The New Dynamics of Investing for Impact
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Contents
6. UKSIF, Impact Investment set for Rapid Growth 8. PLSA, Investing with Impact 10. B Lab, Managing Impact 14. Osiris Group, Impact in Frontier Markets 18. ShareAction, The Impact of Shareholder Power
Impact Investment Set for Rapid Growth
As with many other areas and components of sustainable investment and finance, there can be some debate around what exactly constitutes an ‘impact investment’. Other terms that are often used to refer to this area of investment and that tend to encompass the same or similar principles can include ‘social impact investment’ ‘social investment’ and particularly in the context of charities and foundations ‘mission or programme-related investment’. Generally though the most commonly used term is impact investment and the most commonly agreed on definition is: “Impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances.” [GIIN – Global Impact Investing Network].
being created. In addition to selecting for impact, both investor types seek to track and manage their impact alongside their financial return. While we are seeing an increasing number of impact investing opportunities cutting across a wide variety of asset classes, from cash to debt to equity to real estate, we also note that many investors are treating impact investing as an asset class in its own right and allocating specific funds exclusively for the purposes of impact investing. There seem to be many indications that impact investment in UK is a rapidly growing area. The First Billion, a paper forecasting social investment demand has estimated a 38% growth in demand per year. The NatWest SE100 Index tracks the growth and performance of the UK’s social enterprises. Its latest Annual Data report estimates an average growth in turnover of 80% with £1.3 billion of profits being ‘pumped back into society’. As a whole organisations on the index turned over £10.4 billion in the most recent financial year. Increasingly, market participants are reporting interest from large corporate and institutional players and new impact funds are now available such as the Threadneedle UK Social Impact Bond Fund. Potential growth areas for impact investment include: Agriculture, Payment by Results, Health and Social Care, Community Assets and Social Impact Bonds.
Impact investing mirrors traditional finance and the asset classes and underlying investments also cover the traditional risk/return spectrum. Debt financing dominates, however, and equity-based investments only represent a small proportion of investments made to date. One distinct characteristic of impact investments is their intention to address social and/or environmental challenges. They can be made in both developed and emerging markets and seek either sub-market or market financial returns. The criteria to evaluate the positive social and/or environmental outcomes of investments are an integrated component of the investment process. In contrast, practitioners of socially responsible investing may also include negative or avoidance criteria as part of their investment decisions.
Impact investors can have a very diverse range of financial return expectations. Some intentionally invest for compromised returns in order to maximize impact or to catalyse additional investment capital by accepting a riskier position in a deal. Others will be seeking market-competitive and market-beating returns, some of whom are bound to do so by fiduciary responsibility. Most investors surveyed by the GIIN and J.P. Morgan in 2014 pursue competitive, market-rate returns.
At Bridges Ventures, a specialist impact investment fund manager, they have identified two types of impact investors: “thematic investors” and “impact-first investors”. Thematic investors focus on businesses that are actively offering solutions to a pressing social or environmental issue. Thematic investors focus either on one or a cluster of issue areas with the intention to make a positive social or environmental impact while generating marketrate returns. Impact-first investors differ in their willingness to back sustainable, often profitable business models that cannot generate marketrate returns due to the nature of the impact
“Despite a perception among some investors that impact investing necessitates a concessionary return, the Impact Investing Benchmark has exhibited strong performance in several of the vintage years studied as of June 30, 2014. In aggregate, impact investment funds launched between 1998 and 2004—those that are largely realized—have outperformed funds in a comparative universe of conventional PI funds. Over the full period analysed, the
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benchmark has returned 6.9% to investor versus 8.1% for the comparative universe, but much of the performance in more recent years remains unrealized”. [Introducing the Impact Investment Benchmark – Cambridge Associates and GIIN, June 2015] Some useful terms: Charity Bond: A Charity Bond is a tradable loan between a charity or social enterprise and a group of social investors. It will typically offer investors a fixed rate of interest. In return the charity borrows the investor’s money for a fixed period of time. The charities issuing the bond also commit to report on the social impact created through their work to investors.
