs have been met from within our immediate network. Luciérnaga LLC was born of a pilot project funded by the US Department of State’s Energy and Climate Partnership of the Americas, due to expire at the end of 2014.  We then began working with high net-worth TWP donors to craft an “impact-loan” opportunity, whereby they lend Luciérnaga operating capital in $25,000 increments, on 1 year terms at 3% simple interest.  This provides donors that have trusted us with their funds for years a new way to generate social impact at a more significant scale, and with the opportunity of recuperating their investment.

Regardless, the time will come when Luciérnaga will need more capital than can be raised from our network, and reaching out to impact investors will be the logical next step. To prepare, we are currently participating in Agora Partnership’s Capital Advisory Services, investing in the consulting support we need to ensure we enter our next investment conversations confidently, well-informed and well positioned to succeed.

 


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Blog Tags: accelerator   Central America   funding   Latin America      solar light   

Two kids study under a bright solar light. © Luciérnaga LLC
Two kids study under a bright solar light. © Luciérnaga LLC

Investing for social and financial returns: OPIC’s perspective [Part 3/5 Perspectives in Impact Investing series]


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Note from Global Partnerships: This is the third installment of our "Perspectives in Impact Investing" series, which presents the variety of perspectives of different actors in the impact investing space. Read:


Part 3: Investing for social and financial returns: OPIC's perspective

by Loren Rodwin, Managing Director, Overseas Private Investment Corporation (OPIC)

It is fitting that I write about the Overseas Private Investment Corporation's (OPIC) impact investing strategy, challenges and goals on Global Partnerships’ (GP's) blog because GP is one of OPIC's highly successful impact investments. OPIC has lent to four of GP’s past five funds, which have collectively supported more than one million people in 10 countries with loans, healthcare, entrepreneurship training and other services. The first of these funds has already been repaid in full.

Investing with impact was a core mission of OPIC long before the term impact investing was in vogue. As the U.S. Government’s development finance institution OPIC has worked for more than four decades to support private sector investment in emerging markets in projects that have built infrastructure, improved agriculture, introduced schools and otherwise had a lasting impact on people and communities. In recent years, as impact investing has captured the imagination of more investors, OPIC has not only continued to seek out these investments, but also worked to refine the definition of impact investing and establish some tools and practices for effective impact investing.

Below are four of OPIC’s key areas of focus that have informed our approach to this still relatively new and rapidly evolving sector.

 

1. Reaching individual recipients

OPIC has money to invest and a strong interest in investing in individuals and communities that are most in need. But because we are a small Agency with our staff of 229 based mostly in Washington, D.C., we often must rely on our partners to get these funds to the end recipients. One of the reasons our work with Global Partnerships has been so successful is because Global Partnerships has, through its extensive network in Latin America, been able to reach groups such as women and rural residents that have traditionally been underserved by banks and lending institutions.

OPIC is particularly excited by Global Partnerships’ newest fund, the Social Investment Fund 5.0, which seeks to invest in microfinance institutions and cooperatives that, in addition to access to finance, provide clients with access health care, agricultural supply chains, environmental goods and entrepreneurship training.

Some of our other partnerships have served a similar purpose, enabling us to support lending  to many of the smaller microfinance institutions in places in sub-Saharan Africa, where individuals, small farmers and entrepreneurs have used funds to start or expand small businesses or schools.

2. Attracting other investors

OPIC recognizes that private sector capital is essential to addressing the world’s biggest challenges and one of the Agency’s core goals across all of the projects we support is to catalyze additional private sector investment. OPIC seeks opportunities to invest in projects where the nature and structure of its investment encourages private investors to make investments that might not otherwise consider. For example, OPIC has invested in a more junior position, or has provided a longer tenor debt instrument in well-managed investment funds. This has provided private sector investors with the additional protection needed to invest in these funds.
 
Another example is OPIC’s ability to make loans to businesses that are just beginning to attract commercial capital. Often these are early stage social enterprises that have a proven business model, but have not yet reached the scale required to allow the business to grow in a sustainable manner. OPIC seeks to support these companies by providing a source of “expansion capital” at the critical stage in the enterprise’s life cycle. Such investments may have a powerful long-term impact in enabling the enterprise to grow sustainably, thereby serving more clients, and, in so doing, helping these clients to solve critical developmental challenges.

3. Setting standards for impact investing

As impact investing has increasingly become recognized as a bona fide investment category, OPIC has worked to establish a clear definition of what constitutes impact investing. While many investments may ultimately lead to a positive environmental or social change, there is a difference between those projects that happen to yield good results and those that were designed from the outset with such a specific intention in mind. In 2012, OPIC set out to determine how much of our portfolio met the strict definition of impact investing by addressing social, or environmental problems while generating sustainable financial returns. You can read more about this exhaustive process in a piece my colleagues published in the Stanford Social Innovation Review.

