August 30, 2018
By Jean-Philippe de Schrevel
Across the world, there are a number of social enterprises that fall into the investment gap – they’re too big for grant funding, but too small for traditional capital. However, the increasing number of asset managers and philanthropic organisations turning to impact investing is slowly helping to solve this problem.
Impact investing – still a relatively new term and investment approach – describes capital being invested into businesses aiming to improve conditions across a range of sectors, including healthcare and energy, for low income populations and the environment at large. Critically, however, impact investing aims to generate both financial and social returns. You could argue that impact investing is like traditional investing, but with a social and environmental conscience
As an industry stalwart who has been there from the beginning of the impact investing journey, I’ve seen it grow and mature considerably over the last decade.
Today, impact investing is experiencing a period of growth, with the Global Impact Investing Network’s 2018 report highlighting that fund managers plan to raise USD $22.5 billion this year, a 20% increase year-on-year. This is a significant amount of capital, which has the potential to drive major positive changes for the lives of many millions.
But what’s driving this increase?
A major factor is the increasing involvement of two types of organisations – asset managers and philanthropic organisations.
An impactful double act
Starting with asset managers, there has undoubtedly been a drive towards ESG and socially responsible investments.
This impetus even stretches to the highest level of the industry. In his annual letter to CEOs last year, Larry Fink, CEO of BlackRock – the world’s largest asset manager with over $6 trillion in assets under management – stated: “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Asset managers are now under increasing pressure to generate more than just financial returns, and in tandem, have come to realise that financial and social investments are not mutually exclusive. As a result, a growing proportion of asset managers are starting to back impact investment strategies targeting social enterprises and it’s a trend I expect will only continue – ultimately, this is good news for those working hard to make this world a better place to live.
Similar to asset managers, philanthropic organisations are now adding impact investing to their existing operations. Many of them create for-profit subsidiaries which engage in impact investing. For example, CARE, one of the world’s leading humanitarian agencies, established CARE Enterprises – a for-profit subsidiary, and at Bamboo Capital Partners, we are now delighted to partner with them to co-manage their first impact fund, with the aim of alleviating poverty, starting with Asia.
For philanthropic organisations, impact investing adds another dimension to their efforts. Philanthropy typically involves the one-off deployment of capital into projects. But impact investing generates a financial return, which over time, allows a philanthropic organisation with a for-profit subsidiary to recycle funds in a sustainable fashion to seed a number of new projects.
This development ties in with the growth of philanthrocapitalism – a movement that uses capitalist mechanisms to create economic and human progress. The Chan Zuckerberg Foundation is just one example of a philanthrocapitalist venture with a focus on entrepreneurship and a relentless pursuit of market-based approach with performance metrics.
Scaling social enterprises to improve the lives of millions
Asset managers and philanthropic organisations engaged with impact investing have real potential to plug the investment gap that frequently denies social enterprises the funding they desperately need. They would have to adopt a bottom up approach and seed these enterprises through early stage investments.
If more social enterprises secured funding, they would be able to scale quicker and generate a greater social impact.
Ultimately, we have to remember that the end goal of these social enterprises is to improve the lives of some of the poorest populations on the planet.
Impact investing is a vital tool that can help improve the quality of life for millions, or even hundreds of millions of people across the world.