Impact Investing: What Will It Take to Get to Scale?

The world is rapidly changing. Global population has reached 7.3 billion and is predicted to increase to 9 billion by 2050. Eighty percent of the world lives on less than $10 a day. There is pervasively poor access to good jobs, healthcare, education, and housing. Dwindling natural resources, increasing drought and climate-related natural disasters, and insufficient access to energy and sanitation are omnipresent. In order to meet the demand of a fast-growing population, food production must increase by 70 percent.

The status quo of how capital is currently deployed can no longer support this changing world. Philanthropy and government aid are insufficient to solve the world’s most intractable social and environmental issues. There is mistrust of the capital markets, with their myopic focus on quarterly returns rather than long- term value creation.

Impact investing represents a paradigm shift, allocating capital for measurable social and environmental impact as well as financial returns. It focuses on maximizing stakeholder value rather than concentrating exclusively on shareholder value.

Impact investing in the US totals $6.5 trillion, a fraction of the $43 trillion of all US assets undermanagement. The vast majorityof impact assets are invested in the public markets through socially responsible investing (SRI) and environmental, social, and governance investing (ESG) strategies. Deep impact investing — investing in privately held impact ventures and funds — represents just $60 billion worldwide. Impact ventures focus on job creation, financial inclusion, sustainable agriculture, health, education, housing, energy, water, and sanitation.

What will it take to create greater growth in impact investing across asset classes? First, let’s look at the key players in the impact investing landscape and take stock of current activity and hurdles, both real and perceived.

IMPACT INVESTING’S KEY PLAYERS

1 – IMPACT INVESTORS

Impact investors range from individual (retail and high net worth) to institutional (foundations, pension funds, university endowments). High net worth investors have been leading the deep impact investing charge. Through angel investment groups such as Toniic and Investors’ Circle and peer networks like the 100% Impact Network and The ImPact, the deep impact investment movement has been growing. Increasingly, there are deep impact options for retail investors, including offerings from the Calvert Foundation, ImpactAssets, The Nature Conservancy, and RSF Social Finance.

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6 Facts About The Nigerian Impact Investing Landscape

Some actors believe that Nigeria may be in some sort of ‘impact investing bubble’. This thinking is encouraged by the lack of a record of successful exits and the growing skepticism in the long-term viability of existing impact investments, according to the Global Impact Investing Network (GIIN) report on the landscape of impact investing west Africa.

Impact investments are investments made into companies with the intention to generate social and environmental impact along with a financial return.

The research conducted in partnership with Dalberg, with support from the UK’s The Impact Programme also revealed that the recurring mischaracterization of Impact Investing with [venture] philanthropy has led to difficulty in raising capital because a fair amount of local investors are convinced ‘impact investing’ implies a compromise on financial returns.

Here are 6 more facts about the Nigerian impact investing landscape:

1: Nigeria leads the way in impact investing in West Africa

Twenty eight impact investors are active in the country, including 20 non-DFI and 8 DFI investors.

2: Impact investment deals in Nigerian amount to $ 1.9 billion in last decade

Identified impact investments (which include deals made by all DFIs – Development Financial Institutions –  and 12 non-DFIs) amount to USD 1.9 billion in deployed capital across 181 direct  investments since 2005

3:  Impact investing is still playing small in Nigeria

Although the impact investing sector in Nigeria outpaces other countries in the region, the community of investors is small relative to the size of the market. Ethiopia, for example, is less than a quarter the size of Nigeria in terms of GDP, but has almost triple (58) the number of non-DFI impact investors.

4: Investors are not local

Only seven of the 28 identified impact investors have a local presence as at December 2015. This is because of the high cost of living and operating businesses in the country. Nigeria ranks 170 out of 189 countries on the 2014 World Bank Doing Business index.

5:  The TEF is the only identified truly local impact investment fund

The Tony Elumelu Foundation—funded through the personal wealth of a Nigerian national, Tony Elumelu—is the only identified impact investor that relies significantly on local sources of capital

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How Millennials Are Driving Impact Investing

Millennials are demanding that their money is put into companies that are truly doing good. 

Environmental, Social, and Corporate Governance (ESG) investing is on the rise, driven in large part by millennials who want to make a difference. Millennials agree with financial advisors, such as Thomas Van Dyck, senior VP, RBC Wealth Management who says that “investment is the economic expression of our thoughts and values.”

