Scaling successful models

Impact’s involvement with education has so far been limited, but some success stories have emerged and these can be scaled using further injections of impact finance. One outstanding example is Bridge International Academies, a for-profit whose standardized “academy-in-a-box” model has been highly successful in delivering quality education to poor communities in Kenya.

To date, Bridge has enrolled 95,216 pupils, and counting, with high rates of attainment when compared to traditional forms of schooling. With continued growth in Kenya and plans to extend its reach to other African countries, Bridge shows that it’s possible to come up with scalable models for education delivery.

Bridge represents a new breed of company taking a new approach to education. Cross-sector collaboration has been part of its fabric from the beginning and continues to be central to its development. The company was founded on the partnership between Jay Kimmelman, the entrepreneur behind successful software company Edusoft, and Shannon May, a development specialist. It was established using capital from a wide range of investors including aid agencies like OPIC and DFID, venture capital investors like LearnCapital and Rethink Education and impact investors like Omidyar Network and CDC.

This co-investment approach shows the range of players in the arena and the potential for fruitful collaboration, a theme evident across the whole education investment sector. By using such techniques, it will be possible to generate the capital necessary to bring other promising models to scale, rolling them out across more regions and adapting them to answer local needs.

Exploring the potential of edtech

Impact investors already love cleantech and greentech, but edtech, the new buzzword for education technology, is still largely unexplored ground for the impact sector.

But what is edtech? Edtech involves using information technology—including tablets, smartphones and computers—and working through various media, including social media, to deliver instruction. Its practice involves enhanced learning through computers as well as remote learning and massive online courses, or MOOCs. “Edtechers” in schools, universities and businesses design and produce online classes, tutorials, training programs and exams and then deliver them to students using technology.

Edtech is widely considered to be the new frontier in global education and the momentum behind it is growing. The UK government, long a leader in the development of socially beneficial areas of enterprise, has established an edtech incubator. Meanwhile, mainstream markets and venture capitalists are beginning to get excited about the potential of edtech, with some pundits making bullish predictions about its future The edtech market is projected to grow to $220 billion by 2017, with the US market growing by 47 percent and the EMEA countries (Europe, Middle East and Africa) projected growth standing at around 25 percent.

For impact investors, the rise of edtech, with its potential for delivering returns at both market and below-market rates as well as non-financial benefits, represents another possible entry point into the education marketplace. Education, like clean water, is popularly considered to be a good thing per se and this makes edtech an uncontroversial investment, which in turn should make it attractive to a number of different kinds of socially motivated investors. It’s no coincidence that Bridge founder Jay Kimmelmann was an edtech entrepreneur before he became CEO of Bridge International Academies, a mission-driven education delivery business.

This crossover is important when it comes to financial arrangements, too. Two of Bridge Academies’ major investors,  LearnCapital and Rethink Education are venture capital funds that focus on edtech investing. In another example of collaborative investing, last year they joined forces with the NewSchools Venture Fund, a venture philanthropy organization, to capitalize Britebytes, a platform that helps educators manage their learning technology.
While none of the three organizations in this deal call themselves impact investors, all are pursuing investment strategies that blend business and social benefit through investing in education.

This deal gives us a glimpse of the investing landscape that surrounds edtech. It’s one that draws investors equally from mainstream finance, philanthropy and government, creating a potentially dynamic market for developing education solutions. Impact investors should take note, since the chances are good that more of these collaborative deals will be coming their way in the near future. By being prepared to work with a range of different co-investors with a range of motives and a variety of appetites for both reward and risk, impact investors can play their part in a growing marketplace.

Getting deeper into student finance

Demand for student finance is exploding in developing countries with growing middle classes and increased demand for higher education, such as Vietnam, South Africa, Brazil, Morocco, and India.

At the same time, in the developed world costs for higher education continue to rise uncontrollably in the face of government cutbacks, leading some students to take on unsustainable levels of debt while others have been priced out of the education market altogether. Default rates for student loans, already high, are rising and despite a growth in student numbers the gap between educational attainment rates for rich versus poor students is widening, notably in the US. At the same time, the value of a degree in real terms has never been higher and the demand for highly skilled workers, driven by the growth in technology businesses, is rising, a trend described in a recent book by Harvard economists Claudia Goldin and Lawrence Katz: “The Race Between Education and Technology”.

