5.4. Roadmap Step 3 – Ecosystem Strategy Pillar
The ecosystem strategy pillar of the Impact Investing Roadmap lays out some important constituencies committed to the success of impact investing and demonstrates how investors can both gain and share expertise. Actively engaging with the impact investing ecosystem can help investors who are evaluating and piloting impact investments to gain knowledge and build an informed perspective on the impact investing market. The four tactical maps in this section are: networks, partnerships, academia and technical assistance. As in prior sections, each tactical map highlights specific options and the mainstream investor groups to which each option is most pertinent.
Ecosystem Engagement – Networks
Impact investing networks contain a wealth of practical knowledge and experience – a valuable resource for mainstream investors who are interested in learning more about impact investing. In part because of impact investing’s potential for positive change as well as its pioneering and evolving nature, there are groups of passionate professionals who are working to develop and build the sector. Many of these professionals regularly meet at conferences and events and are willing to share their experiences.
➊ Resource List – Impact Investing Networks
- Global Impact Investing Network (GIIN)102
- Investors Circle: An early-stage impact investing network of angels, venture capitalists, foundations and family offices. The network has channelled US$ 172 million and US$ 4 billion in follow-on investment into 271 impact enterprises.103
- Impact Assets: A 501(c)3 organization seeking to catalyse the impact investing ecosystem by providing products and thought leadership that enables philanthropists, other asset owners and their wealth advisers to make impact investments.104
- South African Network for Impact Investing105
- European Impact Investing Luxembourg (EIIL): Members include ADA-Microfinance, Arendt & Medernach, Banque de Luxembourg, Deloitte, Elvinger, Hoss & Prussen, Ernest & Young, European Fund Administration, Innpact, KPMG, Luxembourg Microfinance & Development Fund, European Investment Fund and PwC.106
- Toniic: A global network of action-oriented impact investors, both individuals and institutions with members in over 20 countries.107
➋ Spotlight – Calpers, ESG Peer Exchange
- In 2011 Calpers convened a group of 11 of the world’s largest asset owners with collective assets of US$ 1.5 trillion to share their experiences in the ESG field. The convening included funds from the UK, Netherlands, South Africa, Australia, Brazil, Norway, Canada and the US.108
➌ Resource List – Investor Type-Specific Networks
- Family Office Exchange: Launched in 1989 as a peer network for families seeking objective financial education on passing wealth successfully to future generations. Currently a global community of wealthy families and advisers pursuing best practices in wealth management.109
- Americas Family Office Forum: An annual convening to gather family offices and HNWIs to network, problem solve and exchange ideas on family governance, asset allocation and wealth management best practices.110
- European Family Office & Private Wealth Management Forum: An annual conference that explores the challenges and opportunities associated with investing in emerging markets, alternative investments, real estate, direct energy and numerous other asset classes as well as taxes, regulation, asset protection, philanthropy and structuring a family office.111
- European Network of Family Offices: A network of family offices seeking to share experiences, information, challenges, best practices and to promote relationships with similar networks in other countries.112
➍ Resource List – Specialized Consultants/Advisers
- Family Office Metrics: Consultancy that assists in managing, creating and enhancing family offices.113
- Family Office Exchange Consulting: Assisting families and family offices to develop a strategic family office business plan.114
Ecosystem Engagement – Partnerships
Some mainstream investors may find allocating resources to a new impact investing initiative difficult, especially before an internal business case for impact investing has been made. In such an instance, strategic partnerships present a means of accessing external support. Additionally, partnerships present an opportunity to engage in market-building efforts which grow the universe of viable impact investing opportunities.
