A frAmework for Action:
social enterprise & impact investing
2
a Framework for action: social enterprise & impact investingJune 2012
about the United nations global compact
the United nations Global compact is a call to companies everywhere to voluntarily align their operations and strategies with ten universally- accepted principles in the areas of human rights, labour, environment and anti-corruption, and to take action in support of Un goals, including the millennium Development Goals. the Un Global compact is a leadership platform for the development, implementation and disclosure of responsible corporate policies and practices. Launched in 2000, it is largest corporate responsibility initiative in the world, with over 10,000 signatories based in 140 countries. for more information: www.unglobalcompact.org
about the rockefeller Foundation
the rockefeller foundation supports work that expands opportunity and strengthens resilience to social, economic, health and environmental chal-lenges—affirming its pioneering philanthropic mission since 1913 to promote the well-being of humanity. the foundation operates both within the United States and around the world. the foundation’s efforts are overseen by an independent Board of trustees and managed by its president through a leader-ship team drawn from scholarly, scientific, and professional disciplines. www.rockefellerfoundation.org
United nations global compact team: Gavin Power; Bianca wilson
the rockefeller Foundation team: margot Brandenburg; kelly melia-teevan; Justina Lai
Developer & project manager: Preeth Gowdar
Designer: Hedie Assadi Joulaee
Disclaimer
this publication is intended strictly for learning purposes. the inclusion of company names and/or examples does not constitute an endorsement of the individual companies by the United nations Global compact office. the material in this publication may be quoted and used provided there is proper attribution.
copyright ©2012
contents
Introduction 4
A Framework for Action 6
Prioritize Rationale 6
DefineStrategy 9
Choose Approaches 15
CaseStudies 24
Acknowledgements 27
ReferencesandResources 28
4
Thecombinedresourcesofgovernmentandphilanthropyaloneareinsufficienttosolvethemanydevelopmentchallengesofthetwenty-firstcentury.Overthepastdecade,therehasbeengrowingrecognitionwithintheprivatesectoroftheneedtotakeagreaterandmoreactiveroleinpromotingsustainabledevelop-mentglobally,throughgeneratingemploymentforyouth,empoweringwomenandtacklingchallengesrelatedtoenergy,waterandhunger.Corporationsandinvestorsunderstandthelong-termbenefitsofcontributingtodevelopment,andassuch,initiativestoadvancethesustain-abilityagendahavegainedstrengthintherecentpastandwillcontinuetoplayanimpor-tantroleinthefuture.However,inthequestforinnovativewaystoengagetheprivatesectortobolsterglobalsustainabilityfurther,anewapproachhasgainedsignificantmomentuminrecentyears.Itiscapturedbytwothemes:
• Socialenterprisedevelopment,definedascreatingandnurturingmicro-,small-andmedium-sizedbusinessesthataimforposi-tivesocialorenvironmentaloutcomeswhilegeneratingfinancialreturns;and
• Impactinvesting,definedastheplacementof capital (into social enterprises and other structures)withtheintenttocreatebenefitsbeyondfinancialreturn.1
Socialenterpriseandimpactinvesting,bydefinition,proactivelyintendtocreatepositiveimpactaswellasgenerateprofits.Suchafor-profitorientationhasatwofoldeffect:
• Financial return potential increases the at-tractivenessofopportunitiesthatproduceapositiveimpact,drawingmoreprivatesectorcapitaltoareasthatpromotedevelopment.
• Privatesectorparticipation,andtheoppor-tunitytogeneratereturns,spursinnovationandgrowth;commercialcapitalpushesenterprises to experiment with new business models,capturenewopportunitiesanddriveforgreaterimpact.
Bothprivateandpublicentitiescouldbenefitfromviewingsocialenterprisedevelopmentnotonlyasaresponsibilitybutasafinanciallyor
strategicallyvaluableinvestment.Basedonthisconcept,theUnitedNationsGlobalCompactand The Rockefeller Foundation seek to encour-ageinvestors,corporationsandpolicymakerstoexplorethepotentialofsocialenterprise.Theyhavethereforedevelopedthis“FrameworkforAction”toenabletheexplorationprocess.ThefacetsoftheFrameworkarepresentedthroughastrategic(andoftenmarket-focused)lens,butitisimportanttonotethatthephilosophyofcorporatesustainability–definedasacom-pany’sdeliveryoflong-termvalueinfinancial,social,environmentalandethicalterms–fun-damentallyunderpinsthecontent.
The scope of a discussion centered on social enterpriseandimpactinvesting,dependingonone’sperspective,canbebroad.However,thisFrameworkforActionisfocusedon,butnotlimitedto,thefollowing:
• Activitiesthatprovideproductsorservicestoindividualsinlow-incomepopulations;
• Intentiontoproactivelycreatepositivevalueratherthanseekingtoavoidnegativeimpact;
• Geographicfocusondevelopingandemerg-ingcountries.
This Framework aims to assist three stakeholder groups–investors,corporationsandpublicpolicymakers–inunderstandinghowtonavigatethesocialenterpriseandimpactinvest-ingspace.Foreachofthesegroups,theguideoutlinesthreesteps:prioritizingtherationaleforengaging,definingastrategy,and,finally,choos-ingspecificapproachestoexecute.Theentiretyof this Framework is structured around these threesteps.Eachstepwillvarynotonlybetweenstakeholdergroups,butalsoamongindividualorganizations.Whilethereisnoone-size-fitsallapproach,theFrameworkisdesignedwiththeintentionofallowingavarietyofinterestedorga-nizationstounderstand,inastructuredfashion,howtheymaybebestpositionedtoengage.
introDUction
1 Social enterprise and impact investing overlap significantly, although they are not synonymous. Social enterprises, for example, need more than just investment capital to be successful, while impact invest-ments can be made into non-enterprise structures like loan or equity funds or infrastructure projects. this framework encompasses both, with a focus on their intersection.
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Framework For action
governments
corporationsprioritize rationale
Define strategy
choose approaches
social enterprise Development
investors
Framework For action
governments
corporations
prioritize rationale
Define strategy
choose approaches
social enterprise Development
•risk-adjusted financial returns•Demand from impact-
seeking asset owners•Learning from investing
•engagement with new markets•Learning from
innovating•risk management•contribution to
corporate sustainability objectives
•Leveraging greater capital for development•Advancing specific
policy objectives
•invest directly•invest in funds/
intermediaries•Purchase structured
financial products
•engage new businesses externally•Launch new
businesses internally•realign core business
•increase capital inflows•Direct capital•Strengthen enterprises
and intermediaries
•Direct equity or debt investments•equity or debt funds•Guarantee
programmes•fixed income or public
equities
•investments and partnerships•incubation•Procurement•Distribution•Product development
•incentives•capital and technical
assistance programs•regulation
investors
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Low-incomepopulationsindevelopingcoun-trieswereonceoflittleinteresttoinvestorsandcorporations.Today,however,thereisagrowingrecognitionofthesubstantialmarketpotentialthosepopulationsoffer.These“baseofthepyramid”marketsareattractivefortheirsizeandincreasingpurchasingpower.Butbe-causethesecommunities’basicneedshavegoneunderservedforsolong,eitherbythemarket,thepublicsectororboth,theyarealsoattrac-tiveforthesignificantpent-updemandtheyrepresent.Asoperatinginfrastructuresarebuiltoutlocally,well-runsocialenterpriseswillenjoybetterchancesofsucceedingcommercially,andwillthuspresentgreaterinvestmentopportuni-ties.Thepromiseofsuchopportunitypresentsaninvitationtostakeholderswhocanstepinearlytothesenascentmarkets.
Moreover,beyondlookingatcapitalreturns,investorsandcompaniesstandtoharnesssub-stantialstrategicvalue.Thelearning,diversifi-cationandriskmitigationopportunitiespresentsubstantialupsidesforengagingwithsocialenterpriseandrelatedinvestments.
