Impact Investing’s Role in Global Development

I recently went to an event at the Center for Strategic and International Studies called ‘Impact Investing: An Opportunity for Development?’. The event brought together a diverse panel of experts from the private and philanthropic sectors to discuss what the title implies: impact investing and its potential to address global issues.

With all the hype surrounding it these days, impact investing could easily be considered the magic remedy for international development and economic growth. Part of its allure is the promise that both investors and investees can win.

Filling funding gaps

Saadia Madsbjerg, Managing Director at Rockefeller Foundation, opened up by pointing out the need for more capital for development. She noted that there was a $200 trillion funding gap in dealing with the problems in the developing world – a gap that impact investing could help fill.

Impact investing is a fast growing segment of the investment marketplace, and will continue to grow. Although the market has not been fully quantified, GIIN with J.P. Morgan released their annual investor survey report for last year, which showed more than a hundred investors (organizations, foundations, institutions and individuals) reporting to manage over $60 billion in impact investments. Calvert Foundation investors alone have invested more than $1 billion since 1995. John Simon, Founding Partner of Total Impact Advisors, asserted that impact investing is growing at about $10 billion a year and will continue to grow for the foreseeable future. Stats like these are impressive; but if philanthropic and public sector funding gaps continue to grow in the trillions, even with its projected growth the impact investing sector won’t be able to fully address those gaps.

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Press Release: Africa Finance Corporation increases stake in Cabeólica Wind Farm

Africa Finance Corporation (AFC) has completed the purchase of InfraCo Africa’s stake in the Cabeólica Wind Farm. The deal follows the share purchase agreement signed on 6 May 2015 in which AFC agreed to purchase InfraCo Africa’s remaining stake in the project.

Cabeólica is the first privately-financed sustainable wind farm on a commercial scale in sub-Saharan Africa. Operating across four of Cape Verde’s islands (Boa Vista, Sao Vincente, Sal and Santiago) and consisting of over 30 wind turbines, it has a total installed capacity of 25.5MW, equivalent to around 20% of Cape Verde’s energy needs. To date, Cabeólica has generated over 300,000 MWh of clean wind power.

The project has transformed Cape Verde’s access to electricity. Prior to becoming operational, the islands suffered from chronic power shortages and were heavily dependent on imported oil, with only 2% of the country’s energy needs being sourced from wind power. Today, Cape Verde benefits from a reliable and extended electricity grid.

Andrew Alli, President & CEO of Africa Finance Corporation said:

“We are very excited to take a larger part in this ground-breaking project. Cabeólica provides access to electricity for 360,000 people, which is about 72% of the Cape Verde population. The project is staffed entirely by skilled Cape Verdean employees and with sustainability at its core; it has avoided an estimated 55,000 tonnes of carbon emissions a year and averted the need to import 15 million litres of diesel a year. The additional share purchase will allow further expansion and other uses of wind energy in Cape Verde. We are very proud of our growing work in addressing Cape Verde’s energy needs though sustainable measures, all the while seeking a competitive return on investment for our shareholders.”

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Gambia: GCCI, GEF/UNIDO Project convene SME forum on renewable energy

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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