One recent project that was officially tagged an impact investment under OPIC’s new tagging system is OPIC’s investment in Bridge International Academies, a chain of schools in Kenya that exemplifies OPIC’s focus on both the positive social benefit and the positive bottom line. Bridge has a scalable business model designed to reach large numbers of students while also earning a profit. The schools operate under a for-profit model, but provide a quality education at less than $6 per month, to be affordable to even low income families.

4. Earning a return on investment

One of the questions that initially inspired this series was, what are the motivations of the institutional investor in pursuing impact investments? OPIC, like any serious investor, makes positive financial returns a priority. Our consistent ability to earn a profit from our investments has put us in a strong financial position that enables us to grow our portfolio and increase our investments in the developing world. While we actively pursue impact investments, we also rigorously review potential projects and look for a strong management team and investment strategy. Because OPIC’s mission is to be self-sustaining—as exemplified by its record of making a profit for 43 years--it must carefully evaluate the risk of repayment for each debt investment under consideration.

About OPIC
OPIC is the U.S. Government’s development finance institution. It mobilizes private capital to help address critical development challenges and in doing so, advances U.S. foreign policy. Because OPIC works with the U.S. private sector, it helps U.S. businesses gain footholds in emerging markets, catalyzing revenues, jobs and growth opportunities both at home and abroad. OPIC achieves its mission by providing investors with financing, guarantees, political risk insurance, and support for private equity investment funds.


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Blog Tags: government   investing for impact   OPIC   Overseas Private Investment Corporation   Perspectives in Impact Investing Series   private sector   

A credit officer from Pro Mujer in Nicaragua, a GP partner, educates clients about cervical cancer. Photo © Global Partnerships.
A credit officer from Pro Mujer in Nicaragua, a GP partner, educates clients about cervical cancer. Photo © Global Partnerships.

4 ways to use grant funding to catalyze innovation and de-risk early-stage enterprises [Part 2/5 Perspectives in Impact Investing series]


Subscribe to GP's blogIf you like what you’re reading, please subscribe to our blog via email. Click here or enter your email in the subscription box at the top right corner of www.globalpartnerships.org.

Note from Global Partnerships: This is the second installment of our "Perspectives in Impact Investing" series, which presents the variety of perspectives of different actors in the impact investing space. Read: Part 1: How wealth advisors can facilitate impact investments


Part 2: 4 ways to use grant funding to catalyze innovation and de-risk early-stage enterprises

By Richard Gomes, Head of Policy and Advocacy, Shell Foundation

The topic of innovation was widely debated at the Sankalp Africa Summit in Nairobi, a regional convening of social investors who aim to spur inclusive growth in Africa by supporting new market-based solutions. Innovation is sexy we all agreed, and yes, these solutions have the potential to tackle major development challenges at scale. Yet examples of global impact and replication remain puzzlingly rare. As you can imagine, there was no easy answer – but the emergence of new models such as venture philanthropy suggested that foundations may be a missing piece of the jigsaw puzzle. Similarly, at the latest Mission Investors Exchange conference, one of the key take-aways was the increasing notion that foundations have a catalytic role to play in growing the impact investing space.  

Shell Foundation (SF) has been trying to work out how grant funding and business support can be deployed to accelerate the growth of social enterprise pioneers for some time now. Spoiler alert: we haven’t cracked the nut yet! However, if I muse on where we’ve failed and where our partners have succeeded, there are perhaps four broad areas where philanthropic capital is very well-suited to play a catalytic role in the social investment sector:  

1)    Supporting early-stage innovation

Backing early-stage businesses with new models and technologies to tackle entrenched global challenges is risky business – too much so for most investors. When we started looking at the problem of inefficient cooking back in 2002 (which results in pollution that claims 4m lives each year and high fuel costs that drain family income) clean cookstoves were widely-recognised as the best solution. Yet it took five years of piloting different technologies, fuels and business models before we could understand what customers really wanted and how this demand could be met. At this point we established a long-term partnership with Envirofit, a US-based social enterprise, and it took a further seven years to develop new technology, find the right value proposition and construct a viable model for a clean cookstoves business with a global reach.

Perhaps we could have gotten there quicker, and we are always learning and (I hope!) improving. On the other hand, we wouldn’t be able to look for holiday deals on our iPad, use a GPS navigator to get to the airport or even take a plane ride without the astronomic public funding that was needed to develop today’s consumer technology in its earliest forms. In this context there is a chronic lack of early-stage support for pioneers who are working in the world’s toughest operating environments.