Finally,atabroaderlevel,socialenterprisedevelopmentoffersanattractivewaytoacceler-atethecreationofsharedvalue.Inclusiveandsustainablegrowthpromoteseconomicandsocialdevelopmentandsubsequentlycreatesamoreenablingbusinessenvironmentinwhichbothinvestorsandcorporationsmayprosper.
investorsInstitutionalinvestors,commercialequityfundsandphilanthropicinvestorshaveallmadeentries,atvaryinglevels,intoimpactinvesting.Agreateramountofcapitalisexpectedtoflowintothespaceforavarietyofreasons.
financial returns
Impactinvestmentsactivelyseekfinancialreturns.Returnexpectationsvarywidelyasinvestorshavedifferingstrategiesaroundrisk,financialreturnandimpact.Resultingobjec-tivescanrangefrompreservingprincipaltorealizingrisk-adjustedmarketreturns.
Someinvestorsbelieveeconomicactivityinlow-incomemarketsindevelopingcountriesislesscorrelatedwithmacroeconomiccyclesin mainstream commercial markets than othertypesofinvestmentandoffersportfoliodiversification.
Demand from impact-Seeking Asset owners
Attheinstitutionallevel,assetmanagersareobservingincreasingdemandfromassetown-ersforsociallyandenvironmentallybeneficialinvestmentoptions.Inordertoattractandretainclientswhoexpresssuchademand,institutionalassetmanagersshouldbegintocreaterelevantinvestmentofferings.
Learning Value for Direct investors
Ventureinvestorsenteringsocialimpactsectorshavebeenabletolearnfromthebusinessmodelandoperationalinnovation that occurs inlow-incomemarketsandusethistoaddvaluetoothercommercially-orientedportfoliocom-panies.Suchinvestorshavealsocitedexamplesoftheirimpactinvestmentsprovidingleadstoothermorecommercialinvestments with companiesthatoperateinrelatedlow-incomemarkets.
corporationsInadditiontorealizingfinancialreturnsandbolsteringsustainablebusinessactivities,corpo-rationshavethepotentialtounlockasignifi-cantamountofstrategicvalueonavarietyoffronts.Thisstrategicvaluemayeasilyalignwithmanyoftheinnovationandemergingmarketgrowthgoalsthatcorporationshold.
a Framework For actionprioritize rationaleidentify and prioritize rationale that support long-term objectives
• Sizeable long-term opportunity
• Strategic value
• Better business environments
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new market Development
Manycompaniesarestartingtorecognizethatlow-incomepopulationsinemergingmarketswillofferasignificantconsumerandsupplierbaseinthelongrun.Tobewellpositionedforthisopportunity,theyarebeginningtomakelearninginvestmentstodaythatwillhelpthemservethathigh-potentialmarketsegmentinthefuture.
Learning from innovation
Operatinginlow-incomemarketsforcescom-paniestoinnovateinordertocreatelow-costproducts,newbusinessmodelsandefficientsupplychains.Drawingontheirexperiencewithcustomizingnewofferingstothe“baseofthepyramid”,companiescanapplynovelbusi-nessapproachestowardthisgroup,improvingtheircorebusinesses.
risk management
Managingsocialenterpriseactivityprovidesnotonlyameanstomonitortheoperatingenviron-mentincommercialbusinessregionsbutalsoto buildrelationshipswithinthatregion.
Engagingwithsocialenterpriseallowscom-paniesavarietyofoptionstodiversify economi-cally–throughenteringdifferentmarkets–aswellasoperationally–throughinteractionswithnewcustomers,suppliersandproducts.
contribution to corporate Sustainability objectives
Givenmanyoftherationaledescribedhere,impactinvestingservesasanattractivewayforcorporations to work towards achievingtheirinternallydevelopedsustainabledevelop-mentgoalsaswellasadvancinguniversallyacceptedprinciples,suchasthosesetforthbytheUNGlobalCompactintheareasofhu-manrights,labour,environmentandanti-corruption.Giventhesignificantscalabilityandself-propellinggrowthofmanyfor-profitsocialenterprises,thesebusinesseshavethepotentialtocreatemorewidespreadsocialandenviron-mentalimpactthanlessscalableinitiatives.
Inaddition,engagingwithsocialenterprisemaybringahostofothermoredistinctivebene-fits.Forexample,renewableenergyinvestmentscouldproducelong-termcostsavings,sellingaffordableproductscoulddrawvaluablelong-termloyaltytoabrand,andsomecompaniesmayvaluebroad-basedreputationalgainsfrommakingpositivecontributionstolow-incomecommunities.
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governmentsFromapublicpolicymaker’sperspective,privatesector-basedsocialenterprisescanbeeffectiveinaddressingsocial,environmentalandothersustainabilitychallengesthatarebecomingincreasinglycostlyforgovernmentstotacklealone.However,anumberofexistingmarketfailures–suchasinsufficientindustryinfrastructureandinformationasymmetry–standinthewayofacceleratingcorporateandinvestorengagementwiththespace.Custom-izedpolicycanthereforeplayamajorroleinfosteringimpactinvestingmarkets.Suchpolicyoughttobeofkeeninteresttogovernments,whichhavemultipleincentivestocreatebetterenablingenvironmentsfortheprivatesectorbothnowandintothefuture.
increased capital for Development
Increasedprivateinvestmentinsomedevel-opment-relatedsectorscouldallowgovernmentspendingtoberedirectedtoothersectorslesslikelytoattractprivatecapitalandmayalsoreducedependenceoninternationalgrantfund-ing.Moreover,astrongprivatesectorecosystemwillpromotelong-terminvestmentbeyondthelifeofanyparticularpoliticaladministration.
Incaseswherethegovernmentdirectlyfundssocialenterprisedevelopmentactivity,shift-ingfromasubsidymodeltoafor-profitmodelprovidesasourceofsustainablefundinginareaswhereitcanbeeffectivelydeployed.Thisservestopromotefiscalefficiency,allowingfundstoberegeneratedandreinvestedinnewprojects.
Advancement of Specific Policy objectives
Privatesectoractorsmaybeabletoactmorequicklythanlargepublicbureaucraciesandmaybemoreresponsivetomarketopportuni-tiesthatservedevelopmentobjectives.Also,suchactorstendtoprovidefinancialdisciplinetoorganizations,orevenentiresectors,withahistoryofdependenceonsubsidies,mak-ingtheseorganizationsmoreefficientintheirdevelopmentimpact.
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Onceanorganizationhasdevelopeditsindi-vidualizedrationaleforengagingwiththeso-cialenterpriseandimpactinvestingspace,theinvestor,corporationorpolicymakermustthenconsidertherangeofstrategiesthatexistforenteringthefield.Theywillneedtoevaluatenotonlywhichstrategiestheyaremostcapableofadoptingbutalsowhichwouldsupporttheirgoalsgiventherationaletheyhaveprioritized.Eachstrategycomeswithauniquesetofop-portunitiesandchallengesthatstakeholdersshouldseektounderstandcarefully.
Whileconsideringthevariousbroad-levelstrategiesathand,anorganizationwillneedtodeterminethetimingandsizeofitsintendedengagement.Stakeholdershavetheoptiontomakeanaggressiveplayinthenear-terminhopesofinvestingearlyforagreaterfuturegain.Theycouldalternativelyadoptamoreconservativestrategy,makingsmallerinvest-mentsordevelopingprojectsoveralongertimehorizon in order to test markets and therefore learniteratively.Mostofthestrategiesoutlinedinthissectioncanbeimplementedviaeitherapproach.
target markets
Investorsandcorporationswillneedtochoosetargetmarketsintermsofboththesectorsandgeographiesinwhichtheywishtoinvest.Beyondthebasicmarketopportunity,otherfactorstoconsiderincludelocalregulatoryenvironmentsandliquidityinprivateequityanddebtmarkets(especiallyforfinancialinves-tors).Alsoimportanttoconsiderisstrategicrelevancebasedontherationaleinitiallyprioritized–forexample,theabilitytobuildrelationshipsincurrentoperationregions,togainexperienceinnewregionsortolearninsectorswhereinnovationismostripe.
