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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
15
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
18
• 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
19
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
29
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
30
• 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
31
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
35
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
40
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
42
• 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
43