In fact, a recent survey conducted by Morgan Stanley found that millennials are twice as likely to both invest in companies or funds that target specific social / environmental outcomes and divest because of objectionable corporate activity. A US Trust survey of 680 high-net-worth and ultra-high-net-worth adults found that 67% of millennials view their investment decisions as a way to express their social, political and environmental values, and 73% believe that it is possible to achieve market-rate returns investing in companies based on their social or environmental impact.

At the same time, a growing number of asset managers have teams dedicated to evaluating and building ESG portfolios. According to the Forum for Sustainable and Responsible Investment (USSIF), ESG investments under professional management in the U.S. grew from $3.74 trillion at in 2011 to $6.57 trillion in 2013. Blackrock Impact, Goldman Sachs, Bank of America, JP Morgan Chase all have ESG initiatives; and ESG mutual funds have also skyrocketed in recent years.

Factoring personal values into financial investments is hardly a new phenomenon. But it has gained significant traction with millennials, especially since the 2008 financial crisis and the demand for financial services organizations to have greater transparency.

Banks are responding to millennials who are impressively relentless with their demands for transparency and accountability in most aspects of their lives. According to recent surveys by PwC and Deloitte among many others, millennials are very discriminating about the jobs they choose, the products they buy, where they shop and how they invest.

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Is Africa Leading the Innovation Revolution?

Necessity is the mother of invention, and in Africa it has been the mother of innovation. While the continent is vastly different, the level of innovation has been interesting to watch, largely fuelled by the equalizing nature of technology and mobile telephony.

Over the last 15 years, African economies have enjoyed growth above the global average. This has largely been fuelled by mineral agriculture, with growth linked to China’s demand for raw materials. While this demand from China is now slowing down, the rise of African countries is a new story.

It is estimated that in 2016, the African population will reach 1,069 billion people, the majority of whom are under 30. Africa has the highest rates of urbanisation; its poor infrastructure, which has previously hampered growth and development, is now a catalyst for innovation. The mobile phone in Africa has become a game-changer for the continent. According to Ericsson, the technology company, by 2019 there will be 930 million mobile phones in Africa, almost one for every person on the continent. There is greater mobile penetration than electricity penetration. Now, people are able to connect, get news, trade, get access to healthcare and even transfer money.

View a larger version of this graphic here.

One of the biggest innovations to come out of Africa is mobile money transfer, which has disrupted traditional financial models. The technology behind it has now been exported to the West. The continent is starting to see the rise of e-healthcare solutions and online education solutions, two of the biggest challenges on the continent.

For the first time, we are seeing a trend of being technology generators rather than just adopters, and we are seeing more innovators from the west move to the continent due to an easier, and in some cases non-existent, regulatory environment, which enables greater experimentation in the market with few competitors. These include new drone technology for the delivery of goods to leapfrog the infrastructure divide.

Overall, there seems to be good news for the continent, as Africa looks to technology to catalyse new areas of growth, a good example being East Africa, with Rwanda and Kenya in particular championing the need for an enabling environment.

“We need to ensure women are part of this revolution”

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Cape Town’s RLabs opens applications for InnovIA accelerator

Cape Town-based social impact incubator RLabs has opened applications for the 2016 cycle of its Innovation, Incubation and Accelerator (InnovIA) Programme, aimed at turning innovative ideas into scalable social enterprises.

Founded by Marlon Parker in 2008, RLabs is a global movement and registered social enterprise that provides innovative solutions to address various complex problems.

Its core activities are skills and training, community development, social and disruptive innovation, mobile and internet solutions, social enterprise incubation, impact investing and social franchising.

Disrupt Africa reported in November the incubator showcased 10 new startups that graduated from the InnovIA programme, bringing the total number of innovations it has produced in four years to 47.

“The RLabs InnovIA programme, now in its fifth year offers an exciting and invaluable opportunity for innovators and social entrepreneurs to grow and build their enterprises. This 12-week programme is designed to assist participants during their startup’s most vulnerable period, and support taking an idea or product to market,” RLabs said.

Aspirant social innovators and entrepreneurs are invited to apply online, with applicants to be subjected to a selection process. If successful, they will be expected to commit themselves or one team member to the programme.

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