2)    Building capacity for global scale-up

A second lesson from our partners’ work is that getting the product or service right is only part of the challenge they face. Social enterprises often have to create whole value chains from scratch and to overcome major market barriers related to demand creation, consumer finance, working capital and particularly distribution.

Partners like Envirofit or M-Kopa, an asset financing company that uses embedded mobile technology and M-PESA to make solar home systems affordable to low-income consumers in Kenya, have had to overcome these challenges while simultaneously building the systems, processes and human capacity needed for national or regional expansion.  

This means that early-stage pioneers of these markets need larger, more patient and more flexible support than we had ever imagined when we set out – and a wide-range of non-financial support to help build critical skills, access markets and overcome emerging barriers to growth. With a ready source of risk-tolerant capital and extensive networks spanning public and private boundaries, foundations are well placed to provide these resources. Grants are also a particularly appropriate tool at this early stage, where the need to service debt or equity investment could force a business to focus on more lucrative customers or restrict investment in capacity.

3)    Unlocking impact investment and private capital

In reality, most of the social enterprises we work with are well into scale-up before they can attract and serve their first non-grant investments. We’re looking at new ways to use grant instruments to offset risk and bring impact investors in earlier, for example by blending impact investment with smart subsidy (to fund R&D or capacity-building) or by using loan guarantees, first-lost investments or recoverable grants. (We are equally mindful of the need for social enterprises to move away from grants at the right time. In addition to creating the wrong mindset, displacing private capital would distort markets, not catalyse them.)

Four years after SF made its first grant to M-Kopa, the business has sold 50,000 solar home systems in Kenya and has attracted a range of investment from foundations, social investors and the UK Department for International Development. Just last month they secured US$10 million debt from the Commercial Bank of Africa to fund their national and pan-African expansion.

4)    Creating markets to support replication and leverage investment

Pioneers of new product or service categories also rely on the right market enablers and infrastructure to succeed – and their absence adds to the risk and uncertainty of investing in these businesses. Envirofit met several major barriers to growth in its early years and these applied in equal measure to every type of clean cookstove manufacturer. No one business could solve these alone. In response, we’ve co-created several independent businesses to address these barriers at a market level; addressing problems such as last-mile distribution, demand creation or lack of working capital across the value chain.

Envirofit have now sold over 800,000 stoves across Asia, Africa and Latin America – benefitting 4 million people – and many other manufacturers now exist offering a range of products using different fuels and at different price points. Leveraging the investment required to meet the demand for these products will require supporting infrastructure to codify best practice, monitor impact, create industry standards and advocate for policy change. Co-creating the Global Alliance for Clean Cookstoves initiative with the UN Foundation in 2009 was a step in this direction.

Moving from coordination to collaboration

Many challenges remain and few market-solutions have reached the stage where they can show long-term impact on challenges that affect half the world’s population. Nevertheless, strong demand clearly exists for the right social-impact products and services, and the social investment sector, in its broadest sense, contains the right ingredients to support inclusive businesses to meet this need. We’re finding a growing number of foundations, impact investors, government agencies and corporations who are on a similar journey and eager to join forces to drive greater collective impact.

Social innovation may be sexy but achieving large-scale impact is exceptionally difficult and this is a long-term game. If networks like Sankalp, EVPA and the GIIN can help us understand the relative advantages of different assets for different phases of growth then this will enable us to deploy them far more effectively. As Eric Morecombe once said sitting at a piano – “I’m playing all the right notes, just not necessarily in the right order”. In time I think we’ll get that order right and demonstrate the true potential of this sector.

About Shell Foundation
Shell Foundation is an independent charity established by the Shell Group in 2000 to create and scale new solutions to global development challenges. It works by deploying a blend of grant funding, business support and market linkages to co-create social enterprise pioneers, support them to achieve scale and viability, and to accelerate the growth of new inclusive markets.


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Blog Tags: capacity building   creating markets   foundation   innovation   philanthropy   Venture Philanthropy   

A type of clean cookstove
An example of a cleaner, more efficient cookstove. Photo © Global Partnerships.

How wealth advisors can facilitate impact investments [Part 1/5 Perspectives in Impact Investing series]


Subscribe to GP's blogIf you like what you’re reading, please subscribe to our blog via email. Click here or enter your email in the subscription box at the top right corner of www.globalpartnerships.org.