For all these reasons, student finance is now being hailed as the “new frontier in impact investing.” It makes sense: impact investing has a track record of success both in providing finance directly and backing institutions who do. Recent studies show there are already some workable models being used by non-banking financial institutions (NBFIs) in the developing world some of which are backed by impact investors: South Africa’s Eduloan and Trustco Finance in Namibia, for instance are using methods including social bonds to raise money to loan to students. Other groups are collaborating with universities or governments, negotiating terms, such as discounts and subsidies, that make the programs more sustainable and secure profits for investors. Still others provide finance directly to educational institutions. There is scope for expanding some of the more successful models globally.

In the developed world, there’s also room for growth. Despite the presence of mainstream lenders, solutions are needed in higher education finance, especially for poorer students. As the cost of higher education continues to rise above the rate of inflation, there are calls for new approaches including using privately-financed Social Impact Bonds, which would raise capital for student loans with repayment tied to performance, and Income Share Agreements (ISAs). In an ISA scheme investors pay the cost of college attendance in return for a percentage of the student’s income after graduation. Higher-earning students pay more, but those who earn less pay less to investors.

These are just some ideas for how impact capital could support access to education for all students. With luck there should be many more such innovative approaches mooted in the years to come—and many opportunities for impact investors to get behind the wave of change. As the demand for global education continues to increase and the urgency of the funding crisis becomes more acute, governments, philanthropies, international aid agencies and the public will ramp up the search for solutions. And, in a new era of openness to market-based approaches, impact investors should be ready to do their part.

By establishing a focus on education as an investable sector—and learning how to work collaboratively with a range of other investors—impact investors can help turn the tide in the global education crisis through supporting sustainable, business-based solutions.

Marta Maretich, Chief Editor, MaxImpact

As we established in Part I of this series, there’s a growing global demand for education — in other words, a huge potential market that could be catalyzed by an influx of impact capital.  Add to this the fact that education is pretty much universally recognized as an effective means to break the cycle of poverty and improve lives — it may be the most powerful single tool we have — and the low level of impact involvement in the sector begins to seem surprising.

Yet that’s the reality: of $2.5 trillion is spent on education worldwide, impact capital accounts for just $3 million. In a recent survey of impact investors, only 3 percent of assets under management were in the education sector as compared to 21 percent in microfinance and 11 percent in energy. Only water and sanitation came in lower, at just 1 percent.

Small deals, few deals

A closer look at deals gives insight into what’s happened to date. According to a recent report from D. Capital and Open Society Foundations (OSF), impact investors have hardly entered the education market and when they do, deal sizes are small with direct investments typically ranging between the $.5 million and $5 million. Investment though intermediaries looks slightly more robust, with technology venture capital funds raising the stakes to $10 million, but it’s still a mere drop in the ocean.

Impact’s role in financing the education sector hasn’t only been small in size, it’s been limited in scope, largely focusing on school infrastructure programs and, to a lesser extent, people (for example teacher training schemes). Impact investors have largely ignored the potential for investment in the wider educational ecosystem and have only very limited involvement in areas such as developing new services, tools and technology. Impact investment has been sharply divided, too, between market-rate investors who target middle and upper class populations and those with an impact-first attitude who target populations at the base of the socio-economic pyramid.

What’s keeping impact investors away?

Several factors help explain this picture. First, impact is still a relatively new sector whose development has been largely uncoordinated and sometimes patchy: in other words, just because a sector is worthy of more impact capital, doesn’t mean it’s received it yet.

Impact investing is beginning to develop a track record in areas like agriculture, clean technology and finance but this is largely thanks to the determination of a few leading proponents like Acción, Root Capital and Acumen, who targeted their investments in specific areas. By contrast, few impact investors have made education their sole priority and few have developed well-defined deal sourcing strategies for education even though quite a few (21 out of the ImpactAssets 50 funds, for example) claim education as one area of focus among several others. This suggests that education is often a sideline for impact investors, with small-scale education investments tacked on to ones in more popular sectors such as finance.

Partly, this may be due to the perception that education investments have little potential to produce returns (an assumption new developments in the sector will challenge). Another reason could be that education, unlike other sectors, has traditionally been the sole preserve of governments and, to a lesser extent, international aid agencies. Until now, non-state investors have claimed a relatively small slice of the education pie with private commercial funding accounting for only $500 billion of the $2.5 trillion spending total. The state monopoly on education has created little incentive for innovation or entrepreneurial activity, with the result that there haven’t been enough education deals out there to engage the growing impact sector.