Governmentsmustconsiderwhethertheyshouldseektoshapepolicyatthenationallevel,locallevelorboth.Also,inadditiontode-cidingwheretobolsterprivatesectorparticipa-tion,governmentswillneedtoascertainwhichsectorsmostrequireandarebestsuitedtotakeinthebenefitsofprivatesectorengagement.
investorsKeyconsiderationsforinvestorstotakeintoac-countwhendevelopinganimpactinvestmentstrategyincludetransactioncosts,approachtostructuringandthelevelofimpactaninvest-mentmanagerseekstoachievethroughthesocialenterprise.
Direct investments in Social enterprises
Directinvestmentisthemostactivewayinwhichaninvestorcanengagewithsocialenterprise.Itoffersstrongstrategicvalue,forexamplebyprovidingexposuretonewmarkets,butitalsorequiresahighlevelofinvolvement,particularlyintermsofsourcingandclosingtransactions.Itisastrategytypicallysuitedlesstoinstitutionalinvestorsandmoretoventurecapitalfunds,commercialbanks,developmentbanksandotherinvestorswithanon-the-groundpresenceintargetregions.Investorswithdeepregionalexpertisetendtobebetterpositioned to make direct social enterprise investmentsduetothegrassrootsoperatingnatureofsuchbusinesses.
sample sectors:
sample geographies:
• Agribusiness
• education
• energy
• financial Services
• Health
• Housing
• water
• Africa & middle east
• Asia & Pacific
• Latin America
DeFine strategyUnderstand the features unique to each strategy and adopt whichever best align with prioritized rationale
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In terms of the impactorientationofsocialenterprises–thatis,thewaysandextenttowhichtheyachievepositivesocialorenviron-mentaloutcomes–investorstendtohaveawidevarietyofchoices.Inordertostandardizethemeansofquantifyingthoseoutcomesandintroducemoretransparencyaroundclaimsofimpact,anumberofindustry-levelinitiativeshaveemergedtocreateassessmentframeworksandratingservicesaroundimpactmeasurement.Investorsareencouragedtoavailthemselvesofthesetoolswhenmakinginvestmentdecisions.
Underthecategoryofdirectinvesting,thereareessentiallytwodifferentrolesaninvestorcanassume:
• Active/leadinvestor:Thisroleinvolvestakingtheleadonsourcingdeals,perform-ingduediligence,closingtransactionsandactivelymanagingaportfolioofcompanies.Earlyorgrowth-stagesocialenterprisestendtoseegreatvalueinsuchinvestorssincetheygenerallytakeahands-onapproachtowork-ingwiththeirportfoliocompanies;youngenterprisesoftenwelcomethegovernanceandadvisorythatsuchinvestorsoffer.
• Participatingco-investor:Afirst-timeinves-tor,oronewithoutastronglocalpresence,canformworkingrelationshipswithmoreactiveinvestorsandparticipateasaco-inves-torwhoprovidescapitalbutdoesnotleadaninvestmentround.Thisstrategyoffersalow-overheadwayoftransactinginvestments.Assuch,itcanserveasanattractiveoptiontoentertheimpactinvestingspace.
fund or intermediary investments
ParticipatingasaLimitedPartnerininvest-mentfundscanoffertheopportunitytomakelarger-sizedinvestmentsthanindividual,directtransactionswhilerequiringalowerlevelofongoinginvolvement.Itisanapproachsuitabletoavarietyofinvestortypes,includinginstitutionalinvestors.
Thereisarangeofintermediaryoptionsfromwhichtochoose.Whenadoptingthisstrategy,itisimportanttodeterminenotonlythecommercialphilosophyandobjectivesofthe fund but also the impactorientationoftheintermediary.Onecategoryoffundscanbedescribedas“impactfirst”investors,forwhomthesocialoutcomesoftheirinvestmentsareofprimaryimportanceandfinancialreturnsaresecondary.Alternatively,“financialfirst”inves-torsgivemoreweight,relativelyspeaking,tofinancialreturnpotential.Theimpactmeasure-mentsystemspreviouslymentionedarealsoapplicableatthefundlevelandcanbeutilizedtomeasuretheimpactorientationofafund.
Fundinvestorsalsoneedtothinkthroughthe stageofenterprisedevelopment at which theintermediarytargetsinvestments.Early-stagesocialinvesting,ascomparedwithgrowth-stagesocialinvesting,canhaveverydifferentimplications on risk and potential returns and offerdifferentformsofstrategicvalue.
Institutionalinvestmentmanagerswho seektoofferimpactinvestmentopportunitiestotheirclientshavemultipleoptionsforstructuringfundinvestments.Becauseassetmanagershaveavarietyofinvestmentcapabilities,theyhavemoretoconsiderwhendecidinguponastrategy.Suchassetmanagerscanformafundoffunds,setupaninternaldirectinvestingfund,makedirectinvestmentsinexternalimpactfundsormakedirectinvestmentsinsocialenterpriseswiththeassistanceofanexternalmanager.Alternatively,asamorepreliminarystrategy,theycansimplyactasanadvisortotheirclientsinfacilitatinginvestmentsintoexternalfunds.
Somefundmanagershavebuiltimpactinvestmentsintotheirbroaderportfolio,whileothersseektoofferitasaseparateproduct.Inchoosingastructure,allinstitutionalinvestorsneedtotakeintoconsiderationtheiruniquesituationsregardingfiduciarydutyandtheirlegalobligations.
Diagrams1and2illustratevariousstructuresaninvestormayseektoadopt.Whilethesemod-elsencompassawidevarietyofoptions,theyarenotexhaustiveincapturingpotentialstructures.
An increasing number of investors are us-ing the global impact investing rating system (giirs) to assess the social and environmental impact of companies and funds. GiirS adopts a ratings and analyt-ics approach. it allows impact investors to conduct better due diligence, make better investment decisions and track and improve impact. GiirS is based on the industry-recognized impact reporting and invest-ment Standard (iriS).
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institUtional impact investing: externally FocUseD moDels
impact investment Fund of Funds
(externally managed)
impact investment Funds
(externally managed)
Direct investment (via external investment management services)
investment assets
general portfolio
institutional client
note: arrows represent investment flows
note: arrows represent investment flows
institutional asset manager
social enterprises
social enterprises
2 3 4
advisory services (internally developed)
1
1
2 institUtional impact investing: internally FocUseD moDels
impact investmentFund of Funds
(internally managed)
impact investmentFunds
(externally managed)
impact investmentFund
(internally managed)
investment assets
general portfolio
institutional client
institutional asset manager
2a 2b 431
optional: (Use external investment management services)
co-invest
advisory services (independent)
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Structured financial Products
Thereareanincreasingnumberofbondsandpublicequitiesthatgobeyondsociallyrespon-sibleinvesting,whichemphasizesavoidingneg-ativeimpact,andfocusonfinancingprojectsorbusinessesthatproactivelycreatepositiveimpact.Thisistheleastdirectformofinvest-ing,anditisalsowell-suitedtoinstitutionalinvestorsduetotherelativelylowtransactioncostsinvolved.
Intermsofstructuring,institutionalinvest-mentmanagerscaneitherintegratethesebondsorpublicequitiesintoexistinginvestmentprod-uctsorcancreateaseparateimpact-dedicatedproductforselectinvestorsspecificallytargetingtheimpactspace.
corporationsManycorporationsharboradiversewealthof resources that could contribute to social enterprisedevelopment.Acorporationseekingtoenterthespaceoughttoencouragecollabo-rationamongvariousinternalorganizationstopoolresourcestoengagewithlow-incomemar-ketsinordertosimultaneouslycapturevaluefromandaddvaluetothesecommunities.
