The Shift From Promotion to Pragmatism in Impact Investing

I'm in the midst of an exciting and exhausting round on the conference circuit which has taken me across the continent and back. This week I'm in South Africa participating in Global Entrepreneurship Week festivities. Luckily, I have had plenty of reading material for the plane rides.

This fall, a number of impact finance publications have been released by groups such as the Global Development Incubator, the World Economic Forum (WEF), and the G7 which I think are propelling the impact investing sector forward--and moving beyond the initial overblown rhetoric about this sector as a cure-all for global social challenges. Indeed, I've been impressed by the caliber of discussion and debate about impact investing--both on stage and in text. We are evolving from premature promotion to informed implementation.

With an estimated global market size of less than $100 billion today--a miniscule portion of total global managed assets--impact investing has a long way to go before it becomes mainstream. But, gone are the heady headlines proclaiming the birth of a trillion dollar asset class. Instead, we are seeing substantive attempts to overcome challenges to sector growth.

The WEF report subtitle is indicative: "How Mainstream Investors can Design Visionary and Pragmatic Impact Investing Strategies." While the concept is visionary, the report focus is squarely on the pragmatism. The work outlines very specific tactics that different players interested in the impact investing field can use to expand their activities.

The G7 Social Investment Investing Task Force report presents a series of actionable recommendations for institutions, governments, and multi-lateral institutions to propel the growth of the sector. Given ANDE's specific interest in emerging markets, we paid particularly close attention to the recommendations of the International Development Working Group, one of four subject matter groups that were convened.

Sonal Shah, the chair of the working group, launched its report at our annual conference last month. She surprised the audience with the specificity of the four report recommendations which included a call for a new G20-sponsored $500 million Impact Finance Facility to cultivate emerging companies and business models and the creation of new $100m fund to support Development Impact Bonds.

The recommendations were made with significant effort to reflect the reality of the marketplace today--and the great potential of tomorrow. According to the report, the Impact Finance facility created the $500 million ticket size so that it "would be large enough to make a difference while being politically feasible...the size of the fund will ultimately be determined by public support for it."

This sort of refreshing realism was also evident earlier this fall at Clinton Global Initiative (CGI). In a discussion group about investing in emerging markets, leaders from the for-profit and non-profit sectors dug deep into the challenges of unlocking capital for early-stage impact enterprises.

These entrepreneurs--who are typically seeking investment or loans that are valued between $25,000 to $250,000--struggle mightily to raise start-up funds. So, the group explored a variety of solutions to this issue, with a particular focus on efforts that would reduce the due diligence costs of banks and investors. We discussed various models that aggregate information on firms' ability to repay; crowd-funding solutions; and tiered financing models that rely on making initial small investments with only minimal review. CGI is now reviewing suggestions on how to continue to use their platform to address and educate investors around this issue.

One way our network tried to solve the hurdle for start-up capital for early-stage entrepreneurs was to launch a finance challenge to encourage new models for deploying capital. One million euros was awarded last month to a Franco-African impact investment group that successfully ran a pilot program that can be scaled and replicated throughout the western part of the continent.

Even with the excitement surrounding impact investing, we're reminded "not to over promote the practice or fall victim to the notion that it represents some sort of panacea for the problems confronting us...," as Cathy Clark, Jed Emerson and Ben Thornley aptly write in their recently published book. While some of the loud buzz of impact investing is fading, the level of discourse is rising. We are moving ahead with better data, more serious discussions, and increasingly creative ideas to unlock the full power of market-based solutions to poverty.

So, while tired by the travel, I am pleased by the progress.