The role of education in improving the people’s lives and encouraging economic development is widely recognized, making it a focus for national governments, philanthropic bodies and international development agencies. Increasingly, it’s viewed as an indispensible tool for easing poverty, reducing inequality and boosting economic sustainability. Research has shown that one year of education can increase wages by five to 15 percent, while each year of secondary school raises them by up to 25 percent.

What’s more, quality education for all—including marginalized groups, women and adult learners—can generate huge economic rewards for a country, increasing its gross domestic product per capita by 23 per cent over 40 years.

More investment is needed—right now

There’s little doubt about the value of education. Yet, despite making commitments to Millennium Development Goals in education, the global community has so far failed to come up with the investment needed to hit education targets. While spending on education by low-income countries has increased by an average of 2.9 percent to 3.8 percent of GDP over the last decade rich countries have not stepped up to the same degree.

In 2010 estimates showed that an additional $16 billion per year would be needed just to provide basic education for children, youths and adults by 2015. However, actual spending has hovered around the $3 billion mark annually. The result is a funding gap that has almost doubled in the intervening years. Today, estimates place the annual financing shortfall at a staggering $26 billion.

It now seems likely that the Millennium Development Goal for education will not be reached by the 2015 deadline and there are concerns on the part organizations like Education for All about what will happen to education development post-2015 and in years to come.

In a further development, low-income countries and poor populations aren’t the only ones facing an education crisis. The education systems in rich countries like the US, the UK and Australia, for instance, are also suffering from the effects of squeezed public budgets and skyrocketing costs, especially in the higher education sector. This has left educational attainment rates dropping, especially among poor people and minority groups, over a number of years.   Many would-be students are priced out of access to higher education just when the need for an educated workforce is on the rise.

Innovative finance solutions

So what can be done to help the poorest attain access to quality education and the better-off optimize their access to higher forms of learning? The key, recent research suggests, is to bring more private capital into the sector and to experiment with new kinds of investments that target specific educational problems and meet the needs of specific groups.

In many parts of the world, education has until now been the sole preserve of governments and development aid agencies, but there is evidence that this is beginning to change as new funding approaches — like impact investing— gain popularity and prove their viability. Though governments and development aid agencies will continue to play a central funding role, the education sector is now actively looking for ways to attract private capital, often in the form of impact investment, as a means to fill that yawning $26 billion funding chasm.

Though it’s early days, there’s already evidence that impact finance can be effective in education.  George Soros’ Open Society Foundations have produced some first findings on impact investing in developing countries’ education systems. The results suggest that workable models are evolving on a small scale, often in collaboration with governments, and some are already showing respectable track records of financial return and demonstrable benefit.

These indications are hopeful, yet impact investing in education is still in its infancy. Education accounted for only 3% of the investments of participants in the GIIN’s recent sector survey, a figure that suggests that impact investors have been hesitant to engage in this sector.

The OSF report confirms this image of tentative, early-stage activity in education by impact investors:  “Most deals remain small, and investments in schools currently dominate deal-making, with more innovative technology and management models just beginning to emerge. As yet, few business models deliver strong immediate financial return while reaching the most vulnerable beneficiaries.”

More worrying perhaps is the fact that impact’s involvement in education investing remains split into two camps, according to the report. On the one hand there are impact investors focused on “reaching the lowest income populations without expectation of any financial return”; on the other are investors who expect market rate returns and place capital into deals that “target middle and upper class populations.”

By now, this is a familiar situation for impact, with well-meaning investors in many sectors still struggling to find ways to engage with the middle ground and find models that meet needs while maintaining profitability. Yet, given the pressing global demand for education, there is enormous potential for innovation, both in terms of finance models and in terms of education delivery methods. With more impact engagement—and a renewed commitment by the education sector to finding new ways to finance and deliver good quality education on all levels—there is scope for significant  positive change in which impact investing can play a significant role.

