5.3 The Role of Universities in Creating Impact Investing Ecosystems: the Case of the University of Cape Town
By François Bonnici, Founding Director, Bertha Centre for Social Innovation and Entrepreneurship, the University of Cape Town, South Africa, and Aunnie Patton, Fellow, the University of Cape Town and University of Oxford
- Universities can play a significant role in catalysing an enabling ecosystem for impact investing:
- As credible sources of knowledge and research, universities can explore policy implications and new products, document and distribute best practices, and educate traditional investors.
- As neutral conveners, universities can bring together private and public sector actors for collaboration and partnership.
- As educators, universities can influence the current and next generation of actors and leaders.
The Bertha Centre for Social Innovation and Entrepreneurship (“Bertha Centre”) was established in 2011 as the first academic centre in Africa dedicated to social innovation. Our focus is on research, teaching, dialogue and the support of innovators and initiatives towards social impact. The Bertha Centre is located at the University of Cape Town’s Graduate School of Business and was established in partnership with the Bertha Foundation. Our Innovative Finance Initiative builds on the strengths of the Bertha Centre and integrates our other streams of focus, which include: Education Innovation, Inclusive Health Innovation, and Policy and Scaling.
The Innovative Finance Initiative is built around the need to develop a local impact-focused, social investment market in Sub-Saharan Africa to operate independently as well as partner with international investors. In our experience, despite the vast opportunities for social and economic impact across the continent, the regional market for impact investing is relatively immature with underdeveloped market infrastructure. This translates into inefficiencies and high cost structures for investments, which can impede capital distribution across asset classes. In light of the breadth of these issues, we have taken an ecosystem approach to our market-building mission and developed strategies to address both the demand and supply sides:
- We are educating stakeholders across the public and private spheres to bring willing participants into the market, lower real and perceived barriers to investment and increase the availability and access to information on impact investing.
- We are conducting research on innovative financing in Africa and globally to create our knowledge base.
- We are partnering with industry players to create investment and funding opportunities.
Ensuring support from the university’s administration and faculty at the outset is critical. We have engaged the school’s dean and programme directors through working on high profile projects important to the university. These included the development of an annual conference on the business of social and environmental innovation, designing a large incubation space, and highlighting the school in press coverage and awards we receive. To engage faculty members, we highlight the international momentum of impact investing and student demand. For example, we supported a senior academic with a focus on socially responsible investing to attend an impact investing conference in Brazil to enable her to interact with large financial players. We have since supported her research into impact investing and encouraged students interested in the topic to approach her for supervision. Another senior academic had a focus on developing organizational capacity in non-governmental organizations. We funded research on how social enterprises build their mission into their capacity development and supported working sessions to share the research with entrepreneurs from around South Africa. Both academics now teach courses on social innovation and have become key members of the Bertha Centre.
Educating Stakeholders Inside and Outside of the Classroom
For this early-stage work, it is important for us to be based in a local African institution that is recognized as an established educator, a neutral convener and a credible source of knowledge. Part of the vision of founding the Bertha Centre was to “infiltrate” the business school from within. Our goal is to turn social innovation into a mainstream topic for students, not a niche set of courses for those looking to go into non-profit work. With this in mind, we have created and continue to develop courses on social innovation that appeal to students and professionals from diverse backgrounds.
Our social innovation courses encourage students to go out and work with enterprises, create strategies for their own impact enterprises and develop innovative financial products. In addition to engaging enterprises and investors as guest speakers and developing case studies, we invite them to actively participate with students in class projects. For example, more than half of our Social Innovation Lab (SI Lab) course is comprised of students working directly with social enterprises. Students can source the enterprises through our network or bring enterprises or new ideas themselves. For example, we had a student produce a policy paper on South African investor appetite for social impact bonds (SIBs) that was presented to local government. In addition to helping her develop an interview list, we integrated her research into our current work on SIBs and ended up securing for her an internship working with SIBs. Another set of students worked with their supervisor to launch an impact investing fund linked to a local incubator out of their SI Lab project. We encourage universities to leverage their networks to connect students with what is actually happening in the space and create relevance to their projects and papers.
In the Executive MBA programme, which attracts leaders from across Africa, we have created a cross-cutting course titled “Shifting the System: Innovations in Business and Finance”. This course, which runs across all five EMBA modules, seeks to provide the foundation, structure and space for “counter conversations” that question and reimagine traditional business and financial theory and practice. Class themes include integrated accounting, impact investing, sustainable supply chains, poor economics, marketing to the population at the bottom of the pyramid and the macroeconomics of social impact bonds. The course was developed internally and we are beginning to engage regularly with EMBA students on topics of social innovation and impact investment within their own companies, which range from multinationals to financial institutions to non-governmental organizations.
