IMPACT INVESTING: WHAT IS IT, WHY IS IT IMPORTANT …...International Development, Senate House,...

EVALUATING NEW AID MODALITIESIMPACT INVESTING: WHAT IS IT, WHY IS IT IMPORTANT AND HOW DO YOU EVALUATE IT?

Edward T. Jackson, Carleton University

Presented to Fit for the Future: Joint Evaluation and Statistics Cadres Professional Development Conference, Department for International Development, Senate House, London, November 13, 2013

Investments intended to create positive impact beyond financial

return

2

Provide capital• Transactions currently

tend to be private debt or equity investments

Businesses designed with intent

• The business (fund manager or company) into which the investment is made should be designed with intent to make a positive impact

… to generate positive social and/or environmental

benefit• Positive social and/or

environmental impact should be part of the stated business strategy and should be measured

Expect financial returns• The investment should

be expected to return at least nominal principal

Source: JP Morgan, Rockefeller Foundation and GIIN, 2010

Low Impactand

Low Financial Returns

Philanthropy

Social Returns

Financial

Returns

Impact

First

i

Financial

First

Low High

High

• Subsidized Investments

• Grants

Below

Market

Market

Related

Traditional

Investments

• SRI (“Do No Harm”)

Impact Investments

Impact Investing: Mapping ReturnsSource: adapted from Monitor Institute 2009, via Rockefeller Foundation , 2011

Source: Adapted from Monitor Institute (2009) via Rockefeller Foundation (2011) 3

Examples of Impact Investments

USA

INDIA

TANZANIAInvestee: M’tanga FarmsM’tanga FarmsM’tanga FarmsM’tanga Farms

Investors: Calvert Foundation,

Lion’s Head Global Partners

Investee:

Investors:

and

Investee:

Investors:

CHILE

Investee: LGBT Enterprises LGBT Enterprises LGBT Enterprises LGBT Enterprises

in Latin Americain Latin Americain Latin Americain Latin America

Investors:

and

supported by NESsT.org

4

• Private debt (loans, guarantees)

• Government debt (loans, guarantees)

• Equity-like debt (e.g., convertible bonds, warrants)

• Private equity (direct purchase of shares in enterprise)

• Program related investments of foundations/endowments

• Securities based on microfinance portfolios

• Deposits in social banks, credit unions

• Community investment notes

• Social impact bonds/Development impact bonds

5

Types of Impact Investment Products

Actors in the Impact Investing Industry

6Source: ET Jackson & Associates, 2012

Supply of CapitalSupply of Capital

IntermediationIntermediation

Demand for Capital

Demand for Capital

Building the Impact Investment Market

7

Local Impact Investing Actors: South Africa

• South African Network for Impact Investing

• Greater Capital

• Cadiz Asset Management

• TUHF

• Nexii

• National Treasury

8

UK Cabinet Office – Domestic Efforts

• Policy priority: Growing the social investment market

• Big Society Capital

• Centre for Social Impact Bonds

• Social Outcomes Fund

• Policy research: e.g., “Achieving Social Impact at Scale”

9

Centre for Social Impact Bonds

UK Cabinet Office – International Efforts

• UK as a global hub

• G-8 Social Impact Investment Forum (June 2013)

• Social Impact Investment Task Force

• Chair: Sir Ronald Cohen

• Members: G-8 nations, EU, Australia

10

Global Impact Investing Network – Overview

• Investors’ Council: 55 foundations, banks, funds, DFIs, non-profits

• ImpactBase: 150 funds and products

• Impact Reporting and Investment Standards: Lexicon, impact indicators

• Industry research, case studies

11

Global Impact Investing Network – Links to UK

• IC Members: Big Society Capital, CDC Group

• GIIN Investor Forum, with City of London, Oct 2013

• Funders: DFID (and Omidyar, Rockefeller, USAID, JP Morgan)

12

Impact Investing Policy Collaborative

• Research network of policymakers, scholars, consultants

• Fellowships, convenings, partnerships

• UK Cabinet Office active; 2013 “London Principles”