Aswiththeinvestor-specificstrategiesoutlinedpreviously,thefollowingstrategiesalsoentailvaryinglevelsofinvolvementandorganizationalchange.However,allrequireanentrepreneurialnatureanddriveforinnovation.
engage with new Businesses externally
Creatingopportunitiesinorganically,throughexternalventureinvestmentsorpartnerships,tends to be the most efficientway to explore socialenterprise.Thisstrategycanberealizedasquicklyasacorporationisabletostrategize,source and close either a transaction or alli-anceagreement.Externalventureinvestmentorpartnershipstrategiespossessmanyofthesamecharacteristicsasdirectinvesting,whichwereoutlinedpreviously.
Thisstrategyrequiresdifferentiatedex-pertise,forexample,inventureinvestingorpartnershipnegotiation,andmayneedtobeexecutedoutofaCorporateDevelopmentoraCorporateVentureInvestmentgroup.Thesegroupsshouldseektoleadintra-companycol-laborationeffortsdevotedtosourcingfinancialsponsorship,technicalexpertiseandmarketintelligence.Broadercollaborationcanoccurwithotherinternalorganizationssuchas:
• CommercialBusinessUnits:Houseadepthoftechnicalexpertiseandvaluablerelation-shipsinoperatingmarketsthatcanbelever-agedtogrowsocialenterprises.
• Sustainability/CorporateSocialRespon-sibility:Offersknowledgeonlow-incomemarketsandexpertiseinengagingwithcorebusinessunitstogeneratepositivesocialandenvironmentimpact.
• CorporateFoundation:Providesfundingsourcesthatcarrysignificantlylesspressuretocapturefinancialreturnsoninvestmentdollars.Foundationfundingmayneedtobetargetedmoreatenablinginitiativesratherthanininvestmentsthatdirectlybenefitthecompany.
• Research&Development(R&D): If tapped effectively,supportsproductinnovationforlow-incomemarketsandmayalsobeabletodeliververypatientfundingforsocialenterprise opportunities positioned to be largelylong-term.R&Disincreasinglybasedoutofregionsatwhichpotentialproductsaretargeted.
Diagrams3,4and5illustrateafewsamplecollaboration structures that corporations can considerimplementing.Corporationsshouldseektoexplorethemanypossiblevariationstothesestructuresincustomizingastrategyfortheirorganization.
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3 corporate social enterprise Development: investment moDel
r&Dcommercial
Business Unit(s)
sustainability / csr
corporate Foundation
project management office
Business Development
strategic venture
capital Unit
corporation
social enterprise(external company)
corporate Value-Add
Partnership Agreement
equity and Board Participation
4 corporate social enterprise Development: strategic alliance moDel
r&Dcommercial
Business Unit(s)
sustainability / csr
corporate Foundation
project management office
Business Development
Business Development
innovation programme or commercial Business unit
corporation partnerLicensing, joint venture or collaboration agreements
Leverage internal corporate resources to launch and grow business
Provide complementary assets and capabilitiessocial enterprise
(collaborative venture)
5 corporate social enterprise Development: incUBation moDel
r&D commercial Business
Unit(s)
sustainability / csr
corporate Foundation
internal innovation programme
corporation
social enterprise(internal venture)
fund and leverage various corporate resources to launch and grow businesses
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Launch new Businesses internally
Acompanymaychoosetocreatenewbusinessesinternallyasameansofengagingwithsocialentreprise.Thisstrategyisoftencharacterizedbyincubatingsocialenterprisebusinessmodelsandsubsequentlybuildingthemoutonamorewidespread,commercialbasis.Asthesecanberigorouslyentrepreneurialprojects,theyareof-tenbestlaunchedthroughinternallyfundedin-novationprogrammesorevenasseparatejointventureswithinnovativepartnercompanies.Theincubatingorganizationmusthavehighrisk tolerances and the skills and capabilities to translateideasintobusinessventures.
Intermsofstructuring,oncethesebusi-nessesreachcriticalmass,theyoftenneedtobespun off into independent business units (rather thanintegratedintoexistingones)giventhatsocialenterpriseactivitiesrequireauniqueandhighlycustomizedoperatingmodel.
Verysimilartoexternalbusinesscreation,organicbusinesscreationcanleverageothercapabilitieswithinthecorporation,suchastheventureinvestmentunit,existingcommercialbusinessunits,corporatesocialresponsibilityorresearch&development.
realign existing core Business
Thisstrategyisamongthemostintensivewaysforacorporationtoengagewithsocialenterprise,butitalsooffersthehighestlevelofengagementand,hence,opportunity.Acompanymusthaveorbewillingtoestablishasignificantpresenceinlow-incomemarketsandpotentiallyinvestinnewlocalinfrastruc-ture,includingstaffandoperatingsystems.Inmanycases,thisinvolvesasignificantdegreeoforganizationalchange.
Manycompaniesrecognizetheneedtocustomizeproductsorsupplychainstosuitlow-incomemarkets,ratherthansimplyadapt-ingexistingproductsandsupplychainsystemstothesemarkets.Implicitinthisassertionisthefactthatadoptingsuchastrategywouldrequireasignificantandrelativelylong-termcommitmenttothemarket–somethingthatmayunderstandablycausesomecompaniestohesitate.However,companiesdohavetheoptionofadoptingamorestaggeredapproachtothisstrategy(forexamplebyfirstfocusingonlow-incomeurbanmarketsandthenmovingtomoredifficultruralmarkets),therebyeasingtheirentryandreducingsomeoftheimmedi-ate-termchallengestheywouldotherwiseface.
governmentsAsoutlinedbelow,governmentscanchoosetoshapeimpactinvestingandsocialenterpriseactivityeitherasadirectparticipantinimpact-orientedmarketsorasanoutsideinfluence.However,regardlessofthestrategiesitselects,agovernmentmusttakecaretoensurethatitsinterventionsarewelltargeted,transparentandimplementedefficientlyatafittingscaleandfortheappropriateduration.
increase inflow of capital
Thisstrategyservestoimprovetheoverallavailabilityofcapitalinthesocialenterprisespacebyhelpinginvestorsovercomestructuralbarrierstoimpactinvesting.
• Influencestrategy:Createregulationsormandatesthatdirecthowinvestorscanorshouldinvestcapital.
• Participationstrategy:Developco-investmentopportunitiestoattractinvestorsviarisk-shar-ingarrangements.
Direct capital
Suchpolicyenablescapitaltobeshiftedtoareasthatmayrequiregreaterinvestment.Itallowsthegovernmenttotargetspecificprior-itysectorsforfurtherdevelopment,especiallywhenthereisalonghistoryofunderprovision-ingofsocialgoodsinthearea.
• Influencestrategy:Implementprogrammesandregulationtoencourageinvestmentthroughimprovedtransactionefficiencyandmarketinformation.
• Participationstrategy:Leveragedirectgov-ernmentinvestmenttopromoteproductsorservicesthatcreatepositivesocialimpact.
Strengthen enterprises and intermediaries
Thisstrategyfocusesonbuildingthedemandforinvestmentbyimprovinginvestmentat-tractivenessandcapacityofopportunitiesinthelonger-term.
• Influencestrategy:Createenablingcorporatestructuresthathelptosimplifyinvestmententry,takeadvantageofpolicyincentivesorprovideaclearerpathforimpactinvestors.
• Participationstrategy:Offertoolsthatservetomitigateinvestorriskbyensuringaminimumrateofreturnorbytakingafirstlossposition.