Social Investment Tax Relief: Social Investment Tax Relief (SITR) is the government’s tax relief for social investment which encourages individuals to support the trading activities of social enterprises and charities by helping them access new sources of finance. It offers 30% income tax relief for individual investors providing debt and equity finance to charities and social enterprises. SITR has been introduced to encourage new investment into charities and social enterprises and levels the playing field with tax reliefs currently available to more traditional business.
Microfinance: Financial services targeting lowand-moderate income businesses or households that are underserved by traditional financial institutions. Microfinance services include credit, savings, insurance and remittances. Payment by Results: (PBR) is a new form of financing that makes payments contingent on the independent verification of results. PBR is a cross government reform priority and several other government departments are piloting this approach
Lisa Stonestreet, Programme Director UKSIF – The UK Sustainable Investment and Finance Association
http://uksif.org/
Investing with Impact
When we set aside a small portion of our monthly or weekly pay package to go towards our pension plan, most of us are not so much concerned with building a New Jerusalem as a healthy pile of cash to see us through our dotage. But collectively, the potential of what we can achieve through our savings is tremendous.
in a way that also benefits society. This has ramifications for those in the investment industry charged with managing their money. Similarly, 93 per cent of pension funds responding to our annual Stewardship Survey said that they believed ESG factors were materials to their investment strategy. Back in 2004, when we first conducted the survey, only a third of respondents said that they included stewardship criteria when selecting their asset manager, but by 2015 the number had risen to 94 per cent.
The Pensions and Lifetime Savings Association represents pension funds with assets under management worth nearly £1 trillion. This is money that can power the renewable energy revolution, averting the threat of catastrophic Climate Change; build the infrastructure we need to catalyse growth and jobs on a global scale; and finance the advancements in science and technology that will help us lead happier, healthier and more prosperous lives in the 21st century.
And the market is responding to this demand. Scarcely a week goes by without reports appearing in the media relating to some new product designed to facilitate sustainable investing. The Financial Times recently estimated that the MSCI index provider now produces over 130 ESG-linked indices, while Dow Jones has created the Dow Jones Sustainability Index portfolio and S&P also operates a suite of ESGweighted indices.
Better still, the alignment between savers and society is becoming clearer. Research undertaken by Arabesque Asset Management and Oxford University in 2015 assessed over 200 studies examining the business case for sustainable investment. 90 per cent of these studies found that sound sustainability practices through the integration of the management of Environmental, Social and Governance (ESG) risk can lower companies’ cost of capital, while 88 per cent concluded strong ESG performance drives better operational performance. 80 per cent of the studies documented a positive correlation between social and environmental performance.
It would be premature, however, to declare that the investment community has got everything under control and that the public need merely to sit back and await the coming utopia. Pension funds assailed by profound regulatory changes, such as the freedom and choice reforms enabling savers to draw down their entire pension pot in one lump sum, or the funding challenge entailed by rising longevity have to prioritise. In such a context, saving the world defers to the responsibility of meeting funding commitments in terms of immediate importance
This is an increasingly important consideration, along every link in the investment chain. When the Pensions and Lifetime Savings Association commissioned a survey asking what pension fund scheme members thought were the most important issues for their pension provider to take an active role in engaging with investee companies upon, as many people in the 1834 age bracket suggested that the pay and condition of employees was as important as the company’s recent financial performance. Of course as people become old and embittered – not to mention closer to the age when they will actually draw upon their pension and the financial returns from investments will materially impact upon their lifestyle – the attitudes of the survey respondents may change. But at face value at least, there are grounds to suppose that millennials want their savings to achieve returns
This means that, for example, companies whose business models depend on current trajectories of fossil fuel extraction or consumption are superficially attractive investment propositions, even though this is incompatible with the goal of limiting global temperature rises to 1.5C, the level generally considered necessary to avoid disastrous repercussions for the planet. See also, profitable companies reliant on low-paid staff; products damaging to public health; or usurious rates of lending to impoverished customers. At the Pensions and Lifetime Savings Association, we are working to support our pension funds, to ensure that their investments
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contribute to building the kind of society that their members want to live in in retirement, as well as delivering a stable income for them. To do this we carry out regular research, such as our current programme on human capital, highlighting the importance to investors of factors such as the composition, stability and well-being of an investee company’s workforce. We provide a weekly ‘Question for your Manager’, highlighting a topical ESG issue and asking pension funds to question their asset manager as to their stance on the matter. We also invite asset managers to complete ‘Stewardship Disclosure Frameworks’ – short questionnaires outlining their approach to responsible investment. These are then hosted on our website, where their clients and prospective clients from across the pension fund sector can peruse them. Firms completing the framework are eligible to participate in our quarterly ‘Stewardship Accountability Forum’ where they come in and meet with pension funds, who can haul them over the coals (or over the solar panels) regarding the responses outlined in their Framework.