Note from Global Partnerships: Starting today, we’ll be rolling out a 5-part series on impact investing that presents the variety of perspectives of different actors in the impact investing space. A wealth advisor (Arabella Advisors), philanthropic investor (Shell Foundation), institutional investor (OPIC), impact evaluator (FSG), and social enterprise (Luciérnaga LLC) will each provide insight into their role in the impact investing space, the challenges they face, and the optimism they hold for creating and measuring impact. This blog series will provide readers with a unique insider’s view from the vantage point of different players throughout the impact investing sector. The series will also inform readers about the opportunity to create lasting social change through these various actors. We look forward to hearing your thoughts and welcome your feedback.


Part 1: How wealth advisors can facilitate impact investments 

by Cynthia Muller, Senior Director of Impact Investing, Arabella Advisors

As high-net-worth individuals and families increasingly seek to make positive social and environmental impact with their investments, wealth managers are facing the challenge of incorporating impact investing into their practice. While there is an active pipeline of nearly 450 public funds and over 450 private fund managers, impact investing still has some growing to do as a field. Wealth advisors who wish to meet the increasing demand for impact investing can better retain clients by partnering with other experts in the field to serve new needs.

Impact investing has grown as a philosophy and as a practice over the last two decades. We know that an estimated $41 trillion in wealth is expected to transfer from the baby boomers to the millennials over the next 30 to 40 years, that one out of every nine dollars under professional management in the United States is invested for positive social and/or environmental impact, and that there is rapidly growing interest in investing with purpose by the GenX/Y and millennial generations. Major institutional players (Merrill Lynch Bank of America, Goldman Sachs, Morgan Stanley, and others) have begun to offer a variety of impact-themed products and platforms to impact-hungry investors, and foundations large and small are employing new strategies to invest.

As Senior Director of Impact Investing at Arabella Advisors, I am regularly approached by wealth advisors who want to learn how better to help their clients, and my response is: the mountain is not as high as you think.

The two questions we most frequently get from wealth advisors are where to find deals and how to assess them. In a nascent field, there is no roadmap for identifying the right investment. But by learning the fundamentals, wealth advisors can facilitate the process. Here are key steps to take: 

  1. Understand your client’s desired impact and identify the corresponding approach. Deals are hard to find, even though many funds and fund managers are practicing impact investing. The first step for wealth managers is to help clients distinguish between different forms of social impact and corresponding investment approaches. People in the field tend to approach impact investing from the lens of their own professional perspective. For example, some define socially responsible investing (SRI) as forms of impact investments. While a range of investments may achieve some form of positive social or environmental impact, SRI is a passive approach; those making the investments aim to support companies or initiatives that a) do not have negative social or environmental impacts or b) have responsible practices but not necessarily social impact goals.

    Conversely, one of the main tenets of impact investments is intentionality: creating positive social and environmental impact alongside producing financial returns. Those making impact investments have a particular impact goal in mind and ideas of ways to track it. And from what we are experiencing, investors—particularly the next generation of wealth holders and institutional foundation leadership—are increasingly recognizing the distinction between the two approaches. Thus prior to beginning the process, it is important to ascertain whether your client merely wants to screen out negative impacts of his or her investments or whether he or she has a social impact goal in mind. For clients who want to see the direct impact their investments have on the causes they care about, simply passing an SRI screen will not suffice. True impact investments require active engagement with funds, companies, and organizations.

  2. Gauge your client’s expectations. The next step is ascertaining how much your client wants to be engaged. Impact investments require building a relationship with the investee. It’s important to know whether your client wants to interact with the investee and what kinds of reports they want back—impact updates, mid-term impact analyses, etc. Knowing the level of detail you will need to share also helps you plan for how much work the investment will take on your part.

  3. Understand your client’s risk tolerance. As in the process of establishing a traditional investment strategy, it is important to establish parameters with your client upfront when establishing an impact investing strategy. Understand their sector preference—i.e., which issues they want to target—and their financial risk tolerance. Based on this, you will be able to narrow the list of spaces and opportunities in which you’ll look for potential investments.
  4. Partner with experts. Armed with these fundamentals, you are ready to begin looking for deals, and this is where other resources come in. Industry networks like the Global Impact Investing Network (GIIN), US SIF, and the Mission Investors Exchange provide detailed, user-friendly information on entering the field. And partnering with impact investing experts will help you find the right deals without having to devote enormous resources to it.

    Field experts who know the space and players will have a sense of where to look for deals that meet your client’s basic parameters, as well as the relationships with fund managers necessary to structure deals. They can also help assess risk and reward, which is different for impact investments than for traditional investments:  the ways in which you gauge the social impact of an opportunity is not standard, but customized for each investor. Moreover, experts can help you establish a monitoring system that ensures you can provide your client with regular updates on the investment’s performance.