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Onceestablished,animpactinvesting,socialenterprisedevelopmentorenablingpolicystrategycanbeimplementedthroughoneormoreapproaches.Thesearethediversesetofoptionswithwhichaninvestor,acompanyoragovernmentcanactivelyengageintheimpactinvestingandsocialenterprisespace;theyaretheconduitsthroughwhichsocialorenviron-mentalimpactisultimatelyachieved.Whilethelistbelowisbynomeansexhaustive,itdetailsanumberofbothcommonandinnovativeoptionsforpromotinganengagementstrategyanditsunderlyingrationale.Forillustrativepurposes,thelistissupplementedwithseveralbriefexamplesofhowarangeofcommercialinstitutionsandgovernmentshasusedtheseoptionstoengagewiththespace.
investors
Debt and equity investment in Social enterprises
Anarrayofinvestablesocialenterprisesexiststhroughoutvarioussectorsandregionsoftheworld.Thesecompaniesofferopportunitiesforbothequityanddebtinvestments.
Duetothenascencyofthesector,typicalinvestmentopportunitiesdemandseed-andgrowth-stagecapital,moresothanlater-stageprivateequityfunding.Hence,investmentsmaybesuitedtoinvestorswhocanworkwiththesmallertransactionsizesrequiredbyearly-stagecompanies.
Thisapproachprovidesdirectinvestorswiththeopportunitytoengagebyprovidingstrategicadvisory,managementsupportandtechnicalassistance.
incubation and Seed funds
Amongmanysocialinvestors,thereisgrowingrecognitionthatinordertoimprovetheabilityoftheindustrytoabsorbcapitalanddevelopastrongfutureinvestmentpipeline,moreearly-stagecapital,combinedwithcapacitybuildingassistance,isclearlyneeded.Thisrealizationhasspurredthelaunchofanumberofearly-stageincubationprogrammes.Theseincubationprogrammesorseedfundsoftenrequiremorepa-tientinvestorswhohaveahigherrisktolerance.
Whereasseed-stageorangelinvestmentsinsocialenterpriseshavetraditionallycomefromphilanthropicsources,thecommercialop-portunityforincubationfundsisripeasmanymarketsholdasubstantialamountofgrowthcapital.Thereareanumberoflater-stageinvestorsseekingtohelpinvesteecompaniesac-celeratethoughtheirnextstageofgrowthand,eventually,towardssecondarysaleopportuni-tiesforseed-stageinvestors.
sequoia capital, a Silicon Valley-headquar-tered venture capital fund, with a local pres-ence in india, has made direct investments in socially beneficial areas such as financial inclu-sion (Ujjivan financial Services, indian Shelter finance company), affordable education (k12 techno Services) and affordable healthcare (Glocal Hospitals). Sequoia’s investments were made on the premise that these institutions have potential to scale in india’s urban and rural markets.
SnS impact investing is the development investing arm of sns asset management, a netherlands-based institutional asset manager. the unit employs a unique model, whereby it works with outside investment managers to source and close transactions in target companies. SnS impact investing focuses on making long-term investments in microfinance, agriculture and other areas in frontier and emerging markets.
choose approacheschoose the approaches that most effectively advance your defined strategy
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Growth-Stage funds
Socialinvestmentfunds:These“impactfirst”fundsseekbothsocialimpactandafinancialreturnbutplacepriorityontheformer.Hence,theirinvestorbasetendstoconsistmainlyofmorephilanthropicinvestors.
Thesefundsmayutilizeequity,quasi-equityordebtinstruments.Severalaregloballydiverse,butmanyregionallyfocusedfundsexistaswell.
Commercially-orientedsocialinvestmentfunds:These“financialfirst”funds,whichpri-oritizefinancialobjectives,seek“market-rate”returnswhilealsoexplicitlypursuingaposi-tivesocialimpactthroughtheirinvestments.Traditionally,developmentfinanceinstitutionshavebeenamainsourceofcapitalforsuchfunds,thoughtheyarenowseeingincreasinginterestfromotherinstitutionalinvestorsandcorporateinvestorsaswell.Like“impactfirst”funds,thesefundsalsoemployavarietyofcapi-talinstruments:equity,quasi-equityanddebt,andtheymaybeeithergloballydiversifiedorregionallyfocused.
Loan Guarantee Programmes
Loanguaranteefundsserveascollateralforsecur-ingloanstosocialenterprisesorinvestmentfundstargetingsocialenterprises.Overall,theycanbeusefultoolstohelpstimulateaccesstofinance.Theyarelesscommonthantraditionalinvest-mentinstrumentsbutmaybeamorefrequentlyusedtoolinthefuture.Onaseparatenote,butrelatedtoreducingrisk,investorsmayalsoofferormakeuseofinsuranceproducts,whichcoverareassuchaspoliticalandcurrencyrisk.
Structured financial Products
Investmentmanagershavebeenusingnegativescreenstofilteroutinvestmentsthatmayhaveassociationswithnegativeimpactstotheenvi-ronmentorsociety.However,investorsarenowincreasinglyusingpositivescreenstoidentifyimpactinvestingopportunities.
• Bonds:Anumberoffinancialinstitutionshavebeguntoofferbondsthatareusedtofinancethedevelopmentofenvironmentallyorsociallybeneficialprojects.Thesefixed-incomeinstrumentsoftenprovidemarketratereturns.
• CollateralizedDebtObligations(CDOs): Thesestructuredvehicleshavebeenusedinthepast,primarilyinthemicrofinancesector,butitremainstobeseenwhethertheywillbe-comeahighlyprevalentoptioninthefuture.
• Equitiesandmutualfunds:Thoughsocialmutualfundshaveincreasedinprevalence,equitiesarestilllimitedinnumber.Even-tually,asmanysocialenterprisesmature,i.e.,absorblargerequityinvestmentsandultimatelybecomelistedonpublicmarkets,therewillbealargernumberofequity-basedproductsavailable–especiallywiththepos-siblefutureadventofsocialstockexchanges.
acumen Fund is a US-based non-profit organization that makes venture investments in social enterprises across a range of coun-tries and sectors. considered an “impact first investor”, Acumen’s investors include insti-tutional entities (e.g., Bill and melinda Gates foundation), corporate foundations (e.g., Google.org) as well as other philanthropic investors (e.g., Skoll foundation).
Bamboo Finance, headquartered in Switzerland, is considered a commercially-oriented social investment fund and also invests globally and across sectors. it has a diverse institutional investor base compris-ing private banking clients, family offices, pension funds, a hedge fund, a sovereign wealth fund and others.
impact Base, an initiative of the Global impact investing network (Giin), provides a range of prospective impact investors with a tool to search for funds that may fit with their impact investment interests and objectives.
the international Finance Facility for immunisation, a development finance institution, has raised more than US $3 bil-lion in bonds since 2006. hsBc and Daiwa securities, among others, have assisted in underwriting these securities in the Japanese capital markets. Both retail and institutional investors have invested in these bonds, financing projects that immunize children and strengthen health systems in the world’s poorest countries.
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Strategicalliances:Commonvehiclesusedtoimplementalliancesincludestrategicpartner-shipagreements,licensingarrangementsandjointventures.Thesevehiclesseektocapturebusinesssynergiesbyleveragingtheuniqueas-setsofthepartneringorganization.Analliancecanbeespeciallyusefulwhenengagingwithlow-incomemarkets,asitcanbringtogetherthestrengthsofcompanieswithrelevantmar-ket experience or infrastructure and companies thatpossessvaluable,relevantassets(forexam-ple,mobilephoneplatforms,solartechnologyandothers).Partnerscouldincludeothercom-mercialorganizationsorevenNGOsandothercivilsocietyorganizationswhosemissions,re-sourcesandexpertisemayalignwiththefirm’sinterestsinengagingsocialenterprisesandthatcanhelpmaximizeultimateimpact.