Such market issues may be contributing to the shortage of investable deals and limiting levels of investment now, but the picture looks set to change. Squeezed public budgets and a new spirit of openness on the part of the development aid community are generating more interest in market-based solutions to the education crisis. This raises the possibility of increased entrepreneurial activity in the education sector with impact investment playing a more important role in its financial profile, especially in the form of collaborative investing arrangement with governments, philanthropic bodies and other private investors. The question now is, what exactly should that role be?

Learning to do more

With opportunities at various points in the market, there’s evidence that impact capital can help education in a number of important ways. “Where government is absent,” write the authors of the D. Capital/OSF report, “impact capital can help fill a basic gap that the state cannot. Where the government provides basic services, there is also ample room to supplement public services through congruent education for at-risk children, vocational training or adult literacy services.”

Beyond this, impact investors can do their part to strengthen the sector by:

•    supporting early-stage experimentation and innovation in education
•    innovating new kinds of financial approaches that support education and the ecosystem around it
•    working in collaboration with governments and nonprofits to back socially motivated education programs with impact capital
•    investing alongside venture capitalists and venture philanthropists in scalable education businesses
•    catalyzing co-investment from other sources, such as mainstream banks, private investors and aid agencies
•    scaling approaches that show promise, adapting them and rolling them out in other contexts and other regions.

Marta Maretich, Chief Editor, MaxImpact

The importance of supporting women was one of the main leitmotivs of the Africa Impact Investing Leaders Forum, held in London on 27 Oct, 2016. Delegates asserted that this historically disempowered group plays a pivotal and well-documented role in augmenting positive social, economic and environmental outcomes – particularly when impact investments find their way into microfinance, agriculture, renewable energy and infrastructure sectors.

Women are integral to social impact investing

Speaking from the podium, Suzanne Biegel, founder of Women Effect, urged all investors to use a “gender lens” when considering impact ventures. And to ask some salient, due diligence questions, such as: “Where are the women in this investment? Are they on the product design team if the product concept is for women? Do they have a formal leadership or decision-making role where the project in question is targeting women”?

Caroline Mulwa, Kenya country manager of social impact investor, Oikocredit, agrees wholeheartedly with this view. Referencing the smallholder agriculture sector, she says: “88% of Africa’s female population live in rural areas; 70% of agricultural labour is provided by women; 90% of all food is produced by women, but women own less than 2% of the land. Yet women have a significant, measurable, positive impact on small business ventures, local communities and families. And they have been proven to reduce investment risks”.

Mulwa highlights one of Oikocredit’s microfinance partners as “exemplary when it comes to considering the roles and needs of Kenyan women from every angle”. She continues: “KWFT – Banking on Women focus single-mindedly on the unapologetic financial support of women” – a phrase which Caroline says inspires her.

Led by women for women, KWFT has provided financial services to unbanked women in Kenya for over 30 years. With 800,000 clients now on their books, KWFT offer a unique product range spanning microloans, savings accounts, insurance loans and financial literacy training. Products are designed around the specific needs of women, such as planning for healthcare during pregnancy and childbirth; saving to ensure their own financial independence, and setting up small businesses. In-branch, KWFT provide footstools for teenage girls so that they can be on an “equal level” with bank tellers, as well as baby-changing and breast-feeding facilities for young mothers.

Across Africa, Asia, Latin America and central and eastern Europe, 86% of the end customers of Oikocredit’s microfinance partners are women, meaning that vital access to finance and other support is offered to around 39.5 million women worldwide. Scott Brown, president & CEO of VisionFund International likewise emphasises the importance of women in the impact investing space, highlighting that over 70% of the end clients of VisionFund’s microfinance partners are women.

Client Protection Principles (CPP) are critical to the due diligence strategies of both Oikocredit and VisionFund, and partners are required to demonstrate an ongoing commitment to eliminating any potential exploitation of end clients.

The impact investing potential within African agriculture

Agriculture, a sector in Africa which some say may be worth $1tn (£816m) by 2020, was also a lively theme during the forum. A panel, comprising leaders from Africa Agricultural Development Company, Alpha Mundi Group, ScopeInsight and Oikocredit, all highlighted how impact investing in smallholder supply chains can create one of the biggest impacts on reducing poverty – the UN’s sustainable development goal one.

