The Reality of Impact Investing: Stories from the Field E-Book

Dr. Inga Michler

• Herausgeber: BookRix
• Kategorie: Fachliteratur
• Sprache: Englisch

Veröffentlichungsjahr: 2014

Beschreibung

Save the world and make money at the same time? A former British banker and a former British bank robber want to do this just as two Indian entrepreneurs or a German educator for hearing-impaired persons. They promote the rehabilitation of former prisoners, run biomass power stations to generate energy from rice husks or offer a mobile interpreting service for deaf persons. Their investors are so-called impact investors: they stand security, give credits or equity capital to social or environmental projects, and they want to do good while making money at the same time. But is impact investing really the new miracle cure to meet all our societal challenges? In reports on eight social entrepreneurs and interviews with three professional impact investors the author and WELT reporter Dr. Inga Michler demonstrates: impact investing is merely one instrument in the toolbox in order to solve social and environmental problems. Under certain conditions it can be very effective, however, financial return is by no means guaranteed. Initiated by Active Philanthropy, supported by the Federal Ministry of Family Affairs, Senior Citizens, Women and Youth, the KfW Group and the BMW Foundation Herbert Quandt.

Leseprobe

Content

IntroductionBLUE SKY  Banker Meets Bank RobberJOHN KINGSTON  “A Tool in the Toolbox”DRISHTEE  Corner Shops for India’s VillagesHUSK  Lights for MillionsINDERPREET CHAWLA  “The Non-profit Model Has to Do the Dirty Work”KARUNA  A Place for the WearyLOONY  Crazy DesignOLTRE VENTURE  A House Full of DreamsLUCIANO BALBO  “This Is No Market for the Masses”RESTO VANHARTE  Allies in the Battle against LonelinessVERBAVOICE  Between Two WorldsSix Signposts for Investments with an Impact on Society

Imprint

Editor Forum for Active Philanthropy – inform inspire impact Monbijouplatz 2 D - 10178 Berlin Phone [phone] Email  [email protected] Web  www.activephilanthropy.org Author DR. INGA MICHLER English Translation JENNIFER FELDMAN, Berlin

No part of this publication may be sold or reproduced in any form or made use of in any other way without prior written permission of Active Philanthropy. Initiated by Active Philanthropy, supported by the Federal Ministry of Family Affairs, Senior Citizens, Women and Youth, the KfW Group and the BMW Foundation Herbert Quandt. Copyright © 2014 Active Philanthropy

Introduction

Eight businesses, which have stepped up to generate social or environmental good and which are expecting at least some financial returns. Three investors, who are convinced of the possibilities of impact investing, but who identify the challenges and limitations, at the same time. The sometimes touching, at other times impressive stories in this book only represent a small portion of the organisations, which have stepped up to find a solution for social or environmental and societal challenges worldwide. Nevertheless, they demonstrate the various possibilities of efficient financial support of organisations with a social objective – from donations to patient capital and loans to traditional equity capital. The stories in this book particularly highlight the chances and limitations of generating financial and social returns for businesses and investors by means of active investments. Therefore, this book addresses all sponsors and investors, who are specifically thinking about impact investing, as well as a broader circle of interested parties wanting to learn more about this form of support.

Today, impact investing is often propagated as the solution to meet social and ecological challenges on a global scale. But this type of support, resp. investment, is still very young, and even its originators disagree on a consistent definition. So far, the Monitor Institute’s 2009 definition seems to reach the broadest consensus. It defines impact investing as “actively placing capital in businesses and funds that generate social and/or environmental good and at least return nominal principal to the investor”. ¹  Occasional sponsors, particularly from the venture philanthropy arena, who courageously invested capital in social businesses in developing and emerging countries, were the pioneers of this type of investments. After the promising success, more and more established financial institutions and financial service providers are entering the impact investing market. Quite often they promise a positive impact for society and the environment, while generating up to market-level financial returns. In addition, this term is increasingly being used by government players, e. g., the Big Society Bank in Great Britain or the European Commission ²  , when breaking fresh ground in funding social innovations.

This publication demonstrates that impact investing is a worldwide issue. When presenting the individual cases, one should consider the context of the respective government and civil society structures, as well as the social security systems. Germany, for instance, can look back on a long-standing tradition of differentiated instruments and structures of social security. It reaches from governmental safety nets and protective instruments in areas such as health, care or youth welfare to Church-operated welfare organisations, or those provided by humanitarian institutions, to a variety of small and middle-sized non-profit organisations. Within these structures, impact investing is an instrument that utilises the mechanisms of the free market in order to tackle social or environmental problems. In doing so, the hopes of impact investing particularly rely on bringing about social innovations and spreading them with the help of the existing structures.