Though“baseofthepyramid”marketsmostoftenrequirehighlycustomizedandlocalizedsolutions,corporationsshouldnotoverlooktheinnovationandresourcesthatcanbeleveragedfrommoredevelopedcountries.
corporations
Strategic investments & Partnerships
Strategicventureinvestments:Manycorpora-tionsdevelopventurecapitalprogrammesthatareintendedtoadvancethestrategicobjectivesofthefirm,typicallybymakingcommercialin-vestmentsinexternalcompanies.Oneapproachacompanycantaketowardimpactinvestingwouldbetoleveragesuchprogrammestomakeinvestmentsinsocialventurefundsordirectlyinhigh-potentialsocialenterprises.
cemex, a global building materials com-pany, based in mexico, created “Patrimonio Hoy” to provide a market-based solution that supports affordable housing development for low-income families. Patrimonio Hoy sells cemex building materials at average market prices and offers microfinancing, technical advice and logistical support to its custom-ers. they have partnered with community organizations to train women promoters on financial literacy and sales with local cemex distributors to supply related products. the programme has opened new markets and revenue streams for cemex in mexico and across Latin America.
cisco, a global networking technology com-pany, invested in Aavishkaar, a venture fund founded to promote development in rural and semi-urban india. cisco aims to promote technology-enabled inclusive growth and seeks to use this investment as a way to learn about the market and accordingly align technology innovation.
starbucks, a global coffee company, invested in root capital, a social investment fund that provides financing and training for rural com-munities across sub-Saharan Africa and Latin America. the investment enables Starbucks to strengthen and stabilize its supply chain.
intel capital invested in Altobridge, an irish company, which brings affordable mobile voice and internet connectivity to undercon-nected communities in remote regions of the world. intel capital and Altobridge seek to bring the social and economic benefits of mobile connectivity to these populations. this investment aligns with intel capital’s goal of engaging with innovation and entrepreneur-ship in emerging markets.
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incubation
The creationofnewbusinesses can start eitheratamicrolevelorimmediatelyonamoresubstantialscale.Amicrolevelapproachmayinvolvesourcingideasthroughinternalinno-vationcompetitionsandthenusingbusinessacceleratorstogrowthemintobusinesspilots.Onagreaterscale,newbusinessescanalsobelaunchedbygainingleadershipbuy-inandrais-ingsizeableinternalinvestmenttopilotlarge-scalegreenfieldprojects.Companieswithlimitedexperienceinlow-incomemarketsmaywishtouseanapproachthatresemblesmoretheformer,whileacompanyalreadyoperatinginsuchamarketmayadoptthemoreambitiousapproach.
mahindra Finance, a subsidiary of mahin-dra & mahindra, one of india’s largest conglomerates, noticed that rural housing was a substantially underserved market. in response, it created a new corporate entity called mahindra rural Housing fi-nance (mrHc), which leveraged mahindra finance’s market knowledge but created a completely new business model to ven-ture into rural housing finance and cater specifically to the low-income segment. the business was launched directly out of mrHc and, after a pilot in two states, was expanded more broadly.
new Product Development
Companiesthathavetheabilitytoinnovativelycustomizeproductsorservicestoaddressthebasicneedsoflow-incomepopulationsarewellpositioned to enter the social enterprise space directly.Theirabilitytotaprelevantdistributionnetworkstoselltheirnewofferinginvolumesthatjustifythedevelopmentcostswillbekey.Companieswouldlikelyneedtoseekexternalpartnerstoeffectivelymarket,sellandpossiblyprovidecomplimentaryfinancingservicesfortheirproducts.
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Procurement
Supplierrealignmentcanhelpacompanyachieveimpacteitherindirectly,byprocuringthroughsocialenterprises,ordirectly,bytrans-formingthefirm’ssupplychaintosourcefromlow-incomeproducers.Approachescanrangefromdirectlysourcingagriculturalproducefromsmall-scalefarmerstoutilizingbusinessprocessoutsourcingservicesthatspecificallyemploylow-incomepopulations.Suchsupplierengagementcanprovidecostbenefitsaswellascontributetooverallsupplierdiversification.
Distribution realignment
Thismayinvolveeitherestablishingnewdistri-butionsystemsortakingonnewdistributionpartnersinlow-incomeurbanorruralareas.Suchrealignmentcanprovideaccesstonewmarketsforcorporations.
the international Finance corporation, the private sector arm of the world Bank Group, provided investment and advisory services to ecom, a company that engages with small-holding coffee growers in central America to support farm productivity and certification. it provides financing and techni-cal assistance to these farmers, who in turn help ecom to meet the market demand for high-quality, certified premium coffees and capture relates sales premiums; and overall, to scale its certified coffee business.
sk telecom, a South korean wireless tele-communications operator, set up an affiliate called “Happy narae”, which contracts with suppliers that hire largely from disadvan-taged populations. Such suppliers can be competitive in that they are able to realize benefits from tax breaks and other incentives (offered through South korea’s “Social en-terprise Promotion Act”) and high employee retention rates.
nestlé Brasil created “nestlé Até Você”, or “nestlé comes to You”, a door-to-door sales system where nestlé employs and trains microdistributors (largely women in low-income neighborhoods) to sell their products. this programme provides nestlé Brasil with better access to a new market segment.
governments
targeted incentives
Taxincentives:Withtaxcredits,agovern-mentwouldprovidetaxrelieftoinvestorsinexchangeformakingqualifiedinvestmentsinbusinessesthattargetdevelopmentprojectsorservelow-incomecommunities.Taxincentivesultimatelydivideasubsidybetweeninvestorsandbeneficiariesandshouldbecarefullyevalu-atedagainstdirectinvestment.Theymustalsobesufficientlytargetedtoavoidcrowdingoutintendedbeneficiariesanddilutingthepoten-tialimpactoftheintervention.
Subsidies:Directsubsidiescanprovideaverystrongincentive.However,theymustbecare-fullyemployedastheytendtonotbeeconomi-callyefficientandcandistortmarketsinthatbeneficiariescandevelopalong-termrelianceontheirsubsidies.
the indian ministry of new and renew-able energy supports Husk Power Systems (HPS), a company that provides affordable electricity to rural areas, with subsidies that partially cover the set-up costs of its renewable energy plants. the ministry has partnered with HPS alongside several other social, commercial and corporate investors.
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22
Procurementmandates:Governmentscanindirectlyincreaseinvestmentandpromoteinclusionbysettingmandatesforpublicsectorinstitutionstofollowwhencontractingwith,purchasingorlicensingfrombusinesses.
capital and technical Assistance Programmes
Fundingprogrammes:Theseprogrammespro-videdirectfinancialassistance(grants,loans,equity)aswellasotherproducts(guaranteesandfirstlosspositions,insurance)tobusinessesintargetsectors.Capitalprogrammesshouldseektoentermarketsoreconomicsegmentscharacterizedbylowprivatesectorinterestbutwithfuturepotentialformorerobustprivatesectorparticipationaftercapacitybuildingefforts.
Technicalassistance:Capitalprogrammesof-tenincludecapacitybuildingservices(technicalassistance,education,partnerlinkages)eitherasacomplementtotheirfinancialassistanceorasastand-alonemarketbuildinginitiative.
Co-investment:Governmentscanpar-ticipateinamoredirectmannerbymakingco-investmentsalongsideprivateinvestors.Co-investmentopportunitiesallowforgreaterrisksharingandhenceservetofurtherattractprivatecapital.Morebroadly,suchofferswouldalsoprovidepositivemarketsignalingtoprivateinterests.Co-investments,orpublic-privatepart-nerships,canoccureitherdirectlyatthesocialenterpriselevelorattheinvestmentfundlevel.
regulation reform
Investmentregulation:Policymakerscanmodifyregulationtoprovidegreaterflexibilityforinvestment,forexample,bylooseningcapsorbyremovingrestrictionsaroundtheuseoffinancialinstruments.Thechallengeliesinensuringthatthesebroad-basedpoliciescreatespecificallyintendedimpacts.Hence,theymayoftenrequiremorefocusedoverlaypoliciestobettershapedesiredoutcomes.