By deepening its commitment to investing in education, the impact community has the opportunity to help solve one of the world’s greatest challenges.In the next blog in this series, we’ll be looking at the places where impact capital has the potential to be most effective in the education sector. As the need for education continues to grow, so will the range of methods and approaches for private capital, including public-private collaborations, an expanded role for impact intermediaries, and new technologies with the potential to deliver education to underserved communities as never before.

By Marta Maretich

More than 35 CEOs and civil society leaders of the Business & Sustainable Development Commission (the Commission) today reveal that sustainable business models could open economic opportunities worth at least US$12 trillion and up to 380 million jobs a year by 2030. Putting the Sustainable Development Goals, or Global Goals, at the heart of the world’s economic strategy could unleash a step-change in growth and productivity, with an investment boom in sustainable infrastructure as a critical driver. However, this will not happen without radical change in the business and investment community. Real leadership is needed for the private sector to become a trusted partner in working with government and civil society to fix the economy.

In its flagship report Better Business, Better World, the Commission recognises that while the last few decades have lifted hundreds of millions out of poverty, they have also led to unequal growth, increasing job insecurity, ever more debt and ever greater environmental risks. This mix has fueled an anti-globalisation reaction in many countries, with business and financial interests seen as central to the problem, and is undermining the long-term economic growth that the world needs. The Commission has spent the last year exploring a central question, “What will it take for business to be central to building a sustainable market economy—one that can help to deliver the Global Goals?” Better Business, Better World—the release of which is timed with the World Economist Forum in Davos and the U.S. presidential inauguration—shows how.

“This report is a call to action to business leaders. We are on the edge and business as usual will drive more political opposition and land us with an economy that simply doesn’t work for enough people. We have to switch tracks to a business model that works for a new kind of inclusive growth,” said Mark Malloch-Brown, chair of the Business & Sustainable Development Commission. “Better Business, Better World shows there is a compelling incentive for why the latter isn’t just good for the environment and society; it makes good business sense.”

At the heart of the Commission’s argument are the Sustainable Development Goals (or Global Goals)—17 objectives to eliminate poverty, improve education and health outcomes, create better jobs and tackle our key environmental challenges by 2030. The Commission believes the Global Goals provide the private sector with a new growth strategy that opens valuable market opportunities while creating a world that is both sustainable and inclusive. And the potential rewards for doing so are significant.

The report reveals 60 sustainable and inclusive market “hotspots” in just four key economic areas could create at least US$12 trillion, worth over 10% of today’s GDP. The breakdown of the four areas and their potential values are: Energy US$4.3 trillion; Cities: US$3.7 trillion; Food & Agriculture US$2.3 trillion; Health & Well-being US$1.8 trillion.

“Global Goals hot spots” identified in the report have the potential to grow 2-3 times faster than average GDP over the next 10-15 years. Beyond the US$12 trillion directly estimated, conservative analysis shows potential for an additional US$8 trillion of value creation across the wider economy if companies embed the Global Goals in their strategies. The report also shows that factoring in the cost of externalities (negative impacts from business activities such as carbon emissions or pollution) increases the overall value of opportunities by almost 40%.

“At a time when our economic model is pushing the limits of our planetary boundaries and condemning many to a future without hope, the Sustainable Development Goals offer us a way out,” said Paul Polman, CEO of Unilever, and a commissioner. “Many are now realizing the enormous opportunities that exist for enlightened businesses willing to stand up and address these urgent challenges. But every day that passes is another lost opportunity for action. We must react quickly, decisively and collectively to ensure a fairer and more prosperous world for all.”

While the opportunities are compelling, the Business Commission makes it clear that two critical conditions must be met to build these new markets. First, innovative financing from both private and public sources will be needed to unlock the US$2.4 trillion required annually to achieve the Global Goals.

“As stewards of long-term capital, the investment industry and its clients can support the achievement of the SDGs by creating simple, standardized sustainability metrics integral to the investment process,” said Hendrik du Toit, CEO, Investec Asset Management, and member of the Commission. “We also need new streamlined partnerships with governments and communities that can reduce risks for everyone and bring more private investment at lower cost into sustainable infrastructure development.” 