Agriculture, however, is often characterised by extraneous economic, financial and other challenges such as the impact of extreme weather; changes in global commodity markets, particularly price and currency volatility; shifts in government policies and weaknesses in local infrastructure. In order for the sector to mature, panellists discussed the need for higher levels of professionalism (including stronger due diligence and governance) and more innovative, public-private partnerships for impact investments.

Applying her own experience of managing risks, Mulwa says, “It takes experience: taking risks, making mistakes, but learning from those mistakes”. She adds: “It also requires us to look beyond the obvious and take a long-term view. So, we first consider the social mission within our investment decision-making, thereafter weighing up the risks in the context of the longer-term potential. I’m referring here to “patient capital” and a willingness to consider a project that may not look promising in the short term, but might bear significant financial and social returns in the longer term”. Patient capital is an investing attitude which all panellists agreed is vital for successful impact investing.

Showcasing this approach in the context of Oikocredit partner, Githunguri Dairy Farmers’ Co-operative in Kenya, Mulwa explains how, at first glance, their request for €1.5m (£1.3m) investment – to set up a processing plant for 31 dairy farmers and 200 employees; producing 15,000 litres of milk and generating a €0 return – looked risky. Other investors backed off, but Oikocredit saw the long-term financial and social potential and went ahead. As with many so-called risky ventures which Oikocredit supports, Githunguri paid off. Today, the co-operative has 15,000 members and employs 8,000 people across their entire value chain. They produce 220,000 litres of milk each year and, in 2015, reported a turnover of €52m (£46m).

If you are interested in investing in the Oikocredit International Share Foundation*, please contact our UK office. Alternatively, if you are a mid-stage inclusive finance, agriculture, renewable energy or infrastructure venture looking for equity or debt financing in Africa, please contact our east Africa or west Africa teams.

*Capital at risk. Terms and conditions apply. 

By

Monica Middleton

national director, Oikocredit UK & Ireland

Join these organisations to scale impact and discover new opportunities at the next edition of the Africa Impact Investing Leaders Forum in 2017 by Registering your interest as a partner, delegate or speaker. >> http://aiilf.com/register-your-interest/ 

Trickle-down has no effect

There was a time when ‘trickle down’ was the favourite word in the lexicon of economists worldwide. According to this theory, as long as an economy is growing, the benefits will eventually make their way through the system.

For the proponents of trickle-down economics, the belief was that rising incomes at the top end of the spectrum would lead to more jobs, less poverty and higher incomes at the lower end – much like a rising tide lifts all boats. However, over time, it has proven to be a fallacy, just like any other belief in equitable wealth distribution as a natural course of events.

The Global Experience: The Rich get Richer

Indeed, a research study published by the IMF in June 2015 has decisively debunked the theory at a global level. The report titled ‘Causes and Consequences of Income Inequality’ in fact goes on to prove that a rise in incomes at the top can actually adversely impact overall growth, poverty and employment.

Looking at data from 159 countries from 1980 to 2012, researchers found that when the wealthiest 20% see their share of income rise by one per cent, the economy grows 0.1 percentage points slower over the next five years. Conversely, raising the income of the poorest 20% by a single percentage point raises annual growth by 0.4% over the same period.

While it lasted, the misplaced faith in the trickle-down theory appears to have exacerbated inequalities globally. A 2016 report by Oxfam has revealed that the richest 1% have now accumulated more wealth than the rest of the world put together. Meanwhile, the World Economic Forum notes in a 2016 article that the wealth owned by the bottom half of humanity has fallen by a trillion dollars in the past five years.

The African Experience: The Poor stay Poor

In Africa, this woeful absence of a trickle-down effect is borne out by the successive experiences of individual economies that have experienced stellar economic growth, such as Nigeria and Kenya.

Even as Nigeria recently became Africa’s largest economy with growth averaging over 6% each year from 2005 to 2014, the reality remains that most Nigerians still live on less than US$ 2 a day, while the country lags behind in key development indicators such as health.

On the eve of the country rebasing its GDP to factor in the contribution of new sectors to the economy, the then Finance Minister Ngozi Okonjo-Iweala, a former World Bank managing director, confirmed to the country’s business leaders that:

“It is clear that the top five to 10% is capturing most of whatever growth there is and people at the bottom are being left behind.”