Legalreform:Severalorganizationsarecur-rentlyadvocatingforthecreationoflegalstructuresthatcaterspecificallytothegoalsandneedsofsocialenterprises.Proposedstructurescouldallowfor-profitinvestments(notallowedwhileregisteredasanon-profitorganization)inanewlyrecognizedentity,andatthesametimeprovidefiduciaryalignmentandimprovetransparency,reporting,andgovernancearoundsocialandenvironmentalperformance.
the inter-american Development Bank (iDB) is a multilateral development finance agency supported by 48 member govern-ments. the agency set up the Social entre-preneurship Program (SeP), which offers loans and supports technical assistance to sustainable, and ideally scalable, business-es and projects that address socioeconomic issues of poor and marginalized populations in Latin America and the caribbean. it has thus far invested in sectors such as microfi-nance, energy, health, water and education.
the south african government, using a broad stakeholder model, including active participation by the investment industry between 2009 and 2011, reformed pension fund investment regulations effective from 2012. the new regulation 28 increases the percentage allowance for investments allocated to private equity asset and debt asset classes and introduces principle-based regulation across the portfolio to enable in-vestments that are socially and environmen-tally sustainable. regulation 28 is expected to increase demand around impact-oriented investment themes.
in 2005, regulators in peru gave pension funds additional options to diversify their portfolios into multi-fondos, or “multiple funds”. this led to a larger volume of institu-tional investment in private equity, which in turn may have led to greater investments in small, underinvested businesses.
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Legalreformcanalsobeusedtomoredirectlypromotegreateroverallinvestmentsup-ply.Impactinvestingfundstendtobesmallerinsizethantraditionalcommercialinvestmentfunds.Policymakerscanhelptoreducetheoverheadinvolvedinsettingupandoperatinginvestmentfundsbycreatingsimplerprocessesandrequirements,andthusencouragecapitalinflows.
B-lab, a US-based non-profit organization, is promoting legislation to create a new cor-porate form that meets higher standards of purpose, accountability and transparency. A distinct legal entity, while providing investor and director protections, could enable mar-ket differentiation, focused investor interest and targeted policy treatment.
for decades, the reserve Bank of india (rBi) has required all public and private banks to direct a fixed percentage of lend-ing to “priority sectors”, which it defines as underserved or priority areas for economic growth. these requirements have driven significant funding towards microfinance institutions, which provide financial services to poor urban and rural borrowers in india.
Prioritysectornorms:Governmentscanmandatethatprivatesectorfinancialinstitu-tionsinvestafixedpercentageoftheirassetsintargetmarkets.Suchnormscanbeusedtoallocatecreditorotherformsofinvestmentintomarginalorunderservedsectors.Implementingsuchapolicycanservesocialenterpriseswellbyincreasingtheirattractivenessasaninvest-mentopportunityforfinancialinstitutionsseekingtomeetallocationrequirements.
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investor
tiAA-cref
AFortune100financialservicesorganization,TIAA-CREFisaretirementsystemforAmericanswhoworkintheacademic,research,medicalandculturalfields.TIAA-CREFpursuesimpactinvestingthroughitsGlobalSocialandCommu-nityInvestingDepartmentwithinthecompany’sAssetManagementdivision.
Rationale:Clientinterestinsocialinvestingwaspartofthereasoningforcreatinganim-pactinvestmentprogrammesupportingareassuchasglobalmicrofinance,communitybankdeposits,corporatesocialrealestateandgreenbuildingtechnology.
Strategy:IthascommittedcapitalofmorethanUSD120millioninmicrofinancethroughitsGlobalMicrofinanceInvestmentProgram(GMIP).Theprogrammeseekstomakeinvestmentsinleadingmicrofinancecompaniesandprivateequityfunds.GMIPcapturesawiderangeofmi-crofinancemodelsandproducts,includingsmalldeposits,microinsuranceandsmallandmediumenterpriselending.ThisstrategyisfundedbytheTIAAGeneralAccount,whichisnotavailablefordirectinvestmentbutsupportstheclaims-payingabilityofguaranteedannuities.
Approach:AspartoftheGMIP,TIAA-CREFhasinvestedintheequityfundofDevelopingWorldMarkets,acommercially-orientedassetmanagerthatfocusesonmicrofinance.TIAA-CREFhasalsomadeadirectequityinvestmentinProCreditHoldingAG,whichistheparentcompanyof21microbanksthatoperateinAf-rica,LatinAmericaandEasternEurope.
case stUDies
25
corporation
Safaricom
AKenya-basedcorporation,Safaricomisalargemobilenetworkoperator.ItmanagesM-Pesa,amobilemoneyplatformenablingtheaffordabletransferofmoneybetweenindividualsusinganetworkofretailagents.M-Pesaservescustom-ersthroughoutKenyaandothercountries.
Rationale:Theprojectwasinitiallylaunchedasanexperimentinapplyingaprivatesectorsolutiontocreatedevelopmentimpact,butSa-faricomthensawtheopportunitytoextenditsserviceintoacompletelynewbusiness–thatis,paymentservices.M-Pesaoffersasubstantialnewrevenuestream,especiallygiventhesizeoftheunmetneedinthemarket,andprovidesawayforSafaricomtoretaincustomersinitsmainstreammobilesegment.
Strategy:SafaricomapproachedVodafonetopartneroninitialconceptdevelopment.Safa-ricomofferedanexpansiveandrobustmarketpresenceandinturnwouldbeabletoleverageVodafone’stechnologysolution.Theircomple-mentaryassetsandcompetenciesofferedahigh-potentialpartnership.
Approach:VodafoneandSafaricom,togetherwithotherpartners,createdapilotprogramme.Uponsuccessfulcompletionofthepilotandvalidationofthepotentialopportunity,M-PesawaslaunchedasaseparateentitytobeoperatedbyadedicateddepartmentwithinSafaricom;thetechnologyisownedandhostedbyVodafone.
26
government
the Small industries Development Bank of india (SiDBi)
SetupunderanactofIndianParliament,SIDBIisafinancialinstitutionthatpromotesthemi-cro-,small-andmedium-sizedenterprisesec-tor.Itsdomainsofinterestincludesmall-scaleindustrialunits,financialservices,healthcareandtransportation,amongothers.
Rationale:SIDBIwascreatedtofosteranddevelopsustainableandscalablecompanies,includingonesthatengagethe“baseofthepyramid”.Suchenterprisescontributestronglytoinclusivegrowth,ahighpriorityinIndia’seconomicdevelopmentagenda.SIDBIaimstohelpengagetheprivatesectorandincreasethecapitalresourcesavailablefordevelopment.
Strategy:Asadevelopmentbank,SIDBIseekstoinvestintargetcompaniesandbetterposi-tionthemtosucceedinprivatesectormarkets.SIDBIworkstostrengthenandbuildthecapac-ityofmicrofinanceinstitutions,ruralenterpris-es,energyefficiencyprojectsandotherimpactinitiatives.
Approach:SIDBIusesarangeoffinancingtools(includingloansandequity)toachieveitsgoals.However,italsoprovidesinnovativeformsofnon-financialassistance.Itofferstrainingandeducationprogramsforentrepreneursaswellas local lenders and a nationwide database connectingentrepreneurstoinvestmentpack-agesfrompotentialfinanciers.Ithasalsoledinfrastructure-levelinitiatives,suchasdevelop-ingcreditbureausandcreatingtoolkitsandknowledgeresourcesforrelevantsectors.
