Turning words into action: how world leaders and institutions are investing for social impact
One of them is known as the “holy father”, the other, is known as the “father of British capital”. So when Pope Francis and Sir Ronald Cohen share the same passion for a subject it’s probably worthwhile exploring.
In this case, it’s the potential of impact investment.
In September last year, Sir Ronald Cohen, a pioneer of European venture capital and private equity industries, released a G8 report into impact investment. The first line of the report read, “[t]he world is on the brink of a revolution in how we solve society’s toughest problems. The force capable of driving this revolution is ‘social impact investing’, which harnesses entrepreneurship, innovation and capital to power social improvement”.
Only a few months earlier, in June, at a Vatican conference on impact investing the Pope said, “it is urgent that governments throughout the world commit themselves to developing an international framework capable of promoting a market of high impact investments, and thus combating an economy which excludes and discards.”
These are big statements from big figures, and increasingly these words are being met with actions around the world.
More than passionate leadership
In 2010, Sir Ronald Cohen led the field. He oversaw the birth of the world’s first social impact bond (SIB). This was a financial instrument that used private capital to fund a prisoner rehabilitation scheme in the English city of Peterborough.
But this Peterborough scheme required more than a passionate, committed leader. It required a range of players directing their energy and resources into rehabilitating these prisoners.
The scheme has seen 17 foundations and charitable trusts offer comprehensive and individual support to 3,000 short-term male prisoners to help them build a better life on the outside. Investors receive a return, from the savings that the UK government makes, if the reconviction rate among these prisoners falls by an average of 7.5% or more each year over a seven-year period, relative to the control group.[1]
Global growth is only possible and is only happening because key players are becoming involved.
Goldman Sachs and Bank of America have followed the Petersborough model, participating in the issuing of SIBs to tackle prisoner recidivism.
UBS has launched an SIB to reduce drop out rates from girls’ primary schools in Rajasthan, India.
Morgan Stanley has created an ‘Investing with Impact Platform’ offering clients a range of investment vehicles evaluated for financial integrity and return as well as social impact.
Deutsche Bank has put together a fund called the Deutsche Bank Impact Investment Fund I (DBIIFI).
Impact investments are now coming from pension funds, sovereign wealth funds, development finance institutions, foundations, and family offices. Forms of finance are now being offered right across the debt/equity spectrum from secured and unsecured loans to quasi equity and equity stakes to social impact bonds.
The other key players are those who use this finance for impact. These are the social entrepreneurs. This is about capital reaching the hands of smart people and allowing them to achieve scale.
In America, Kristin Richmond and Kirsten Tobey’s Revolution Foods provides one million healthy meals each week to school children across the US, three-quarters of who are from poor families.
In Berlin, Dirk Mueller-Remus through Auticon is being funded for his mission to train people with Asperger syndrome across Europe to get them working in the IT industry.
In East Africa, Andrew Yuon of One Acre Fund is training 200,000 small farmers to reduce hunger and poverty.
What emerges is an impact investment ecosystem, with players in finance connecting with clever socially minded people and organisations.
Signs of action
While all of this suggests a growing market, there is difficulty in determining the actual size and growth of the market.
Our best source of figures is the annual JP Morgan & Global Impact Investing Network (GIIN) survey. This is a survey of 125 of the world’s largest impact investors, including fund managers, banks, foundations, development finance institutions, and pension funds.
The May 2015 survey is expected to show significant growth in the size of the market between 2013 and 2014. Expectations are of a 31% increase in the number of impact investment deals, and a 19% increase in capital directed to impact investments.
In Australia, it’s early days
The impact investment market here is in its early stages and investor appetite is still being tested.
To scale up activity, to turn words into greater investment action; we should learn from the leaders in the world around us.
We know that this will require more than passionate, committed leadership.
We know that it will require the key players being involved.
We know that what we need is an entire ecosystem of investors, socially driven entrepreneurs, and governments directing their efforts and resources to achieve impact.
[1] This scheme is in the process of being transitioned into a Transforming Rehabilitation which is the UK government’s restructured probation services.
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