Realizing a large gap exists in the capacity of wealth managers in Africa to facilitate impact investing on behalf of their clients, we are currently in the process of developing a five-day executive education course on impact investing in Africa. We are partnering with European, American and African experts in the field as well as developing our own curriculum to create a course that is relevant to the African context and reflects best practices from across the globe. Curriculum development includes the creation of case studies, the incorporation of our own impact investing research and interviews with potential participants to understand the needs of the market. We are working closely with business development offices to create budgets, promotional materials and to understand best practices in scheduling, etc. In the future, we hope to offer a similar course to high net worth individuals, family offices and foundations.
- Universities should recognize that offering curriculum on impact investing and social innovation is now a differentiating factor for business schools. But they should not let the terms “social” or “impact” constrain what they offer. Instead they should seek to create courses across programmes and disciplines and link these courses with real life content and contacts to make it relevant and actionable for students.
Building a Research Base
Bertha Centre’s curriculum and published materials are based on research we have collated from around the world as well as that we have conducted locally.41 In addition to our funding from the Bertha Foundation, the South African National Treasury, the National Planning Commission (in the Office of the Presidency), the European Union, the Flanders International Cooperation Agency, the Rockefeller Foundation, the Wallace Global Fund and the Aspen Institute have funded our innovative financing research.
When we started our Innovative Financing Initiative, we had very little access to funding for research. Therefore, we had to create proposals for funding that were relevant to both the South African context (to stimulate local interest and support) and the broader African impact investing imperative (to achieve our mission) while taking into account our constraints (we are a lean operation). To use our time most effectively, we focus on projects that have a demonstrable action component as opposed to just a publication component. To address capacity constraints, we actively seek out student resources in the form of thesis work, short consulting projects and co-authoring papers. We have now hired several former students that engaged in research during their programmes.
Our Social Impact Bond (SIB) work (see the call-out box) is a good example of our attempt to create research that leads to a tangible outcome, i.e. the creation of a SIB or a SIB funding mechanism. If universities produce actionable research, they can open themselves up to additional projects, funding and partnerships in the impact investing space.
Another strategy we have taken is to work closely with government as the South African context dictates that the public and private sectors are closely intertwined. There are also structural issues that could both help and hinder the mainstreaming of impact investment in South Africa, such as the lack of a social enterprise legal entity, Regulation 28 for pension funds (which includes the prerogative to use ESG), and the Broad-Based Black Economic Empowerment codes.42 By working alongside government to understand these issues and their effect on impact investors, we are attempting to help the enabling ecosystem from a regulatory and legislative perspective. Our work with government has been both funded (i.e. policy papers and commissioned research projects) and informal (i.e. sponsoring officials to attend impact investing conferences, thought papers, presentations and workshops on impact investing trends).
- To understand where a university’s efforts are most needed, it must engage in constant interaction with market players through meetings, workshops and networking. Additionally, it is important to seek out advisers who can give a balanced perspective. Convening official advisory boards and more informal interactions with leaders in philanthropy, investing, education, health, etc., can help to ensure the research is relevant across sectors and will appeal to funders. Finally, the first step to working with government is to hold as many meetings as it takes to understand where the appetite lies and which gatekeepers are those that need to be influenced.
Partnering to Achieve Greater Goals
As a university centre, we are well aware of our limitations with regard to capacity and authority. We have identified and recognized that complementary capacity, resources and experience exist in organizations locally and around the world. Thus, in addition to expanding our own resources, we have consciously chosen to partner with a variety of organizations to achieve mutual goals.
In our partnerships we act as both neutral convener and facilitator of conversations between stakeholders. By identifying the parties that need to sit down together at the table and then creating space for the conversation, we are able to bridge traditional divides and push towards action. For example, we have recently won funding from the Department for International Development to fly down representatives from the UK Treasury to work with our national and provincial treasuries on how to structure outcome-based contracts.
These international exchanges of knowledge and experience are important, but local context is key to understanding how to integrate best practices. Thus, to facilitate partnerships and build relationships, we act as a local knowledge source. Examples include our partnership with the Rockefeller Foundation and the Tony Elumelu Foundation to host the African Regional Impact Investing Conference in 2013, our current project on local impact investment case studies that will be designed for use in classrooms internationally, and our work on a feasibility study for a financing product that would incentivize the creation of community-based solar projects.
Given the long history of philanthropy in Africa, we have sought out partnerships and collaborations with philanthropic institutions interested in “innovative philanthropy” as well as investments. One of our South African partners is the Private Philanthropy Council, which is comprised of some of the largest private donors, family foundations and high net worth individuals in the country. These members have decades of experience working with some of the most pressing issues in South Africa. In addition to exploring how to integrate impact investing into their capital allocations, we feel it is essential to engage them to learn from their experience deploying capital.