At the same time, the Commission believes a “new social contract” between business, government and society is essential to defining the role of business in a new, fairer economy. The recently released 2017 Edelman Trust Barometer reinforces this idea. It shows that while CEO credibility is sharply down, 75% of general population respondents agree that “a company can take specific actions that both increase profits and improve the economic and social conditions in the community where it operates.” And they can do so in ways that align with recommendations and actions outlined in Better Business, Better World: rebuilding trust by creating decent jobs, rewarding workers fairly, investing in the local community and paying a fair share of taxes.

“The promise of the Sustainable Development Goals and the Paris Climate Agreement is a zero-carbon, zero-poverty world,” said Sharan Burrow, General Secretary, International Trade Union Confederation, and commissioner. “To achieve these Global Goals, we need to rebuild trust. A new social contract for business where people, their environment and economic development are rebalanced can ensure that everybody’s sons and daughters are respected with freedom of association, minimum living wages, collective bargaining and safe work assured. Only a new business model based on old principles of human rights and social justice will support a sustainable future.”

Throughout 2017, the Commission will focus on working with companies to strengthen corporate alignment with the Global Goals, including: mentoring the next generation of sustainable development leaders; creating sectorial roadmaps and league tables that rank corporate performance against the Global Goals; and supporting measures to unlock blended finance for sustainable infrastructure investment. “We need to show these ideas work not just in a report but on the business frontline,” said Dr. Amy Jadesimi, CEO of LADOL, a Nigerian logistics and infrastructure development company, and a member of the Commission.

“The Global Goals provide a sustainable, profitable growth model for business, and have the potential to trigger a new competitive ‘race to the top,’” said Jeremy Oppenheim, Programme Director of the Commission. “The faster CEOs and boards make the Global Goals their business goals, the better off the world and their companies will be.”

— ENDS —

The Business and Sustainable Development Commission was launched at the World Economic Forum in Davos in January 2016. It brings together leaders from business, finance, civil society, labour, and international organisations, with the twin aims of mapping the economic prize that could be available to companies if the Global Goals are achieved, and describing how they can contribute to achieving them. To access the report, visit report.businesscommission.org (live on 16 January 2017). Better Business, Better World launch events will be held throughout the week of 16 January, first at the Philanthropreneurship Forum in Vienna, then at the World Economic Forum in Davos. Regional events are also scheduled.

To learn more visit www.businesscommission.org.

To read the full report visit report.businesscommission.org.

Follow us at twitter.com/BizCommission

Media Contact:

Iain Patton, Global & Regional Media

i.patton@businesscommission.org  & +44 (0)7956 430543

OUR COMMISSIONERS

The Business and Sustainable Development Commission was launched in Davos in January 2016. It brings together 36 leaders from business, finance, civil society, labour, and international organisations, with the twin aims of mapping the economic prize that could be available to business if the UN Sustainable Development Goals are achieved, and describing how business can contribute to delivering these goals. The full list of our commissioners includes:

• Amr Al-Dabbagh, Chairman & CEO, The Al-Dabbagh Group

• Laura Alfaro, Professor, Harvard Business School

• Peter Bakker, President, The World Business Council on Sustainable Development (WBCSD)

• Sharan Burrow, General Secretary, International Trade Union Confederation (ITUC)

• Ho Ching, CEO, Temasek Holdings Private Ltd.

• Bob Collymore, CEO, Safaricom Ltd.

• John Danilovich, Secretary General, The International Chamber of Commerce (ICC)

• Begümhan Do?an Faralyal?, Chairwoman, Do?an Holdings

• Hendrik du Toit, CEO, Investec Asset Management

• Richard Edelman, President & CEO, Edelman

• Hans Vestberg/Elaine Weidman Grunewald (acting), Ericsson

• John Fallon, CEO, Pearson plc

• Ken Frazier, Chairman & CEO, Merck & Co Inc. (2016)

• Mats Granryd, Director General, The GSM Association (GSMA)