Similarly, Kenya woke up to economic disparities with the government publishing a ‘Socio-Economic Atlas of Kenya’ at the close of 2014. The report exposed significant disparities in poverty levels across the country. Just before the government survey of income inequalities was released in November 2014, in autumn came news from theWorld Bank that Kenya had seen its economy grow 25% after statistical revision and is now officially a “middle-income country”.

As Nigeria and Kenya, the pin-up economies for Western and Eastern Africa respectively, wake up to trickle down woes, it is clear that the experiences of other African economies that are emulating their wealthier neighbours is likely to be no different.

Development Infrastructure to bridge the divide

Lately, a survey by Afrobarometer of 35 African countries released in January 2016, struggled to find any correlation between the reduction in poverty seen in 22 countries in the survey and the recent rates of economic growth.

Instead, it found that there was a high correlation between creation of development infrastructure and improvement in the lives of the people at large.

“ While growing economies are undoubtedly important, what appears to be more important in improving the lives of ordinary people is the extent to which national governments and their donor partners put in place the type of development infrastructure that enables people to build better lives,” the report noted.

Then, rather than pushing ahead with a blinkered focus on high GDP growth that is clearly not translating into employment security, poverty reduction or inclusive growth, the solution lies in concertedly creating a conducive environment for businesses that create jobs and empower persons at the base-of-the-pyramid.

Impact Investing to build the infrastructure

It is here that impact investing, with a focussed agenda to grow businesses that have significant socio-economic impact, can make a real difference to the lives of those at the base-of-the-pyramid, instead of trusting to trickle-down economics that has so far only seen the top 5-10% push their economic agendas through at the expense of the majority.

Impact investors seek to start at the roots and build a strong foundation for those pioneering entrepreneurs that are seeking to provide basic amenities such as shelter, food, water and education in a sustainable and viable manner, rather than simply choosing an investment that boosts their financial returns and is regarded as a conventionally ‘bankable’ business.

As a specialist SME financier in Sub-Saharan Africa and MENA, GroFin is one such impact investor that is making a difference to the lives of entire communities in its locations of operation. With a concerted focus on investing in small and growing businesses in priority sectors such as Education, Health, Food Security, Energy, Manufacturing and Water/ Sanitation, GroFin is helping local entrepreneurs tackle key community issues such as health, nutrition, education, electricity, water and sanitation.

So far, over 16 years of applying its SME finance and business support solution, GroFin has made a difference to 7,000 entrepreneurs, sustained over 62,450 jobs and changed the lives of more than 312,270 family beneficiaries through its investments.

Support impact investors such as GroFin and others in Africa with your efforts as an entrepreneur or funding partner. Remember, the fate of an entire continent could rest in your hands.

 This article was originally published by GroFin. 

“A lawyer sponsored us,” Yohannes says, through a refugee resettlement program of the Third Presbyterian Church in Rochester. Yohannes’ father, whose vision is mostly impaired due to stepping on a land mine in 1978, is now a board member of the church. “Being able to come to America and start over on humble beginnings even after stepping on a land mine is one of the reasons why our founders fought bloody battles,” Johannes adds.

His father now works in a probation office, managing cases involving domestic violence. His mother recently retired from a career in nursing. Yohannes went to law school in Buffalo, and clerked for a judge in Western New York. But thanks to another fortunate connection to a mentor in Washington, D.C., he got into the world of finance. “Finance was never in my language. My DNA is fighting for those who are in need and I got that from my father,” Yohannes says. Now, he can’t imagine himself in another industry.

President Barack Obama announced a new federal $1 billion fund for impact investing in 2011, and he eventually called upon Yohannes to finalize its design and make the program permanent. “This program makes sense to me because it fits my theme in life — make a dollar as well as create positive results for our country,” says Yohannes, whom the president officially appointed to serve as senior adviser to the chief investment and innovation officer at the Small Business Administration (SBA).

The specific goal of the $1 billion is to support small business investment strategies that maximize financial return while also yielding measurable social, environmental or economic impact. The program is housed under the SBA’s Small Business Investment Company (SBIC) licensing program. Under the impact investment program, SBIC-licensed funds promise to invest in small businesses in federal priority sectors and underserved communities, while at the same time contributing to the growth and development of the impact investment industry.