Active Philanthropy and the project partners of this book wanted to find out, which conditions needed to be satisfied, so that impact investing could meet the expectations of impact investors. Therefore, we looked behind the scenes of eight social businesses with differing objectives and differing business and funding models: from the youth relief organisation, which is almost completely donation-based, to the profitable enterprise generating energy from biomass. They all share the overriding business purpose, namely to make a distinct contribution to meeting acute societal and environmental challenges.

According to the following chart, these kinds of businesses with a social focus can be divided into six categories:

However, the transitions between the categories are quite fluid. In addition, philanthropy and investments with financial returns are by no means mutually exclusive. Instead, one should consider the different concepts as coexistent and complementary.

The interaction of highly diverse players, the strong market dynamics, and the variety of terms and definitions, make the orientation in this still-new market none too easy. There is no reliable data on the actual size of the impact investing market yet, and estimates about the market potential vary. In 2009, the Monitor Institute estimated the total size of the market as big as 50 billion US dollars and considered a ten-fold growth (to 1 % of all capital invested worldwide) until 2019 possible. ³  In the same year, the Global Impact Investing Network (GIIN) and the financial service provider J. P. Morgan predicted a growth to between 400 billion and 1 trillion US dollars over the next ten years. ⁴  The size of the numbers is partly explained by the fact that these estimates often include investment sectors, which are well established by now, such as microfinance or renewable energy.

As the stories in this book demonstrate, not all socially oriented businesses have the same chances and possibilities of generating financial returns in addition to the intended social and environmental benefits. Especially when dealing with purely social concerns addressing the weakest members of society, for example addicted persons or former prisoners, it seems difficult to set up and implement profitable business models. And even in profit-yielding fields such as social welfare housing or renewable energy, socially oriented businesses with innovative approaches to solutions need to be developed and built, in the first place, so that future impact investors can be presented with the prospect of a sufficient financial return.

Currently, the global market is predominantly characterised by relatively small investment totals of 500,000 US dollars in average, a high degree of fragmentation of supply and demand and, as a result, high transaction and consulting costs. In addition, there are not enough investment opportunities, which correspond to the yield expectations of investors. That is why critical analysts believe that the impact investing industry is “entering a phase of ‘marketplace building’ that would likely take five to ten years”. ⁵   For this purpose, businesses are dependent on philanthropic capital, that is, donations or endowments. These sources allow them to try out innovative and risky models and, on this basis, develop sustainable, viable business plans. This becomes particularly clear when taking the microfinance sector as an example: In order to reach today’s market maturity, an estimated 20 billion US dollars of subsidies in form of donations, endowments or patient capital had to be invested in the sector over almost two decades. ⁶

In the context of society as a whole, however, impact investing can still become an important instrument. Admittedly, impact investing and the supported socially oriented businesses alone cannot meet the social and environmental challenges our society currently faces. Nevertheless, impact investing can explore new funding sources, namely private investment capital, for social and environmental projects, which boost the development of socially oriented businesses and promote social innovation.

Governmental, private and civil society players must work closer together than in the past, so that impact investing can take its full societal and economic effect. In addition, this sector still needs philanthropic involvement in form of social, human and financial capital as well as a tremendous amount of courage and stamina.

The three pillars of efficient philanthropy and social investment

We would like the stories in this book to encourage you as a sponsor to provide socially oriented organisations with investment capital, in addition to donations or endowments. In doing so, you should weigh the type of your financial involvement with your personal aims and expectations, as well as with the actual needs of the respective organisation. High financial returns are (yet) unrealistic for most impact investments, but if you consider your involvement as an investment into building a new market, you can make a considerable contribution to financially sustainable models, which contribute to meeting social, environmental and economic challenges, in the long run.

We would like to thank the project partners of this book for their support and their trust: The realisation of this publication would not have been possible without the generous financial support of the Bundesministerium für Frauen, Senioren, Familie und Jugend (BMFSFJ) [Federal Ministry of Family Affairs, Senior Citizens, Women and Youth], the KfW Group and the BMW Foundation Herbert Quandt. Furthermore, we would like to thank the social businesses and investors portrayed in this book. They all made time for visits, meetings and conversations with the author of this book and offered a comprehensive insight into their work. We sincerely thank Inga Michler, the author of this book. She travelled and carried out the interviews with the portrayed businesses and investors in addition to her job as an economics reporter at the German daily newspaper DIE WELT; and she wrote lively stories with empathy and thoroughness.

Dr. Felicitas von Peter Managing Partner

Michael Alberg-Seberich Managing Partner