• Helen Hai, CEO, The Made in Africa Initiative

• Svein-Tore Holsether, President & CEO, Yara International ASA

• Mo Ibrahim, Founder, Celtel & The Mo Ibrahim Foundation

• Mary Ellen Iskenderian, CEO, Women’s World Banking

• Dr. Amy Jadesimi, Managing Director & CEO, Lagos Deep Offshore Logistics Base (LADOL)

• Donald Kaberuka, former President, African Development Bank Group

• Lise Kingo, Executive Director of the United Nations Global Compact

• Jack Ma, Founder and Executive Chairman, The Alibaba Group

• Lord Mark Malloch Brown, former Deputy Secretary-General, United Nations (Chair)

• Andrew Michelmore, CEO, MMG Ltd.

• Sam Mostyn, President, Australian Council for International Development (ACFID)

• Arif Naqvi, Founder & Group CEO, The Abraaj Group

• Mads Nipper, Group President & CEO, The Grundfos Group

• Cherie Nursalim, Vice Chairman, GITI Group

• Ricken Patel, President & Executive Director, Avaaz

• Paul Polman, CEO, Unilever

• Vineet Rai, Co-Founder & Chairman, Aavishkaar Intellecap Group

• Grant Reid, CEO, Mars, Inc.

• Dinara Seijaparova, CFO, ‘Baiterek’

• Sunny Verghese, CEO, Olam International

• Gavin Wilson, CEO, IFC Asset Management Company LLC

• Mark Wilson, CEO, Aviva plc

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. 

1. Trust: Rentier economics in our countries is well-documented and as such, investors are likely to touch down in Accra and drive to the project site accompanied by concerns about self-interested officialdom. However, local stakeholders will often have a similarly low opinion of the ‘outsiders’ – informed by their experience of programmes or investments quoted in the millions, high living standards of expatriate staff and the slow pace of progress. ‘Out of the total committed, more is going to personnel pretending to work than anything else’ is a typical refrain. The result is a ‘them and us’ culture which, if not addressed properly, can harm the quality of communication, warp relations and working practices.
2. Expectations: And yet, and yet. Prevailing incentives in major impact-oriented sectors such as agriculture, healthcare and social housing can be an impediment to productivity. For example, as stated by a policy adviser at a recent Savannah Development Authority (SADA) dialogue, business pipelines are distorted by government waivers. There can also be an expectation of ‘handouts’, which, if denied, might create a constituency that will work to frustrate the proposed intervention or at the very least, not assist.
3. Disjointed Strategies: There is no shortage of individuals launching businesses in Ghana with an implicit and real commitment to creating social goods such as healthcare or jobs for communities that need them. They are motivated by profit certainly but alongside that are goals for society at large. However, at times, fear of alienating categories of investor or customer will create distortions or contradictions in business plans or marketing strategies.
4. How to Say No: Generally-speaking, there is an aversion in our community to delivering the word, ‘no’. Points one, two and three above notwithstanding, local partners are often reluctant to display their disagreement directly. With everyone bending over backward to be polite, clients may miss opportunities to get on the same page as their stakeholders. Instead, things just will not happen as expected or seemingly agreed.

In this context, it is important that clients prioritise culture and that they adopt a listening posture concerning internal and external stakeholders. Learning how others have made it work, or failed, taking time to build trust and understand the terrain – in other words ‘local intelligence’ – are equally key. Finally, in deciding how to engage, bear a Songhai maxim in mind, ‘you will spend money or you will spend time’. In setting strategy, it is safer to keep that expectation in mind than to seek short-cuts to making a profit and doing good.

By Songhai Managing Partner Nana Adu Ampofo (London) and Lord-Gustav Togobo Director of Healthcare and Social Impact (Accra)

Tracking social or environmental returns, however, is more difficult. Tools such as B Analytics (profiled in more detail in the Appendix) allow investors to manage their companies based on ratings derived from IRIS or GIIRS. Most of this information is only collected ex post facto and cannot be exhibited in real-time. Furthermore, most of the ratings are based on “scores” given to broader themes within environmental, social, and governance categories. This information is qualitative and therefore difficult to assimilate into economic returns, which are tracked in quantitative financial terms. Quantifying social and environmental returns remains a challenge for investors seeking more specific information on whether their “impact investments” are truly making a difference. One possible solution to this problem is the social return on investment (SROI) concept.