One possible example: using some of that $1 billion to invest in a small real estate developer that is also utilizing new markets tax credit financing for a project to create jobs in a low-income neighborhood.

The standard SBIC license has been a sweet deal for many venture capital or private equity funds. Under the program, for every dollar in capital they raise, the SBA matches up to 2-1, up to a maximum of $150 million. Fund management firms then go out with that federally supersized pool of capital and make investments in small businesses. The fund management firm eventually pays back the SBA, with interest. SBA operations require zero taxpayer dollars, instead funding operations through interest earned on its various investments such as SBIC-licensed funds.

The SBIC licensing program was born when President Dwight Eisenhower signed the Small Business Investment Act, on August 21, 1958 — a date that many would argue is also the birth date of the modern venture capital industry. The program provided the first legal framework as well as financial incentives for people to pool money from strangers for the sole purpose of investing in other strangers — specifically, small business owners. As two legal scholars wrote, in 1959, “Congress has for some time been acutely aware of the difficulties facing small business concerns seeking adequate long term financing for modernization, growth and development. It realized that commercial banks are not able to furnish such long term financing, that public [i.e. stock market] sale of small issues of securities involved prohibitive costs, and that private placements had afforded no general solution to the problem.”

The first SBIC-licensed fund managers were essentially the first modern venture capital firms. “The iconic venture capital firms and private equity funds, generally speaking, have received SBIC dollars or have had a SBIC license,” Yohannes says. “Arguably the most iconic brands have received investments through the SBIC license.” Apple, Intel, FedEx, Costco, Staples, even Build-a-Bear are just a few of the companies over the years that got early stage investment from an SBIC license holder.

While there have been more than 300 SBIC-licensed funds at this point, today they are only a small fraction of the venture capital industry, which has grown to have several well-known shortcomings. Eighty-seven percent of venture-backed startup founders are white; 92 percent are men. More than three-quarters of venture capital ends up in just three states: California, New York and Massachusetts.

In some ways, the SBIC program has already been addressing some of that. From 2011 to 2015, SBIC-licensed funds invested $21 billion in more than 6,400 companies, 20 percent of them located in low- to moderate-income areas. A majority of SBIC-licensed capital went into states other than California, New York or Massachusetts. Part of the impetus for the $1 billion SBIC Impact Investment program is to be more intentional about driving capital to communities that have long been neglected by venture capital and other investment sources.

“Early on it appears that our funds invest more in women and minority-led companies than your standard private equity fund,” says Yohannes. “We’re gonna continue to do that, we’re gonna continue to invest money in the Mississippi Delta, we’re gonna continue to invest money in Detroit, we’re gonna continue to invest money in American small businesses where gaps are the widest.”

So far there are seven impact SBICs. One of them, Bridges Ventures, comes from the U.K. Founded in 2002, Bridges Ventures was created solely for impact investing.

“We have a pretty high bar for impact at Bridges, which is one of the reasons why we felt comfortable committing ourselves to the SBA’s impact bar,” says Brian Trelstad, global partner at Bridges Ventures.

In the U.K., the firm has been active in the pay for performance (or social impact bond) space, for example. They regularly speak about or find other ways to share their evolving approach to impact investing, how to measure it and what are some case studies.

In the U.S., Trelstad says, they are looking at businesses that are located in or serve underserved communities, in the areas of health and wellness, education and skills, or environmentally friendly living.

The SBIC license was an invaluable tool to help them raise capital for the fund. Even conventional SBIC-licensed funds automatically qualify for Community Reinvestment Act credit, providing a strong incentive for banks. “It allowed us to get about $18 million of bank capital,” says Trelstad.

The SBIC impact investment licensing process for Bridges took about a year, but didn’t slow them down from their usual process. “While we were fundraising [from investors] we were also going through the licensing process at the same time,” Trelstad says, adding that one of the advantages of the impact investing program is that they could cut the line in front of others seeking conventional SBIC licenses. The SBA evaluates all SBIC licenses on a rolling basis.

Bridges Ventures has made one investment so far out of its SBIC-licensed fund, in an education company. In addition to businesses creating social impact, they’re looking for a few years of positive cash flow, ideally with $5 million to $10 million in revenue. “We have some flexibility to go earlier, but we’re not going to do a complete startup,” says Trelstad.

