Impact Investing: how do we harness the hype?

There is a lot of hype about impact investing. Investors speak of a 1 trillion USD sized market. Social enterprises reposition their business model and restructure their financial model to attract, absorb and grow through investor capital. Despite the enthusiasm, the actual volume of impact investment transactions remains minimal at best. The Schwab Foundation for Social Entrepreneurship took this week at Davos to convene several important discussions about how to harness the hype and create results that are both practical and impactful.

On Tuesday, before the Annual Meeting began, the Schwab Foundation for Social Entrepreneurship hosted a private discussion on the possible future scenarios for impact investing. The participants were asked to map out what the space could ideally look like in 2030, and work backwards to identify the constraints and facilitating factors for this ideal state. The intimate discussion, which included a handful social entrepreneurs and several mainstream investors who are just entering the space, was moderated by Professor Johanna Mair, Chair of the Global Agenda Council on Social Innovation and Editor of the Stanford Social Innovation Review.

Later in the week, the Schwab Foundation and the investors community of the World Economic Forum co-hosted a gathering that brought together some 30 CEOs, CFOs and Chief Investment Officers of the world`s most powerful private equity, venture capital, and investment management firms with 20 leading social entrepreneurs, as well as important players in the field including foreign investment authorities, pension funds and leading business professors. In an interactive and dynamic simulation, they were challenged to build a concrete investment case comprising both an economic and ESG (environmental, social, governance) bottom line. This exercise helped build empathy and a spirit of collaboration among the diverse participant group. The ensuring dialogue created actionable next steps and helped defuse some of the hype around the impact investment class.

Discussions like these are critical to help investors and social entrepreneurs start speaking the same language. Financial institutions like UBS, which recently launched at $100 million impact investment fund, have already made large commitments to the field. However, there is still a dearth of information for newer investors on how to navigate the impact investing sector.

For this reason the Schwab Foundation partnered with Credit Suisse to produce the report Investing for impact: how social entrepreneurship is redefining the meaning of return. Contributors include Jed Emerson, Cathy Clark, and Acumen Fund’s Brian Trelstad and Rob Katz. The investment profiles of five social enterprises in the Schwab Foundation network are featured in the report. Working in sectors as diverse as health care, education, and job creation, these organizations are united by their innovative yet pragmatic approaches to solving social problems. They are:

· Felipe Vergara of Lumni in the US and Latin America; investment funds would be used to set up a Chile Fund to finance the university education of low-income students
· Asher Hasan of Naya Jeevan in Pakistan; equity and grant funding would underwrite a new initiative to provide health insurance to workers making less than $6 a day
· Patrick Shofield of The Indalo Project in South Africa; grants and low-interest loans would be used to establish twelve new craft producer groups
· Bam Aquino of Hapinoy in the Philippines; investment funds would allow Hapinoy to expand its model to less developed islands in the archipelago
· Kyle Zimmer of First Book; a loan will finance expansion of their services to reach 35,000 children in Mumbai, India.

The social enterprise sector is on the cusp of achieving significant scale and impact, thanks in no small part to the recent influx of investment capital. But to ensure the capital remains a tool to build the sector and not the other way round, investors must take the longer view, get comfortable assuming greater levels of risk, and be willing to deploy a mix of financial tools most suitable for social enterprises’ needs. And take heart: you are laying the foundations for a new economy.

 

 

Editors Note
Abigail Noble, Head of Africa and Latina America, Schwab Foundation for Social Entrepreneurship