Impact Investing 101. A Primer for Investors, Funds, Family offices and High Net Worth Individuals

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1 Impact Investing 101 A Primer for Investors, Funds, Family offices and High Net Worth Individuals

2 Content What is Impact Investing Goals and Objectives What Makes Impact Investing Different The Market Opportunity Areas of Impact How to Get Started Impact Investments Meeting Expectations Challenges in Impacting Investing Measuring Impact Case Studies Annexes 2

3 What is Impact Investing? Impact Investing is investing with the specific objective of achieving positive social and/or environmental impact as well as financial returns The term dates only to 2008, but there has already been significant growth in the number of companies, funds and individual efforts created in support of impact investing A cottage industry of associations, conferences, research efforts, advisors, consultants and platforms has grown up around the world Yet, many savvy and sophisticated investors, high-net worth individuals, and financial and wealth advisors remain on the sidelines, looking for ways to invest in growing markets that can deliver both financial and social returns 3 Case Foundation, Short Guide to Impact Investing, 2014

4 Goals & Objectives Impact investing provides capital to companies and projects that address current global challenges through marketdriven mechanisms There is growing number of companies committed to doing well by doing good, with explicit social goals and strategies and measure their impact Providing capital to such companies is the goal of impact investors. Capital can be deployed through various asset classes, debt, equity, cash deposits or guarantees Positive impact should be part of the state strategy, be measurable and be measured 4 Case Foundation, Short Guide to Impact Investing, 2014

5 What makes Impact Investing Different Impact Investing differs from charity, philanthropy or socially responsible investments Charities Social Enterprises Socially Driven Business Traditional Businesses PURE NONPROFIT (no revenues from business activities) BREAKEVEN (revenues from business activities) SEMICOMMERCIAL (profit distribution, social value built into business model) COMMERCIAL (allocating % of revenues to charities or socially responsible) HYBRID NONPROFIT (some business activity) PROFITABLE (profits reinvested to support mission) COMMERCIAL (profit maximizing, social value built into the business model) COMMERCIAL (mainstream) Charity Socially Responsible Investing Venture Philanthropy IMPACT INVESTING Mainstream Investing 5 Adapted from Venturesome, Shaerpa, 2010

6 The Market Opportunity $297 BILLION in the impact investing market in 2010 Alpha $400 BILLION - $1 TRILLION potential of investing in the BoP JP Morgan $500 BILLION projected growth by 2019 Monitor Institute Mundi 6

7 Areas of Impact Energy & Environment Water Housing Agriculture Financial Services Gender Health Education 7 adapted from IRIS Impact Investing A Framework for Policy Design and Analysis, Pacific Community Venture, 2011

8 How to Get Started Determine your values and impact areas of interest Research the space and determine your investment strategy Take risks to venture in new areas and substitute your charitable grants with impact investments Learn about your impact investing options and meet other private impact investors Analyze and measure your impact to check your progress and focus on real impact performance 8

9 The Impact Investing Process SCREENING DUE DILIGENCE STRUCTURING THE DEAL MONITORING & MEASURING EVALUATING & ENGAGING Screen investment opportunities that align with your strategy and short list them Conduct rigorous evaluation of the investments that passed screening covering both impact & financial due diligence Structure the transaction & negotiate terms Measure impact and track the financial and social performance Evaluate alignment with strategy, engage during holding period, rebalance portfolio 9

10 Measuring Impact INPUTS ACTIVITIES OUTPUTS OUTCOMES GOAL ALIGNMENT What is put into the venture Venture s primary activities Results that can be measured Changes to Social System -minus- What would have happened anyway Activity and Goal Adjustment LEADING INDICATORS IMPACT 10 Adapted from Catalog of Approaches to Impact Measurement SVT, Rockefeller

11 Challenges in Impact Investing TERM CONFUSION No common language, confusion between concepts and approaches LACK OF RELIABLE TRACK RECORD Lack of case studies drawing conclusions on the long term financial and social performance of impact investing LACK OF EFFICENT INTERMEDIATION AND INFRASTRUCTURE LACK OF SUFFICIENT ABSORPTIVE CAPACITY FOR CAPITAL DIFFICULT TO ANALZYE AND MEASURE IMPACT Still nascent investment infrastructure that facilitate the identification and management of impact investment opportunities Limited amount of institutional scale impact investing opportunities in which large amounts of capital can be placed Several impact measurement methodologies but some impact returns are difficult to assess. 11

12 Impact Investments meeting Expectations JP Morgan and GIIN released research in early 2013 suggesting that organizations investing at significant dollar levels are satisfied with their financial returns The research tracked the progress of close to 100 investors, managing over $35 billion of impact investments on aggregate 2/3 of whom were pursuing market rate returns. 68% said their investments were meeting their expectations for both social and financial returns; 21% said their investments were outperforming. 12 Case Foundation, Short Guide to Impact Investing, 2014

13 Case Studies Want to learn about specific impact areas and what other investors are doing? Follow the links to our case studies. 1. Renewable Energy and Clean Technology: Ardsley Partners Renewable Energy Fund, L.P. 2. Agriculture, Water and Sanitation: AAvishkaar India Micro Venture Capital Fund 3. Gender Equality and Job Creation: Business Partners Limited 4. Entrepreneurship: Small Enterprise Assistance Fund (SEAF) & Sichuan SME Investment Fund (SSIF) 5. Microfinance: Deutsche Bank Global Commercial Microfinance Consortium 1 13

14 ANNEXES 14

15 Useful Resources Please explore our Library to find additional resources, such as: World Economic Forum, From Ideas to Practice Pilots to Strategy Practical Solutions and Actionable Insights on How to do Impact Investing, 2013 Case Foundation, A Short Guide to Impact Investing, 2014 Jacquier, J., Guide to Impact Investing, for Family Offices and High Net Worth Individuals, 2011 J.P Morgan/The Rockefeller Foundation, Impact Investments - An Emerging Asset Class, 2010 Bridges Ventures, Investing for Impact Case Studies Across Asset Classes, 2010 Thornley, C. and Clark, B, Impact Investing 2.0., 2013 Toniic, E-Guide to Early-Stage Global Impact Investing, 2013 CGD, More than Money Impact Investing for Development,