The Point of View of an Impact Investor: Redefining the Concept of Risk and Return

The notion of a trade-off between financial, social and environ­mental returns has dominated the impact investing debate up to now. Bamboo Finance views these components in terms of a total return that needs to be maximized and it does not believe that profits have to be sacrificed in return for a greater social and environmental impact. It claims that it is possible both to maximize profits and achieve social and environmental benefits by investing in the equity of businesses that provide essential products and services to low and lower-middle income consumers in emerging economies.

Low-income households in emerging markets are already consumers of essential goods and services (healthcare, energy, financial services, agriculture for example), but they often pay dearly for very poor quality. Access to new and / or improved products and services can have an immediate positive impact on their quality of life. The social, environmental and economic impact can be intrinsically linked to the products and services, and profit and impact objectives can be achieved simultaneously. A trade-off is not necessary.

It is important to note that impact investing is still in its infancy. Certain sectors are ripe for investment but others are still testing the viability of business models. Microfinance was among the first sectors selected for impact investment. New financial services models have emerged to serve the unbanked more effectively and finan­cial services for low-income consumer remains a high growth, high value and high impact sector. Bamboo Finance’s investment in the Mongo­lian TenGer Financial Group is a case in point (see end of article) and there are also enormous social and environmental impact investment opportunities in clean energy, agriculture and healthcare.

Bamboo Finance believes it is possible to gene­rate a “total return” by narrowing an investment universe down to specific markets and sectors. By investing in companies that provide access to high quality, affordable products and services for low-income customers, profitability and impact performance can grow in tandem but, as with financial performance, impact performance needs to be measured consistently. This means liaising with an investee to determine the best approach and adapting this as necessary.

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New Report On Southern Africa Highlights Hotbed of Impact Investing Activity, With Over USD 5.7 Billion From Non-DFI Impact Investors

The Global Impact Investing Network (GIIN), in partnership with Open Capital Advisors, published The Landscape for Impact Investing in Southern Africa, a state-of-the-market analysis of the impact investing industry in the active region. The report includes findings from 12 countries, as well as a dedicated chapter exploring the role of development finance institutions (DFIs) across Southern Africa.

The report analyzes a market comprising countries that vary substantially in their level of development but that present common challenges and opportunities for investments to have social and environmental impact. Progress has been made on key development indicators in South Africa, the region’s anchor, but there remain significant gaps in the provision of vital goods and services across the region. Despite recent economic growth, half the region’s population (double the global average) lives on less than USD 1.25 per day. Looking forward, Southern Africa’s GDP is projected to continue to grow by five percent per annum.

International DFIs are significant players in the market, having deployed nearly USD 16.8 billion in impact capital across the region through over 650 deals. South Africa-based DFIs also play a pivotal role and have deployed USD 17.1 billion regionally through over 7,500 deals. Additionally, several other types of investors—including VC/PE funds, foundations, commercial banks, and pension funds—actively invest in the region, with such non-DFI impact investors having deployed nearly USD 5.7 billion in the region through more than 500 deals.

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What Impact Investors Can Learn from the Microfinance Industry

Impact investing could help plug $2.5tn funding gap for development

Developing nations need trillions of dollars a year to tackle issues like food security, climate change risks and basic infrastructure. But foreign investment into these countries dropped by 16% in 2014, to $1.23tn, further widening the $2.5tn gap needed annually to address the most critical areas.

“The global challenges are so complex and the size of the funding that’s needed is so large, traditional funding sources like philanthropy are probably not going to be sufficient to meet it,” said Anna Kearney, associate director for corporate social responsibility at the Bank of New York Mellon (BNY Mellon), which this week released a white paper on the importance of social finance.

The report comes after a UN summit in Addis Ababa, Ethiopia, last week, where world leaders reached an agreement on how to finance some of the planet’s most pressing development issues.

Impact investing – investments that have a social or environmental benefit while also turning a profit – might be one of the best ways address the financing shortfalls, experts say.

The area has seen tremendous growth in the past two years. There were nearly $7tn in socially responsible investment assets in the US in 2014, a 76% increase over 2012, according to a recent report from the Washington-based nonprofit Forum for Sustainable and Responsible Investment.

A significant portion of this money is going towards helping developing countries. In a survey released in May by financial services firm JP Morgan and the nonprofit Global Impact Investing Network, nearly half of the $60bn in impact investments managed by respondents was invested in emerging markets.

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How To Be Sure Your Social Impact Investments Are Thriving – For You And The Cause

Whether they are donating funds to eliminate malaria in Africa or to upgrade education in low-income communities, high-net-worth individuals (HNWI) are committed to improving the world. HNWIs around the globe are increasingly interested in matching their donations with measurable impact investing that combines their desire to help others with the need to maintain their financial well being.

Social impact investing and charitable giving continue to be top priorities for HNWIs, according to the latest World Wealth Reportfrom RBC Wealth Management and Capgemini. These HNWIs, regardless of their particular areas of interest, often rely on their wealth manager’s advice on impact investing.

The report found that among those who are already receiving advice from their wealth managers, more than half (54 percent) want even more help. HNWIs turn most often to their wealth managers (30 percent) for advice on social impact opportunities and approaches, followed by their family (27 percent) and friends (22 percent).

“Virtually all of my clients do impact investing,” said Arline Segal, first vice president at RBC Wealth Management. “What’s changed over time is that there are more tools available that make it easier to measure the performance of these investments—socially as well as financially.”

Segal said aligning your investments with your philanthropic interests and social concerns can range from opting out of investing in companies whose business practices go against your beliefs to using your power as a shareholder to influence a corporate board in a positive way, such as directing investment in a business that supports a cause of yours.

Paul Brest, professor of Political Economy and dean emeritus at Stanford University, suggested deciding where you want to focus your investing—such as health or environmental issues—and then find either an investment vehicle that emphasizes that goal or an individual business that provides services or products that help the cause.

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