13

Social Finance UK

• Investment readiness

• Social impact bonds

• Advice to Ireland, US, Canada, Israel

• Development impact bonds

14

Other UK Organizations

• Bridges

• Bond

• CAFs

• NESTA

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The Development Impact Bond

• An adaptation of the social impact bond model to developing and emerging economies

• A contract between private investors and donors or governments that have agreed upon a shared development goal

• Investors pay in advance for interventions to reach the goals and are remunerated if the interventions succeed

• Returns on the investment are linked to verified progress

16Source: Center for Global Development/Social Finance UK, 2013

Possible Applications of DIBs

• Reducing Rhodesian sleeping sickness in Uganda

• Antiretroviral treatment in prevention of HIV and TB in Swaziland

• Low-cost private schools in Pakistan

• Access to quality secondary schools in Uganda

• SME pipeline and value generation

• Energy efficiency implementation

17Source: CGD/SF, 2013

• Unlocks new types of capital, and combines capital in creative ways

• Addresses the limitations of traditional investment approaches

• Responds to desire by more investors to generate “blended” returns-social and financial

The Potential of Impact Investing

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• Not a silver bullet/panacea

• Not implying that every social issue can be solved through market-based approaches

• Not replacing the important role of philanthropy

• Not an excuse for governments to ignore their obligations to marginalized populations or to redistribute wealth

What Impact Investing is Not

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20

Accelerating Impact:

Intentionally Deploy More Impact Investment

Source: JP Morgan and GIIN, 2011

• Impact investors provide the upfront capital to stimulate vaccine research and development

• Investments backed by international aid commitments

• 2008: International Finance Facility (IFFI) for Immunization issued bonds which raised the equivalent of over $1 billion

Accelerating Impact:

Unlock New Capital at Scale

21Source: GAVI, 2012

Accelerating Impact:

Strengthen Intermediaries/Products/Platforms

22Source: Shanmugalingam et al., 2011

Intermediaries

• Service providers

• Advisors

Products

• Institutional

• Retail

Platforms

• Due diligence

• Crowdfunding

• Social impact

Accelerating Impact:

Options Beyond The Financial/Impact Trade-Off

23Source: Monitor and Acumen Fund, 2012

Accelerating Impact:

Capacity Development: Entrepreneurs & Teams

24Source: Simpa Networks @ Dasra Social Impact, 2012

• Language: Impact Reporting and Investment Standards (IRIS)

• Enterprise Governance: B Corporations

• Investor Ratings: Global Impact Investing Ratings System (GIIRS)

• Approaches/Uses: Rating, Assessment, Management

• Tools: Social Return on Investment

Accelerating Impact:

Coordinate and Balance Social Impact Measurement Initiatives

25Source: GIIN and GIIRS, 2011

Accelerating Impact:

Raise the Bar on Impact

26Source: Root Capital, 2011

Accelerating Impact:

Government Policy as an Enabler

27Source: Pacific Community Ventures, 2011

Accelerating Impact:

Anticipate the Challenges & Opportunities of Market Building; and Manage Expectations

28Source: E.T. Jackson & Associates, 2012

• Bad things can happen to good ideas and good people

• Managing the social and business dimensions at the same time is challenging

• Business environments are volatile

• The private sector fails all the time (but it is private!)

• Capital and measurement are not enough

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When Things Go Wrong

What To Do? Short-Term Responses

• Protect end-point, vulnerable stakeholders

• Evaluate funds/investments in detail

• Undertake SROI and other value-analysis studies

• Rebuild the business plan, reposition the fund/enterprise

• Ensure strong business leadership, reporting

• Draw lessons for future investments and programs

• Strengthen regulation and monitoring

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• Build a new cohort of highly skilled leaders in business, finance and the social sector

• Develop targeted training

• Increase resources for M&E, regulation and mentoring

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What To Do? Long-Term Responses

Increase the velocity of:

• Evaluating, monitoring, learning and improving

• Scaling up capital pools

• Diversifying investment products and services

• Strengthening the capacity of social enterprises to receive and use capital

• Refining cost-effective impact-measurement tools

• Building the leaders of the future

32

Accelerating Impact Investing

Evaluating Impact Investing: First Principles

• Results and value for money

• Independence, transparency, robust methodology

• Mixed methods: theory-based and quasi-experimental

33

Evaluating Impact Investing: Contextual Issues

• An emerging field with few long track records

• A diversity of products, services, sectors, contexts

• New actors, cultures in development

• Emphasis on front-end design, marketing

34

Evaluating Impact Investing: Technical Issues

• Types of impact investments

• Type of metric: economic, social, environmental, financial

• Unit of analysis: individual, household, enterprise, fund, sector

• Blending quantitative and qualitative data

• Balancing accountability and learning

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Theory of Change: Root Capital

Source: Jackson and Harji, 2012 36

- Higher/stable incomes

- Improved livelihoods

Household Level Outcomes

- Sustainable landscapes

- Gender equality

Community Level Outcomes

- Dynamic capital markets

and rural economies

Capital Market Level Outcomes

- Small and growing

business growth

Enterprise Level Outcomes

- Capital

- Financial Training

Outputs

Institutional Investors

37

Enabling InvestorsCredit

Guarantee

Strategy User Focus Policy Instrument

Outputs

• Design• Management• Reach• Uptake

Outcomes

• Deals• Volume• Returns• Leverage• Costs• Sectors• Geographies• Replication

Impacts

• Employment• Income• Affordability

and Accessibility of Services

• Energy Savings

• Reduced GHG

Evaluation Issues

Adapted from Wood, Thornley and Grace, 2013

Evaluating Enabling Strategies for Institutional Investors

Sector-Based Approaches: Investment Continuum

38Source: Bannick and Goldman, 2012

generating select investorscommonly

Below market

returnsHigher-revenue

Market returns Non-revenue

Market returns

recognized by generating

recognized

The Structure of a DIB

39Source: Development Impact Bonds Working Group, 2013

Asking Why and How Outcomes Are Achieved• Interrogating the theory of change at the micro-level

• Mobilizing participatory and qualitative methods

• Comparing across sites, genders, cultures, sectors

• Using contribution analysis and RCTs to explore causality

• Applying lessons to replication, scaling up, winding down

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Learning More, Shaping the Future

• Impact investing needs development evaluation

• Impact investors must be held accountable

• Evaluators need new skills and guidance

• DFID can play a catalytic role

41

Resources

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• Bugg-Levine, A. and J. Emerson. Impact Investing: Transforming How We Make Money While Making a Difference, 2011.

• Center for Global Development and Social Finance. “Investing in Social Outcomes: Development Impact Bonds,” Washington, DC, 2013.

• Gates, B. “Innovation with Impact: Financing 21st Century Development,” Report to the G-20 Leaders, Cannes, 2011.

• Harji, K. and E. T. Jackson. “Accelerating Impact: Achievements, Challenges and What’s Next in Building the Impact Investing Industry,” Rockefeller Foundation, 2012.

• Monitor and the Acumen Fund. “From Blueprint to Scale: The Case for Philanthropy in Impact Investing,” 2012.

• Monitor Group. “Promise and Progress: Market-Based Solutions to Poverty in Africa,” 2011.

• Pacific Community Ventures. “Impact Investing: A Framework For Policy Design and Analysis,” 2011.

• United National Development Program. “Innovative Financing for Development: A New Model for Development Finance,” 2012.

• UK Cabinet Office. “Achieving Social Impact at Scale,” London, 2013.

Organizations and Networks• Aspen Network for Development Entrepreneurs (ANDE)

aspeninstitute.org/policy-work/aspen-network-development-entrepreneurs

• Big Society Capital bigsocietycapital.com

• Bridges bridgescommunitybank.org.uk

• Global Impact Investing Network (GIIN) thegiin.org

• Global Impact Investing Ratings System (GIIRS) giirs.org

• Greater Capital greatercapital.co.za

• Impact Investing Policy Collaborative (IIPC) iipolicycollaborative.org

• Nexii nexii.org

• Omidyar Network omidyar.com

• Social Finance UK socialfinance.org.uk

• Tony Elumelu Foundation tonyelumelufoundation.org

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