Social Return on Investment Social return on investment (SROI) as a benchmarking tool is unique to impact investing. It can be compared to the price/earnings ratio in terms of its potential for evaluating performance. These metrics are used to measure value creation, and the SROI specifically measures the amount of social impact generated on a specific amount of investment in a particular subject.

SROI is not a new phenomenon in the world of impact investing–there have been discussions on SROI in the 1990s–however, measuring SROI remains tricky. Emerson, Wachowicz, and Chun of the Roberts Economics Development Fund (REDF) concluded that social enterprises create value in a continuum that ranges from economic, to socioeconomic, to social value.45 Economic value is the traditional motive for most enterprises; common measurements include return on investment, price/ earnings ratio, and profit margin. Social value is created when processes and inputs are combined to create improvements in the lives of individuals or society as a whole. Emerson, Wachowicz, and Chun state that this is where most non-profits operate, and it is difficult to measure value in this space since most “products” are qualitative and not reducible to analytical terms.

Socio-economic value, on the other hand, includes economic and social value. An entity creates socio-economic value by generating economic value from its inputs, but also by creating social impact. For example, an initiative that provides job-training programs to unemployed people who currently receive public support would qualify as socio-economic value. This initiative develops professional abilities with the potential result of reducing unemployed workers dependent on government support.46

Socio-economic value can be quantified and calculated as SROI, which in turn can help investors evaluate investments before and after they invest. A study conducted by SVA Consulting in Australia on the impact of SROI and SROI reporting showed that the SROI analysis gave organizations a deeper and more analytical insight into their value creation.47 The study also found that the SROI report helped investors and organizations understand the true costs associated with delivering social impact, resulting in better strategic planning. However, SROI is not without its flaws. The study also noted that there were only two forms of SROI analysis: one that estimates social value creation in the past, and one that projects social value creation in the future. The study proposed a need for a third form – “baseline SROI” – that assesses SROI in the present.48

Despite these considerations, calculating SROI can be a powerful way to track portfolio performance. Guidelines on calculating SROI and isolating social cash flows are available in Emerson, Wachowicz, and Chun’s paper. The SROI Network also offers assistance in calculating SROI, social net present value, and sensitivity analysis.49

Market Performance

It can also be challenging for institutional investors looking to understand and benchmark their performance against the general impact investing market. At the time of this writing, there is still a significant lack of analytical research on the impact investing market. Although there have been numerous developments in qualitative frameworks, there is still a dearth of research on market performance and other retrospective benchmarks. Some of the reasons that contribute to this could be 1) the market is still nascent and time horizons are too short to make significant conclusions, 2) many funds or organizations do not release data on their investing performance to the public, and 3) not all actors in the impact investing market are familiar with investment research or analysis. Despite these challenges, the literature on impact investing is constantly evolving to fill new informational gaps.

Impact Investing Benchmark

The Impact Investing Benchmark (IIB) is the first comprehensive analysis of the financial performance of private equity and venture capital impact investing funds. Although it leaves out institutional investors such as sovereign wealth funds and pension funds, the IIB is still useful for any impact investor. To date, it is the only initiative that is produced similarly to analogous financial performance reports for traditional investment funds. In doing so, the IIB is paving the way for analysis of impact investments as an asset class.

Managed by Cambridge Associates and GIIN, the IIB is comprised of 51 private investment funds that were launched between 1998 and 2010. According to their 2015 inaugural report, the IIB found that these funds performed comparably well, despite the perception that impact investing may generate subpar returns.50 From 1998 to 2004, the IIB funds outperformed similar conventional funds, and over the entire 1998 to 2010 time period, underperformed conventional funds by about 1.5 percent. IIB also showed that funds that raised under $100 million returned a net IRR of 9.5 percent to investors – outperforming similarly sized conventional funds (4.5 percent). As with any other investment strategy, manager selection, due diligence, and risk management are still important factors to achieving high returns. The IIB provides much-needed information on impact investing as its own asset class. Its decision to focus on private investments shows that the impact investing strategy can be viable on a smaller basis as well. For institutional investors, this means that impact investing can be done without usurping many other fund resources.

