How can the design be ameliorated to improve the impact?
Impact investment seeks to achieve social or environmental outcomes that would not occur if the investment were not made (additionality). The impact can be exemplified by improvements in healthcare services, access to financial services, access to clean water, and employment/income generation in rural or poor communities. For example, Root Capital-a non-profit social investment fund that fosters rural prosperity–enabled Fruiteq to buy higher quality mangoes from 830 farmers in Burkina Faso at three times the local price, increasing farmers’ income by 43 percent. Similarly, with the support of the Calvert Foundation, the EcoEnterprises Fund (EcoE2) has invested US$5.5 million in three fair trade companies committed to habitat protection and restoration, responsible forest management, and community service in Latin America. Through these investments, EcoE2 has preserved over 800,000 hectares of land, maintained 300 full-time employees, and supported over 5,000 suppliers. The acumen investment fund alone has created over 58,000 jobs worldwide with an investment portfolio of US$100 million.
In addition to investment- specific impact, the impact movement can help to transform markets structurally. By channelling capital to productive activities in developing countries, nascent sectors, and innovative social enterprises, impact investment can drive larger and significant impacts, by increasing local income levels, supporting job creation and building local markets via imitation effects. The acumen investment fund estimates that it has enhanced over 189 million lives through its activities.
The value of impact investment can be enhanced by:
Mission lock-in: The mission of an impact investor or investee should define the intended impact it seeks to achieve. The latter should be embedded explicitly in the company’s charter or investment strategy. For example the W.K. Kellogg Foundation’s mission-driven investment policy ties portfolio allocation to supporting vulnerable children. Similarly, the RSF Social Enterprise Lending Program offers mortgage loans and construction loans to both non-profit and for-profit social enterprises that meet a set of stringent criteria.
Greater accountability: A commitment to transparency and rigorous reporting is essential. The resources devoted to demonstrating impact should be proportional to the liabilities. Reliable metrics should allow investors to understand if the performance of the investment is consistent with its impact mission. Setting industry standards for measurement can help establish trust and compare products, such as the Impact Reporting and Investment Standards (IRIS) and the Global Impact Investment Rating System.
Multi-layered capital structures: the public sector, DFIs and foundations can play different roles along with impact and traditional investors. Public entities can provide the “first layer” investment or extend credit enhancement services (e.g. guarantees) in order to crowd-in private investment. For example the Deutsche Bank’s Microfinance Consortium–a US$80 million microfinance fund–became viable thanks to an initial grant that provided the initial operating income and mitigated the investment risk.
Supportive regulations: regulatory changes can create incentives–fiscal incentives, subsidies, mandatory certification–to attract an even broader range of investors. An example is the European Commission Communication, Social Business Initiative: Creating a favourable climate for social enterprises, key stakeholders in the social economy and innovation and the related Regulation 346/2014 establishing the labelling of European Social Entrepreneurship Fund. In addition, it might be necessary to relax regulations that prevent social sector organizations from being engaged in profit-making ventures.
Continue to improve the measurement of impact: reporting can be carried out with a mix of qualitative and quantitative techniques and enriched by the use and sharing of best practices (e.g. about 5,000 firms from 148 countries report their social and environmental performance to the IRIS initiative).
Manage the potential trade-offs between commercial viability and social and environmental impact. Participation of stakeholders and independent verifiers is key to establish accountability.
Source:
http://www.undp.org/content/sdfinance/en/home/solutions/impact-investment.html
