Impact Investing – the New
Opportunities and Challenges
Slovenia April 2011
Arthur Wood
Total Impact Advisors
www.totalimpactadvisors.com
World Sanitation Financing Facility
www.sanitationfinance.org
awood@totalimpactadvisors.com
The Social Finance Crunch – “Population aging is a worldwide
phenomenon that will affect all G-7 countries”
There is simply not enough money in the current
paradigm – Compounded by the Credit Crunch
Current Social Capital Market – For Profit and Not For Profit
- The Structural Funding Challenge for Big Society
Social Sector Fragmentation or Corporate Asset Stripping ?
NOT FOR PROFIT
Low risk
below market return
Programme- Related
Investments
1. No mechanism from “not for profit” to “for profit”
2. R&D detached from the mainstream success
3. If successful community not stakeholders
Grants
50%
Mainstream
“For Profit”
Investments
Investment plus
4. No Collaborative mechanisms
5. Highly fragmented and cost inefficient
6. Inter and Intra Sectoral silos
7. No Clear mechanism for corporate sector to engage
8. Very Unsophisticated Capital Market
High risk
FOR PROFIT
Venture
philanthropy
Social Responsible
Investment
circa
Corporate
Engagement incl
CSR
MRI
INJECTING MODERN CAPITAL AND MANAGEMENT PROCESSES INTO SOCIAL
PROVISION
no financial return
Blended market return
market return
New legal framework to allow collaboration L3C / CIC / SELLP
Capturing Future Cash flow (Social Impact Bonds )
Investment Plus
Programme
x 10+
Grants
Recoverable Related Investment
Grants
Mainstream
Investments
Injecting Modern Corporate / Financial Management practices into Social Mission
Recognising what the Social Sector brings – Innovation, R&D, Community Ownership
Government Supporting Models that encourage Simplicity, Scale, Replication and Collaboration
New Intermediaries helping to marry the silos corporates/ banks, civil society and Govt
Different players taking Different and Differing social Economic Return
THE INVESTORS - Key Findings from Private Sector (From Conclusion - UBS Global
Philanthropy Forum - Social Investment Review)
Philanthropists toolbox for Impact has expanded significantly
Programming
New frontiers in provision of
services
Healthcare
Sanitation
Mobiles
Governance
Social capital market regulation
emerging
L3C / B Corp (USA),
CIC + SELLP(UK)
EU foundation law
Expanding
opportunities for
impact
Investing
For-profit investment opportunities
Layered investing
Frontloading: IFFIm
Social Finance (ie Contingent Bond)
Source: UBS Philanthropy Services 2007
OPTIONS FOR INVESTORS: Traditional vs New Opportunities
• The Investment Management Approach - A diversified Portfolio of Impact Investment
Funds
>> Cost of Diligence and diversification
>> Limited Personal Touch
• The Direct Investment – The traditional Foundation (Grant Model) and Individual Impact
Investing >> Social Capital Market
>> High Personal Touch
>> If done individually high cost of Due Diligence, Control and Monitoring
• Invest in the New Intermediaries - redefining the traditional trilateral relationship with
corporate, government and financial sectors
>> By topic – Intellectual Property: CRA, Lightyears sp / Carbon Models / Green Economy
>> New Finance Intermediaries – GAVI, Total Impact Advisors (Blended Value needs
blended value expertise)
• Input >> Output to Outcome Models
• >> BRAC / Grameen, TEEB (www. teeb.org) and WSFF (www.sanitationfinance.org)
Product Examples of this Innovation
1 – Markets only grow with Transparency – The metrics debate – Rockefeller GIIN / Monitor
Report / Milken Institute
2 - Return is Not Unitary – Layered Investment – Price Risk not return draw in new capital, ie the whole product cycle – DFID Africa Fund, DB Eye Fund, US Affordable Housing Market
3 – Change the incentives to create economies of scale – ie GAVI
4 – Capture the value of the social externalities –TEEB- “Natural capital”, Social Impact Bonds,
SFFX.net, WSFF / McKinsey
5 – Empower / Connect the Community – Social Entrepreneurship, Social Finance - and Mobiles
– Ashoka / Google
6 – Use the skills and resources of the for profit banks and corporates - but with a clear defined
social objective – JPM / Deutsche / Nike
7 – Change the legal framework – 3 Framework L3C / SELLP / B Corp / H Corp / CIC / PPPs /
“Charitisation”
8 – New Intermediaries that ensure that social value is extracted – Lightyears, Environtrade,
Root Capital, Ashoka SIE Fellows, AMF, Total Impact Advisors / WSFF / TEEB
Political Consensus !
Paul Martin – Ex PM of Canada
“ We have learned that entrepreneurship is an unbeatable force. Government
unleashed the power of business entrepreneurs when it provided them with the
wherewithal to succeed. What I would now ask, is that government unleash the
power of social entrepreneurs.”
Gordon Brown – Ex PM of UK with UN Sec Gen Banki Moon
“Our objectives cannot be achieved by government alone however well intentioned, or
the private sector alone, however generous, or NGO’s or faith groups, however well
meaning or determined. It can only be achieved in a genuine partnership together”
David Cameron – UK PM
“ I believe that this generation could see a revolution in our social economy
comparable to the revolution in the commercial economy in the 1980s. That is the
revolution that I want to lead…Don’t we need the same transformation in the social
sphere that we have seen in the economic sphere? “