Literature on Impact Investing Practices

While impact investing is not new, the recent exponential growth in the demand and diversity of this type of investing means that few widely established practices exist. An increasing number of organizations are producing both theoretical and practical advice for crafting a successful impact investment portfolio. For investors looking for qualitative information on how to manage an impact investment portfolio, several entities conduct their own internal surveys of institutional investor practices.

J.P. Morgan and GIIN conduct an annual impact investor survey that includes information on asset allocation and performance, portfolio management, and general perspectives on the impact investing market. Their latest edition, published in 2016, featured answers from 158 impact investors that allocated capital to a wide range of asset classes and industries.51

The Sovereign Investor Institute has also conducted surveys on institutional investors – many of whom are impact investors as well. The Institute’s polling reports feature perspectives on macro risks as well as the percentage of participating institutional investors that promote good governance in their portfolios.52

Other resources include the UK DFID, Rockefeller Foundation, and various academic institutions. For example, Rockefeller Foundation not only publishes articles on their investment performance, but also makes public their list of grantees and investments.

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

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“Add Impact” is the new rallying cry of the Global Impact Investing community, which concluded a two-day plenary meeting of its Steering Group in Lisbon, Portugal on July 8. Championed by Sir Ronald Cohen, founder of Big Society Capital (BSC), which is hailed as the world’s first social investment bank, the Global Impact Investing Steering Group is the heart and mind of a growing social investment movement bent on making impact investing mainstream.

By Elizabeth Boggs Davidsen

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A major reason for this expected growth is the impending transfer of wealth from parents to their children. Millennials and Generation Xers stand to inherit between $30 and $40 trillion dollars from the baby boomer generation. The magnitude of this wealth transfer is unmatched by previous generations. Beyond simply the size of the inheritance, Millennials have different priorities than the generations before them. Younger investors seek investments that yield a social return, as well as a financial one.

When asked about the primary purpose of business, 36% of Millennials selected “Improve Society” as their answer. Other answers included “Enable Progress,” which was chosen by 25% of participants, and “Create Wealth,” which was picked only 15% of the time (Deloitte Survey, 2014).

In the past, investments in emerging or non-traditional markets were viewed as exceedingly risky. A lack of transparency and available information discouraged investors from exploring opportunities abroad. The digital age has changed that. Enhanced connectivity now makes it possible for investors to act wisely when investing in emerging markets. Moreover, the credit ratings in many developing nations—such as Mexico and Brazil—have improved as governments exercise greater fiscal responsibility. This development creates more opportunity for impact investing.

Investing for gender equality is rapidly becoming one of the most popular forms of impact investing. The goal is to promote gender parity and personal empowerment through debt and equity investments. There are three basic types of gender equality investments: supporting female-owned enterprises, funding companies that offer products and services for women, or expanding employment opportunities for women.

Organizations like the Calvert Foundation and Root Capital have launched initiatives to promote gender-focused investments. To quote Jackie VanderBrug, a former managing director of Criterion Ventures and now SVP at U.S. Trust: “Women are key assets in combating poverty, building their communities, and creating new pathways to a more just and sustainable world. Investing in women’s education, economic welfare, health, and overall well-being produces powerful results that benefit families, communities, and entire societies. When women become economic agents and leaders, social change accelerates and returns multiply.”

Foreign investment in developing countries dropped 16% in 2014. This has resulted in a $2.5 trillion funding gap, which has made it nearly impossible for these countries to cope with lingering problems like food and water shortages, limited healthcare access, and failing infrastructure.