While the SBIC Impact Investing program was created as a temporary policy under Obama, Johannes and his team are still working to move it into permanent status. “Our goal is before the end of this year. I can’t say exactly when,” says Yohannes.

By Oscar Perry Abello

This section profiles several sources of potential impact investments suitable for institutional investors. Similar to conventional investment management, these sources include companies (private and public), indices, ETFs, and bonds (or other fixed income instruments). For investors who seek to define what makes an “impact investment,” refer to the Appendix for an explanation of IRIS, a series of metrics that encapsulates many environmental and social themes. It should be noted that the number of new impact investment vehicles continues to grow, and this is by no means an exhaustive catalogue. Whatever the objectives or preferences are, this guide can serve as an introduction to institutional investors who are interested in a broad overview of existing impact investment tools and vehicles.

Companies

Many funds choose to invest in companies individually based on their operations or mission. Some specialized venture capital firms, for example, choose to support only clean technologies. Although this is certainly possible for an institutional investor, investments in larger publicly traded companies may be preferred. Institutional investors can choose companies that value certain ethical guidelines in their business operations or products. To determine whether a company qualifies as an “impact investment,” several frameworks can be used. One popular concept that many companies adopt is “corporate social responsibility,” which is loosely defined as compliance with ethical standards in a business model. CSR frameworks can be used to identify companies or organizations that are ethical or impactful in their business operations. Another more active approach for companies is to make social or environmental impact the core of their mission. It is up to the institutional investor to select companies that best fit their appetite for impact (i.e. in operations or in mission) and preferences (e.g. investment horizon, company performance, and company size).

By Rachel F. Wang, Fellow, Bretton Wood’s Initiative.

Download her report at: https://na-production.s3.amazonaws.com/documents/Impact-Investing-for-Institutional-Investors.pdf

A recent study by the EY Global Family Business Centre of Excellence that surveyed 525 family business owners and managers across 21 countries found that nearly half (44%) of those surveyed make investment decisions targeting specific social objectives along with a financial return.

The report, entitled Family business philanthropy – creating lasting impact through values and legacy, found that family businesses globally invest, on average, 3.1% of their wealth in social impact investing, with the Middle East (investing 3.5%), Europe and Asia (both investing 3.4%) leading this trend.

Meanwhile, the majority of family business owners and managers perceive governmental support for social impact investing to be better than (28%) or similar to (62%) the support for traditional philanthropy, even though in reality, only the UK has specifically legislated to accommodate and encourage it.

Survey respondents see government incentives and regulation as key enablers of family business philanthropy. In most countries, taxation seems to be viewed as a key factor for both philanthropy and social impact investing. In countries with laws that promote tax benefits for giving, family businesses are more likely to engage in philanthropy.

Mr. Englisch opines that as companies grow in size, their commitment to philanthropy rises in tandem, emphasising that it is therefore, crucial that governments “harness this desire of family businesses to give back [to society] and make a difference”.

Delegation to external managers

When it comes to organising their philanthropic activities, up to 70% of family business owners were found to be operating via a family-specific vehicle, with 40% having a family foundation or trust, and a mere 30% operating through a family office.

In terms of the success of philanthropic activities carried out, more than half (56%) of all family business owners personally oversee the progress and effectiveness of their philanthropic projects, with very small and very large family businesses tending to exert more family control over the projects compared to mid-sized family businesses.

The recently published World Wealth Report 2016 by Capgemini reported that Asia Pacific (APAC) is now home to the biggest pool of capital after overtaking North America for the first time, holding US$17.4 trillion in wealth from high-net-worth individuals (HNWIs) and boasting a HNWI population of 5.1 million.

Within APAC, however, the degree of control varies according to country, which is likely to impact how family businesses manage their wealth and subsequently, their philanthropic activities. In Hong Kong and China – where the third generation is seen to be taking over the family’s inherited wealth and business – Enrico Mattoli, head of global family office, Greater China at UBS Wealth Management, observes an institutionalisation of family offices taking place, with management layers hired to manage family office affairs, governance measures implemented and traders or portfolio managers hired to focus on different specialisations.

Meanwhile, in other parts of Asia such as in Singapore where wealth is still largely concentrated in the hands of the first generation, Mandeep Nalwa, chief executive officer and founder of Singapore-based Taurus Family Office, says the delegation of investment responsibility does not come easy, which subsequently impacts the outsourcing of money management to funds.