27
acknowleDgements
Representativesfromthefollowingorganiza-tionscomprisedaSteeringCommittee,whichworkedcloselywiththeUNGlobalCompactand The Rockefeller Foundation to shape the contentoftheFrameworkforAction:
• RajanKundra,AcumenFund
• CarmenCorrea,AVINAFoundation
• Jean-PhilippedeSchrevel,BambooFinance
• PeteOndeng,EastAfricaLeadershipInstitute
• MarkKramer,FSGSocialImpactAdvisors
• RichardHall,IntelCorporation
• AshishKaramchandani,MonitorGroup,India
• GVRavishankar,SequoiaCapital,India
• Min-JeongKang,SKTelecom
IndividualsfromthefollowingorganizationsprovidedindependentperspectivestoinformthecontentoftheFrameworkforAction:
• ApolloHospitals
• AshokaSocialFinancialServices
• AspenNetworkofDevelopmentEntrepre-neurs(ANDE)
• B-Lab
• DraperFischerJurvetson
• EquilibriumCapital
• Financierings-MaatschappijvoorOntwikkel-ingslanden(FMO)
• GlobalImpactInvestingNetwork
• GlobalCompactNetworkUnitedStates
• Inter-AmericanDevelopmentBank
• JanssenHealthcareInnovation,Johnson&Johnson
• SocialEnterprise,KelloggSchoolofManage-ment,NorthwesternUniversity
• LGTVenturePhilanthropy
• Lok Capital
• MahindraFinance,Mahindra&Mahindra
• NestléBrasil
• OverseasPrivateInvestmentCorporation(OPIC)
• PrinciplesforResponsibleInvestment(PRI)
• RBCGlobalAssetManagement
• ProjectManagementDivision,SmallIndus-triesDevelopmentBankofIndia(SIDBI)
• ShellFoundation
• Sinco
• SNSAssetManagement
• TIAA-CREF
• Vestas
• WiseSolutions
• WorldResourcesInstitute,NewVentures
28
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Arosio,M.(2011) Impact Investing in Emerging Markets.ResponsibleResearch.
Bugg-Levine,Antony.etal.(2012)“ANewAp-proachtoFundingSocialEnterprises”,Harvard Business Review.
BeyondProfitMagazine.Intellecap.http://be-yondprofit.com/
CanadianTaskForceonSocialFinance(2010)Mobilizing Private Capital for Public Good.Cana-dianTaskForceonSocialFinance.
DalbergGlobalDevelopmentAdvisors(2011) Impact Investing in West Africa.Dalberg.
Freireich,J.&Fulton,K.(2009) Investing for Social & Environmental Impact.MonitorInstitute.
Godeke,S.et.al.(2009) Solutions for Impact Investors: From Strategy to Implementation.Rock-efellerPhilanthropyAdvisors.
InternationalFinanceCorporation(2011) Ac-celerating Inclusive Business Opportunities: Business Models that Make a Difference.IFC:Washington,DC.
Jenkins,B.&Ishikawa,E.(2009)Business Linkages: Enabling Access to Markets at the Base of the Pyramid,ReportofaRoundtableDialogueMarch3-5,2009,Jaipur,India.InternationalFinanceCorporation,InternationalBusinessLeadersForum,andtheCSRInitiativeattheHarvardKennedySchool:Washington,DC.
Jenkins,B.&Ishikawa,E.(2010) Scaling Up Inclusive Business: Advancing the Knowledge and Ac-tion Agenda.InternationalFinanceCorporationandtheCSRInitiativeattheHarvardKennedySchool:Washington,DC.
Jenkins,B.etal.(2011)Accelerating Inclusive Business Opportunities: Business Models that Make a Difference.InternationalFinanceCorporation:Washington,DC.
J.P.Morgan,et.al.(2010)“ImpactInvestments:AnEmergingAssetClass”,J.P.Morgan,TheRockefellerFoundation,GlobalImpactInvest-ingNetwork.
J.P.Morgan&GlobalImpactInvestingNet-work(2011)“InsightintotheImpactInvest-mentMarket”,J.P.Morgan,GlobalImpactInvestingNetwork.
Karamchandani,A.etal(2009) Emerging Mar-kets, Emerging Models.MonitorGroup.
Palandjian,T.(2010) Investing for Impact: Case Studies Across Asset Classes.BridgesVenturesandTheParthenonGroup.
PrinciplesforSocialInvestment(2012) Discus-sion Paper: The Reconceptualization of Business.ThePrinciplesforSocialInvestment.
Porter,M.&Kramer,M.(2011)“CreatingSharedValue”Harvard Business Review.
Ruttmann,R.ed.(2012) Investing for Impact: How social entrepreneurship is redefining the mean-ing of return.CreditSuisseAG.
Saltuk,Y.(2011)“Counter(Imp)actingAuster-ity”,J.P.Morgan.
Simon,J.&Barmeier,J.(2010) More than Money: Impact Investing for Development.CenterforGlobalDevelopment.
Thornley,B.etal.(2011) Impact Investing: A Framework for Policy Design and Analysis.InsightatPacificCommunityVentures&TheInitiativeforResponsibleInvestmentatHarvardUniversity.
UnitedNationsGlobalCompact(2012) New Paths to Performance: Strategic Social Investment and Philanthropy.UNGlobalCompact:NewYork.
Wong,G.(2012) Insights and Innovations: A Global Study of Impact Investing + Institutional Investors.CorrelationConsulting.
Wood,D.etal.(2012) Impact at Scale: Policy In-novation for Institutional Investment with Social and Environmental Benefit.InsightatPacificCommu-nityVentures&TheInitiativeforResponsibleInvestmentatHarvardUniversity.
PHoto creDitcover photo © Shehzad noorani/world BankPage 7 © Un Photo/eskinder Debebe Page 8 © Un Photo/ky chungPage 17 © Dominic Sansoni/world Bank; Alfredo Srur/world Bank; iStockphoto/mShep2Page 19 © Un Photo/eskinder DebebePage 21 © Un Photo/martine PerretPage 23 © Un Photo/evan SchneiderPage 24 © iStockphoto/Danil melekhinPage 25 © iStockphoto/Bert van wijk, SimplycreativePhotographyPage 26 © Shehzad noorani/ world Bank
the rockefeller foundation’s Harnessing the Power of impact invest-ing initiative aims to support the development of leadership platforms, infrastructure, and intermediation capabilities that can efficiently place for-profit impact investments to improve a wide range of social and/or environmental conditions. the initiative also seeks to contribute to fundamental research about impact investing so that its promise and challenges are widely understood. the rockefeller foundation has part-nered with the United nations Global compact to produce this frame-work for Action as a publicly-available resource for all stakeholders interested in supporting the development of a vibrant impact investing industry. readers should be aware that the rockefeller foundation has had and will continue to have relationships with many of the organiza-tions identified in this report, including through the provision of grant funding and Program related investments.
the rockefeller foundation expressly disclaims any responsibility in the use of this material, including its potential distribution with any other materials, for investment purposes or otherwise. this material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. the opinions and recommendations herein do not take into account individual investor circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to potential investors. the recipient of this material must make its own independent decisions regarding any securities or financial instruments mentioned herein.
Published by the Global compact office United nations, June 2012
HUMANRIGHTS
Businesses should support and respect the protection ofinternationallyproclaimedhumanrights;andmakesurethattheyarenotcomplicitinhumanrightsabuses.
LABOUR
Businesses should uphold the freedom of association and theeffectiverecognitionoftherighttocollectivebargaining;theeliminationofallformsofforcedandcompulsorylabour;theeffectiveabolitionofchildlabour;andtheeliminationofdiscriminationinrespectofemploymentandoccupation.
ENvIRONMENT
Businessesshouldsupportaprecautionaryapproachto environmentalchallenges;undertakeinitiativestopromotegreaterenvironmental responsibility;andencouragethedevelopmentanddiffusionof environmentallyfriendlytechnologies.
ANTI-CORRUPTION
Businessesshouldworkagainstcorruptioninallitsforms,includingextortionandbribery.
Principle 1
Principle2
Principle3
Principle 4Principle 5Principle 6
Principle7
Principle8
Principle9
Principle 10
The Ten Principles of the UnitedNationsGlobalCompact
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