Similarly, the clean energy sector is experiencing a major shortfall. The International Energy Agency calculates that an additional $36 trillion will be needed over the next 35 years to curb the most extreme effects of climate change. Since philanthropic activity alone cannot bridge the gap, advisors must educate themselves and their clients on impact investing. Our globalized economy has made it possible to engender social change and produce a healthy return on investment. Whether we can find solutions to the most pressing global challenges will depend on the commitment and foresight of investors.

By Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth and Blue Ocean Global Technology.

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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

But perhaps of even more significance is the demographic transformation that Africa is experiencing, and will continue to experience over the next several decades. Now home to 1.1 billion people, by 2050 the United Nations estimates that Africa’s population will reach 2.48 billion; by 2100, 4.39 billion people, a majority of whom will be youth.

When the slow pace at which Africa is developing is combined with the demographic transformation, contrary to the sentiments of many optimists, the future does not look bright. But it can.

Disruptive Innovations Targeted at Non-Consumption

Through the course of my research with Harvard Business School Professor, Clayton Christensen, we have learned that no country has developed in sustainably without investments in disruptive innovations. There are two types of disruptive innovations, low-end disruptive innovation and new-market disruptive innovation. I write about the new-market disruptive innovations, which are targeted at non-consumption, a circumstance where a majority of people in a society are unable to afford a particular product due to cost, time, or skill constraints. These innovations transform the existing complicated and expensive products to simple to use, more affordable products, thereby making them more accessible to a larger set of people in society, such as M-PESA, the mobile money platform in Kenya. They serve as the engine of economic development in a society.

Can Africa Spur Disruptive Innovations

It is tempting to discount the possibility of executing disruptive innovations in Africa because of the many obstacles to innovation on the continent, including poor infrastructure, the difficulty of doing business, and the very low incomes on the continent. But when these obstacles are framed as opportunities, innovators can build truly disruptive companies.

In fact, it is precisely because these obstacles exist that disruptive innovations can thrive in Africa.

Nollywood and Noodles

Nollywood, Nigeria’s film industry, has taken many in the world by storm. While Hollywood’s revenues dwarf Nollywood, it is difficult to overlook Nollywood’s impact in Nigeria. The industry, according to a UN report, is now worth approximately $5 billion, employs more than one million people, and generates around $800 million annually. Nollywood has been able to thrive precisely because it is a disruptive innovation targeted at the average Nigerian citizen unable to purchase, watch, and perhaps relate to Hollywood movies. The innovators in Nollywood have keyed into the vast non-consumption of movies in Nigeria, and Africa, and have created relevant and relatable movies that have given birth to a booming industry.

When Haresh Aswani decided to start importing Indomie Noodles into Nigeria in 1988, the decks were stacked against his company, Tolaram. Nigeria was ruled by a military government, GDP per capita was only $256, and 78% of people lived on less than $2 per day. But Aswani began importing noodles into Nigeria and since then, has built 11 factories that manufacture many of the inputs for the noodles. The company directly employs approximately 10,000 people and hundreds of thousands indirectly. A packet of Indomie Noodles costs roughly 18 cents, a product affordable by the majority of Nigerians. Tolaram has begun expansion plans into other African countries. Where many see obstacles, the company sees opportunity.

The Rebirth of an Old Idea

Investing in disruptive innovations is not a new strategy for creating prosperity. The United States, many European countries, the Four Asian Tigers, and many other rich countries followed this strategy with great success. The returns from their investments were then invested in infrastructure, education, healthcare, and in building institutions. It is tempting to spend billions of dollars on infrastructure, institution building, education, healthcare, and other development indicators that are correlated with prosperity. But a closer look at rich countries today shows that investments in disruptive innovations came first. Africa should thus follow suit.

Governments should support entrepreneurs whose business models are targeted at non-consumption. By doing this, they will inevitably create jobs for many people, as was the case with Nollywood and Indomie Noodles. This, our research suggests, will ultimately lead to unfettered prosperity in Africa.

By Efosa Ojomo

Drive economic development and inclusive growth by supporting innovation and encouraging entrepreneurs. 

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