“While the perceived value – in terms of the removal of the conflict of interest [element] – is well understood, oftentimes the firm belief by the family patriarch in his own ability to have checks and balances [in place] on private banks enables – mistakenly, in my opinion – high-net-worth families to dispense with hiring the services of a family office [manager], or a fund manager,” he explains.

By Asia Asset Management

The experience inspired Nyankamawu to create Volta, a company that builds solar power projects for health clinics, schools and farms across Ghana.

Volta’s customers pay for 25% of the capital costs upfront, and the rest via monthly payments over two years. None of Nyankamawu’s customers have ever missed a payment, Nyankamawu said.

“Our model works best when it’s a substitute for people who are already using diesel generators,” he added. “They’re saving up to 45% on their costs by switching to solar.”

I met Nyankamawu at the Clean Energy Ministerial in San Francisco earlier this month, an annual gathering of energy leaders from 23 countries and the European Union. The meeting marked the first time the ministers met since more than 170 countries signed the Paris climate agreement to limit the global temperature rise to under 2C, a goal that won’t be met without strong domestic policies that give the businesses incentives to invest in a low-carbon future.

I often hear criticisms that businesses, which account for most of the manmade emissions that are causing global warming, aren’t doing their part to keep the rising temperatures in check. Surveys and anecdotal evidence show that many corporate leaders don’t see their role in this global effort.

But that’s not what I have seen. A growing number of companies are turning to renewable energy to reduce their carbon footprint. I am impressed with entrepreneurs like Nyankamawu and other business leaders who work on making renewable energy affordable and accessible. And they represent progress. Putting money in renewable energy, whether through power purchase agreements with big solar and wind farms in the US, or tiny household-sized solar projects in Africa, was a rarity even just five years ago.

Many Fortune 500 companies recognize a direct connection between climate change and their financial wellbeing. Earlier this month, a half-dozen major companies, including TD Bank and Interface, joined RE100, a coalition of businesses that are switching to 100% renewable electricity. The shift has been especially strong in the US, where large corporate buyers contracted a record 3.2 gigawatts of renewable energy last year, nearly 20% of the 16.4 gigawatts of renewables added to the US electric grid overall. That means tens of thousands of workers rely on solar and wind power to do their jobs, and that number will only go up.

One of the most impressive efforts I heard at the San Francisco meeting came from Lisa Jackson, who leads Apple’s environmental and social initiatives. Jackson talked about the company’s effort to use solar and wind energy to run its own global operations and the factories in China that make its iPhones and iPads, including a plan to bring online 2,000 megawatts of green energy there. The company would work with its suppliers there to build those projects.

Some of the most compelling stories came from Africa. Home to the world’sfastest growing population, the continent is a key front in the Paris climate agreement’s quest. In Tanzania, Off-Grid Electric allows homes and small businesses to install solar systems and pay for them via mobile phone payments. Off-Grid says it’s currently installing more than 10,000 solar units every month in Tanzania and Rwanda, and recently raised $70m from San Francisco-based DBL Partners and other investors to help hire more staff and expand operations.

More businesses will switch to renewable energy if they are able to finance it. We saw a record $329bn in global clean energy investment last year, but that falls short of the estimated $1tn that will be needed every year through 2050 to help achieve the 2C goal. A major emission producing country such as India, which aims to install 175 gigawatts of wind and solar power by 2022, will need anestimated $200bn to reach that milestone. The country attracted $10.9bn in clean energy investments last year, according to Bloomberg New Energy Finance.

There is one group of investors who could help fill that gap, but they have yet to value renewable energy investments: institutional investors. They manage public pension, insurance and other funds that are worth trillions of dollars. These investors are dipping their toes in clean energy in US and Europe but remain on the sidelines in emerging markets, which they consider particularly risky.

Michael Liebreich, founder of Bloomberg New Energy Finance, likened the challenge of fighting climate change to climbing Mount Everest: “We’ve just reached base camp.”

No doubt, getting to the top of the mountain will require huge participation from the business community globally.

The window of time to summit is now – and they’ll need to move quickly.

By Peyton Fleming

It’s no secret impact investing is mainstreaming quickly, with large, commercial investors like Zurich, Blackrock, and UBS taking significant strides. Yet the question remains: just how rapidly is the market changing, and what are the implications?