Bringing together actors for dialogue while setting up opportunities for action through continued involvement (advisory boards, memoranda of understanding, jointly funded projects) is key. The neutral platform that a university offers is crucial as the market evolves and matures. It must be used wisely, maintaining the neutrality through honest conversations with partners and sharing best practices with other industry participants (including competitors).
Social Impact Bonds
At Bertha Centre we believe that outcome-based contracts facilitated by SIBs present great opportunity in Africa. Moreover, South Africa is an ideal testing ground for the funding concept given its sophisticated financial market, large base of funders (both private and public) and strong imperative to improve service delivery across sectors. While we have undertaken research on the applicability of the structures, much of our work has been around advocacy and education. We have partnered with international and local organizations (including Social Finance) to improve our own capacity and have access to best practices.
We have identified the South African National Treasury as the key gatekeeper in government’s ability to structure the bonds and have been working closely with them from the beginning of our research (which they initially funded). We created an Advisory Board, which consisted of some of these public stakeholders and also potential private funders (mainly development finance institutions and corporations). In parallel, we have been working with provincial governments who would be most likely to commission the SIBs to explore topics that are the most attractive on a policy and need level. Understanding that outcome-based financing can seem threatening to service providers, we have made efforts to involve them into our research through roundtables, information sessions and one-on-one meetings. Finally, we have sought out investors and foundations active in the areas we are exploring (early childhood development, education, business development services and health) in order to gauge the attractiveness of SIBs and their appetite around dealing with a governmental versus non-governmental payer.
In April 2014, we published the results of our initial feasibility study on SIBs in business development services in South Africa. We now have several ongoing projects funded by government and private parties relating to outcome-based payments and are hopeful that a SIB or an Innovation Fund will be commissioned in the near future.
SIBs are complicated instruments and although we have experienced enthusiasm from nearly every stakeholder group around the potential for outcome-based payments, securing the approval and cooperation of the necessary government entities and the funding for the full feasibility studies has taken longer than we anticipated. Our perceived neutrality as a university interested in pursuing innovation rather than profit has been essential to our progress. While this initial process has been slow, we believe our approach of working directly with National Treasury is correct as its approval is critical to the larger success of SIBs in South Africa.
Limitations to a University’s Role
Limitations come alongside the privileges conferred by an academic institution. We pride ourselves on being a “do tank” not just a “think tank” but find ourselves often asking how far a centre in a university can go towards building a market. This role of educator, neutral convener and source of credible knowledge is based on operating within the sphere of a university. If we stray too far outside that sphere, do we risk our legitimacy and neutrality?
Where does our role end and the role of an intermediary begin? For example, with SIBs projects, we have taken the approach of building the ecosystem through conducting feasibility studies, educating stakeholders, and working with government treasury departments around regulation and legislation required to create bonds. We plan to step back to allow intermediaries to create and market the bonds themselves. Universities must continue to ask themselves these questions as they embark on projects that mix the academic with the practical.
Similarly, when wealth managers, foundations and high net worth individuals come to us to learn about total portfolio strategies,43 we can provide them with international examples, guides and research we have completed in South Africa. But experienced impact wealth managers are lacking, so we have few places to refer them to put these theories into practice. While we believe our executive education course on impact investing will be useful in this regard, part of a university’s work is simply building the demand for these services and the market will respond accordingly.
Finally, when investors come to us looking for investments in social enterprises in Africa, we struggle with how best to assist them. We do not have the capacity to facilitate investment readiness for social enterprises or to help develop the ability to make impact investments. Yet we can address structural issues. For example, in South Africa no business structure for a social enterprise exists; the only choice is between a non-profit organization (NPO) and a for-profit organization. NPOs are often penalized if they are deemed to be making revenue from “outside their core mission”. By building on existing research, we are lobbying government and tax officials to change this policy and encourage impact investments. Universities can seek out ways to positively influence key pieces of the emerging impact investing ecosystem, from aiding due diligence to lobbying for policy change.
Going forward, core funding for the Innovative Finance Initiative is a key priority so we may grow. Our ecosystem building work is based on the needs of the entire market, which unfortunately do not always fit into the project-based proposals we develop. We have been able to leverage the Bertha Centre’s core funding (from the Bertha Foundation) to start the Initiative’s work, fund shared resources and related research, top up the innovative finance budget between projects and cover many overhead costs. Core funding is likely to be a struggle for many universities when building out impact investing focuses. One suggestion is to work with existing funding and resources (including students) to build a track record against which to raise additional capital.
Being based in a business school that seeks to be more relevant in Africa, we have taken an expanded view of the role of a university in impact investing – beyond research alone, to that of also acting as an advocate, a convener, a knowledge source and a facilitator. We believe all of these roles are necessary to catalyse an enabling ecosystem for impact investing in Africa. We encourage other universities to explore how to similarly use their platforms as educators, credible sources of knowledge and research and neutral conveners to be active actors in creating an enabling ecosystem for impact investing within their own contexts.