➊ Spotlight – Calvert Foundation
- In 1998, Calvert Foundation began creating capital-raising partnerships for a fixed income vehicle that provides debt to community development organizations. Partners took the lead on marketing and introducing the investment opportunity to their networks, while leveraging Calvert Foundation’s administrative, legal, regulatory and distribution systems. This arrangement allowed organizations to test the water on retail capital raising and for investors to get comfortable with Calvert’s partner organizations without partners needing to create a new investment product. Calvert Foundation’s first such partnership was with Oikocredit, a worldwide financial cooperative that promotes global justice by empowering disadvantaged people with credit. That programme has raised over US$ 10 million to support their portfolio and led them to create their own investment products once they realized the opportunity. Note programmes have also been created for other organizations such as Habitat for Humanity and VisionFund International.115
➋ Spotlight – Community Investment Partners
- To help build needed impact investing infrastructure, Calvert Foundation began a fee-for-service programme called Community Investment Partners in 1999 to provide due diligence, asset management, investor administration and other consulting services. It helped dozens of investors design their impact and programme related investment programmes, provided due diligence to industry players and helped more than a dozen non-profits create their own investment products. In 2010, these services became formalized in a wholly-owned subsidiary and registered investment adviser, Community Investment Partners. The current focus is on managing impact investment portfolios for institutional investors, including the Communities at Work Fund, a US$ 100+ million small business jobs fund with Citi.116
➌ Spotlight – Goldman Sachs
- In March 2014, the Goldman Sachs Foundation partnered with the IFC to create the ‘10,000 Women’ initiative to increase access to capital for women entrepreneurs. Through the partnership, the initiative will work with local banks in emerging markets to catalyse existing capital for women-owned SMEs by addressing barriers in the lending market. The Goldman Sachs Foundation will provide a US$ 32 million anchor investment in order to encourage capital from commercial investors and bi-lateral donors.117
➍ Spotlight – HUGInsure
- Dalberg and Hollard Insurance commit to creating HUGInsure, the world’s first social impact insurance entity. This initiative is in association with Aon and the Lloyd’s market. It will create a risk assessment entity that will measure and manage risks associated with the funding of social impact organizations. It will apply rating methodologies and risk management principles to facilitate the underwriting of social impact funding.118
➎ Spotlight – Deutsche Bank’s Microfinance Consortium I
- Deutsche Bank’s Microfinance Consortium I was formed to lend to microfinance institutions (MFIs) at commercial lending rates. It received a US$ 1 million grant from the Department for International Development (DFID) in the UK and a US$ 15 million guarantee from the US Agency for International Development (USAID) in the US. The Consortium ended up raising over US$ 80 million from a group that included commercial investors.119120
➏ Spotlight – Huntington Capital
- Huntington Capital, a mezzanine debt fund located in San Diego, California, was registered as a Small Business Investment Company (SBIC) under a Small Business Administration (SBA) programme. This provided their first fund with leverage from the SBA at a ratio of 2:1 to private investor capital. Huntington’s second fund is not an SBIC, but some of its institutional limited partners are investing as a result of the Community Reinvestment Act mandate at the federal level and a similar mandate in California which places similar requirements on insurance companies.121
➐ Spotlight – Standard Chartered
- Standard Chartered has been a full service banking partner to MFIs for years. Since 2005, the Bank has grown its MFI business to surpass US$ 1.2 billion in lending to 79 MFIs across 18 countries, impacting an estimated 8.3 million people. In 2013, Standard Chartered signed a five-year Asia-wide microfinance risk participation programme with the Asian Development Bank (ADB). The ADB will provide risk coverage of up to US$ 75 million. By providing US$ 150 million in loans to MFIs, the programme will benefit around 20 MFIs and more than one million people across Asian markets over the next five years. This partnership is expected to unlock additional funding to MFIs and extend support to the sector as it emerges from a difficult economic cycle.
➑ Spotlight – Credit Suisse
- Since 2008, Credit Suisse has partnered with Accion (a global non-profit focused on creating economic opportunities by connecting people to the financial tools required to improve their lives). Accion aims to establish new training and capacity building programmes in Bangalore and Beijing and support similar efforts in Africa and in Latin America. The initiatives provide a variety of skill building training programmes for front-line, mid and senior-level managers of Accion’s partner MFIs.122
➒ Spotlight – Zurich Insurance Group
- In 2013 Zurich Insurance Group and PSI (Population Services International), a global health organization, joined forces to facilitate more frequent and meaningful engagement between NGOs and impact investors via investments of private investor capital. PSI was interested in how new capital sources could help NGOs scale up activities and become more flexible, but acknowledged that many NGOs lack experience in using private capital. Zurich felt that institutional investors struggle with how to interact with non-profits—the experts in creating impact—while NGOs’ expertise and infrastructure potentially represented valuable assets. Together Zurich and PSI developed a framework to help NGOs and investors speak a common language and better understand various financial models through which they can engage with each other.123 Over the course of the collaboration a shared vision developed around expanding the universe of possible impact investments and Zurich and PSI are now exploring one of the financial models outlined in the framework in a practical context.
Ecosystem Engagement – Academia
The academic world is answering a strong demand by students, alumni and industry for impact investing programming. This activity is seen most strongly in graduate and undergraduate business schools, public policy schools and cross-disciplinary initiatives at universities. For mainstream investors interested in impact investing, these institutions can be connection points for talent-recruitment, networking and knowledge-sharing.