    Having partnered with wealth advisors on a range of activities—assessing specific deals, helping them integrate impact investments into current portfolios, guiding the process of getting started, and sometimes simply serving as an on-call partner to help with questions or issues that arise—we believe there is enormous potential for professionals to work together to meet growing client needs and build the field.  

Contrary to popular belief, a wealth advisor who learns enough about impact investing to be able to ask the basic questions is well on his or her way. Partnering with others and outsourcing, so to speak, the nitty-gritty, will enable you to meet new client demands without having to overhaul your practice.

About Arabella Advisors

Arabella Advisors is an advisory firm that helps philanthropists and investors achieve greater good with their resources. They support clients in using all their assets – grants, investments, relationships, and time – to maximize for positive impact. Their comprehensive and personalized services help deliver results for families and individuals, institutional foundations, impact investors, and corporate clients worldwide.

Read more: http://www.arabellaadvisors.com/

 


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Blog Tags: financial return   fund manager   impact         wealth advisor   

Investors sit in a meeting
Photo of investors by The Orkla Group. Edited by Global Partnerships. Used under Creative Commons Attribution License. Source: https://flic.kr/p/6zyzsH.

3 emerging trends in impact evaluation


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by Tara Murphy Forde, director of research & impact, Global Partnerships 

It isn’t every day that you get to geek-out with a room full of people who spend their days trying to measure the often intangible impact of small and growing businesses in emerging markets. Each year members of the Aspen Network of Development Entrepreneurs (ANDE) gather in Washington, DC to discuss common challenges and solutions for metrics & evaluation. This year the attendees included a diverse group of investors, capacity development providers, researchers and entrepreneurs who all share Global Partnerships’ (GP’s) commitment to thoughtful and rigorous impact evaluation. As a new member and first-time attendee, I was struck by the diversity of our approaches yet the shared nature of the challenges we face in trying to understand and measure the impact of our work.

Emerging trends in impact measurement

This year the conference focused on “Measurement in Action,” highlighting the catalytic effect that collective action around measurement can have for the small and growing business sector. In conjunction with the conference ANDE published its annual “State of Measurement Practice in the SGB Sector” report, which uses data and interviews with 30 different organizations to identify and analyze key trends in measurement practice. The following emerged:

  1. The need to balance and align social metrics with financial performance indicators

  2. The need to place greater emphasis on transparency and attribution

  3. The need to develop more efficient data collection and data management approaches

Based on these points, A New Vision for Shared Metrics was put forth for discussion and feedback. While there was lively debate about how, there was general agreement on the need to move beyond the focus on accountability (Metrics 1.0) and standardization (Metrics 2.0) to value creation (Metrics 3.0).

Creating value through impact measurement 

In order to invoke action, ANDE asked each member to reflect on the following questions, which I will take a moment to share here:

What should your organization do to create more value through impact measurement?

What we at GP are currently working on:

What more can we do:

1. Developing a rigorous, consistent, and iterative evaluation practice that is grounded in the existing body of evidence, empirical knowledge, portfolio data, and targeted case studies/impact assessments

1.a. Document and share learnings with investees, investors, and industry peers

1.b. Encourage knowledge exchange among investees to facilitate the adoption of best practice

2. Selecting metrics that matter to our investees and where possible aligning them with IRIS Standards

2.a. Invest in the data collection and reporting capacity of our investees

2.b. Provide feedback to IRIS regarding our experiences with implementation

3. Tackling the difficult yet pressing question of how to quantify GP’s contribution to downstream impact

3.a. Engage in frequent dialogue with other ecosystem actors who are tacking this same question

3.b. Be more explicit about the logic and assumptions behind our measurement approach

 

What does Global Partnerships need from the sector to make this happen?

  • Consolidation and sharing of the evidence base
  • Collective investment in the measurement and evaluation capacity of small and growing businesses
  • Development of information systems and technologies that facilitate accurate, easy, and efficient data collection in often remote locations

Walking away from the conference I was both energized and hopeful about what we as a sector can accomplish in our efforts to create more value through our impact measurement efforts. I look forward to ongoing exchanges and partnership opportunities that may emerge through our activity in the ANDE network.  Stay tuned for updates!


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Blog Tags: ANDE   Aspen Network of Development Entrepreneurs   impact evaluation   impact measurement   measuring impact   metrics   

Caroline Ashley presents on the Department for International Development’s (DFID) approach to impact measurement during a break out session at the ANDE annual metrics conference. Photo © Global Partnerships.
Caroline Ashley presents on the Department for International Development’s (DFID) approach to impact measurement during a break out session at the ANDE annual metrics conference. Photo © Global Partnerships.