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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Impact Investor Filling Financing Gap in Ethiopia

There are more and more people doing impact investing in Africa, seeking both to be of help to the people there and to take advantage of the rapidly growing economies there. Matt Davis of RENEW LLC is one of this breed of impact investors.

RENEW has invested in several companies in Ethiopia, including METAD, a coffee grower, and Mama Fresh, a producer of Ethiopian food, including the staple injera.

Davis says, “There is both a development challenge and a market challenge in Africa that we are addressing.”

“The development challenge is that the financial systems in many countries in Africa are fragmented, and little to no capital is available to finance the growth of small and mid-size businesses (SMEs),” he explains. “At the top of the economic pyramid, bank and institutional financiers tend to back large multinationals. At the bottom, microfinance institutions lend only small amounts at high rates to micro-enterprises. But there is nothing to finance small and growing businesses. Thus, we have what is called the ‘missing middle’ in these economies, and SMEs are inhibited from growing into large companies, creating jobs, generating tax revenue, and stabilizing the economy along the way.”

Moving to the second challenge, Davis says, “The market challenge is related to supply and demand. The supply of private equity is growing across Africa, as international investors move in seeking higher risk adjusted returns. Yet these investors are not able to find enough companies able absorb the minimum investments they are willing or able to make. Addressing both challenges requires a new financial actor and intermediary to stimulate financing and growth for SMEs.”

Davis led the creation of the Impact Angel Network (IAN) to invest in Africa, with an initial focus on Ethiopia. “The IAN addresses the problem of the ‘missing middle’ by being a source of financing for SMEs. The IAN invests in professionally vetted and managed companies in Africa that are led by strong management teams looking to scale. RENEW manages the IAN’s portfolio in-country and addresses a trust and skill gap that has kept many U.S. investors from being active on the continent of Africa.”

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Beyond Disruption: The Age of the Impact Entrepreneur

IN MIKE JUDGE’S excellent comedy series “Silicon Valley”, the much clichéd mission statement of start-ups claiming “to make the world a better place” is mocked to full effect. In one episode, a handful of start-ups line up to pitch to a panel of investors. They all conclude their presentations with the same lofty ambition, pledging to do their bit for the world.

So, why has bettering the world become a mantra for a new generation of entrepreneurs?

More than ever, today’s entrepreneurs are striving to build businesses that make a difference in the world. Businesses that make money — but pursue a path greater than just profit. Call it altruistic-capitalism, or, as I prefer, “impact entrepreneurship.”

Impact entrepreneurs are driven by a desire to disrupt the status quo. Doing their bit to push the world forward is what gets them out of bed in the morning. They believe in creating businesses that are more ethical and transparent, dislodging the dinosaurs that give the consumer a bad deal. They believe in starting businesses that make people’s lives easier, removing unnecessary complexity. Simply put, they don’t believe in selling — they believe in solving problems.

Impact entrepreneurs embody the George Bernard Shaw quote, “the reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

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