➊ Spotlight – Curriculum at Duke University’s Fuqua School of Business
- Many schools have developed impact investing curricula. For example, The Center for the Advancement of Social Entrepreneurship (CASE) at Duke University’s Fuqua School of Business has developed a curriculum for impact investing concentrating on two strategies, referred to as “broad” and “deep”. For the broad student body, the goal is to introduce the emerging field of impact investing into required coursework, so that every Fuqua MBA would be exposed to impact investing. All new MBA students prepare an impact investing case at the beginning of the core curriculum, and CASE information session, workshops and speakers’ series are open to all MBAs. For students highly interested and committed to going deep, the goal is to prepare leaders who can help build the field of impact investing. Through coursework, students also have the opportunity to build relevant skills (such as designing debt and equity impact investment funds, conducting due diligence, structuring investments, defining investment theses of change and assessing impact), so that once students follow the course sequence, they can apply those skills in the broader array of extra-curricular programmes.124
➋ Spotlight – Executive Education at Columbia University’s Columbia Business School
- Some schools offer impact investing-specific executive education courses. For example, Columbia Business School at Columbia University offers executive MBA students a course which covers key finance techniques, funds, infrastructure and market-level issues and opportunities.125
➌ Spotlight – Research and Data at Duke University’s Fuqua School of Business
- The Center for the Advancement of Social Entrepreneurship (CASE) at Duke University’s Fuqua School of Business was founded in 2001 and places a strong focus on researching points of confusion, questions and areas where patterns seem to be emerging but are not yet clear within impact investing and on creating analytical frameworks that can be tested and shared with others. For example, CASE’s research on high-performing investment funds will have resulted in three reports, 12 case studies and two books by October 2014. Additionally, CASE has helped build a database of over 8000 impact enterprises.126
➍ Spotlight – Case Studies and Feasibility Studies at Bertha Centre for Social Innovation and Entrepreneurship at the University of Cape Town, South Africa
- Bertha Centre for Social Innovation and Entrepreneurship at the University of Cape Town, South Africa recognizes its role as a local knowledge source. These efforts include a project to compile impact investment case studies designed for use in classrooms internationally. The Centre is also working on a feasibility study for a financing product that would incentivize the creation of community-based solar projects.127
➎ Spotlight – Hands-on Experience at the University of Pennsylvania’s Wharton School of Business
- Student led investment programmes such as the Wharton Social Venture Fund provide opportunities for students to be early-stage investors by participating in the various phases of the investment process including fund raising, deal sourcing and operational and financial due diligence.128
➏ Spotlight – Hands-on Experience through the Morgan Stanley Sustainable Investing Challenge
- The Morgan Stanley Sustainable Investing Challenge129 is a partnership between The Morgan Stanley Institute for Sustainable Investing, the Kellogg School of Management at Northwestern University and INSEAD. MBA contestants must propose and defend a strategy that uses finance and investment tools to address an environmental or societal challenge.
➐ Spotlight – Impact Investing Conference at INSEAD
- Many schools are convening regular impact investing conferences that draw industry professionals, students and academics. For example, INSEAD hosted “Impact Investing: Creating an Industry from Innovations” in May 2013 on its Fontainebleau campus and brought together more than 200 leading practitioners, academics and students focusing on the field. In addition to the presentation of new research and lively discussions on recent developments, the conference created a platform for networking and sharing innovations among practitioners. Videos of all discussions and a conference report written by MBA student reporters allowed for accessible knowledge transfer following the event.130
Ecosystem Engagement – Technical Assistance
Of course, the impact investing ecosystem is not just a resource to be drawn upon. The success of the impact investing sector is and will continue to be driven in part by stakeholders who identify gaps in the market or ecosystem and provide technical assistance. This assistance can range from supporting a social enterprise or project to preparing it for investment, to providing expertise to a market-building organization by sitting on the board, to starting conversations on impact investing within traditional trade organizations. All of these activities help to drive the impact investing ecosystem forward and by doing so create benefits for investors and for society.
➊ Spotlight – Deutsche Bank Corporate Community Partnership
- Launched in 2008, Deutsche Bank’s Corporate Community Partnership (CCP) programme, dispatches experts to non-profit organizations in emerging markets to help establish social and economic structures. In the course of a several-week stay, employees assist educational institutions, microfinance banks and social businesses in concrete projects. The programme has assisted more than 40 projects in emerging markets.131
➋ Spotlight – Blackstone Entrepreneurs Network
- The Blackstone Entrepreneurs Network recruits a team of veteran “master entrepreneurs” to identify marketable innovations and start-ups in struggling geographies with potential to become high-growth companies and provides them with consultative support.132
➌ Spotlight – RBS
- RBS created a social enterprise index (SE100) which tracks the social and financial performance of social enterprises in the UK. The index currently consists of more than 1,000 organizations.133