There are signs that these services are having some impact as part of a wider responsible investment movement, but equally there is no room for complacency. 66 per cent of respondents to our Stewardship survey agreed that institutional investors were active enough stewards of their investments. However, only 8 per cent strongly agreed. Definite grounds for optimism, but much more still to be done. Perhaps this sums up what the concept of impact investing has inspired to date. Biog Profile Luke Hildyard is the Policy Lead for Stewardship and Corporate Governance at the Pensions and Lifetime Savings Association. He was previously the Deputy Director of the High Pay Centre think-tank, where he worked on corporate governance issues, with a particular focus on executive pay, employee engagement and responsible business. He has previously worked for a number of think-tanks and in local government.
www.plsa.co.uk
Managing Impact
Oliver Hambleton of I-Invest sits down for a Q&A with Flory Wilson, B Lab’s Director of Capital Markets Initiatives Many by now have heard the term ‘Impact Investing’ but some may not know what it means. Could you provide us with a brief overview. The generally accepted definition of impact investing, developed and refined by the Global Impact Investing Network (GIIN), are investments made into companies and funds with the intention to generate social and environmental impact alongside a financial return.”
What is B Lab’s intended role in the impact investment market? We provide infrastructure to do impact investing with credibility and at scale. Our goal is to enable investors to drive capital to the highest impact businesses. We do this through a few initiatives: 1) Building a global community of Certified B Corporations who meet the highest standards of verified, overall social and environmental performance, public transparency, and legal accountability; 2) Promoting Mission Alignment using innovative corporate structures like the benefit corporation to align the interests of business with those of society and to help high impact businesses be built to last; 3) Helping tens of thousands of businesses, investors, and institutions Measure What Matters, by using the B Impact Assessment, GIIRS Impact Ratings and B Analytics to manage their impact—and the impact of the businesses with whom they work—with as much rigor as their profits.
At B Lab, we think about enterprise-level impact through two broad lenses – Operational Impact, or what the investing community generally thinks of as ESG, and Business Model Impact, or how a company has built impact into their core business DNA. Business model impact could be through a socially or environmentally-oriented product/service, target beneficiary group (customers, employees, suppliers), or innovative ownership or giving model. Impact investing has for the past few years been fairly restricted to the private equity universe, but there are some new approaches to integrating impact into public equity portfolios that will help the space scale quickly.
Our goal is to scale the social investment space by providing transparent, credible, comparable tools for identifying and managing impact. We want the vision of a trillion dollar impact marketplace to be realized, and we know that in order for it to happen, investors need to be able to understand and report on the impact they’re having through their investments. Enterprises need to be able to demonstrate their commitment to impact and to preserve and promote their mission while raising capital. Investing for reasons other than financial return is not a new idea, what’s changing? Investors have been doing different forms of impact investing for decades – two examples are microfinance and community-focused investing. What’s changing now is a broad recognition that our capital markets, as they currently operate, don’t work for most people. There is increased awareness that government and non-profits are necessary but insufficient to solve the most urgent problems facing society today, and
Could you provide us with a quick breakdown of your background and present role? Before joining B Lab in 2010, I worked at the Overseas Private Investment Corp (OPIC), the US government’s development finance institution. I was in the investment policy group there, and spent my time doing on-the-ground portfolio evaluation and researching the best in class methodologies for measuring enterpriselevel impact. When I came across B Lab, a non-profit organization, and the work the team was doing building impact evaluation tools, certifications, and platforms for managing and improving impact, I knew I had to be a part of this work. I had an opportunity to join the organization to develop its strategy in providing impact management solutions for capital market players, and that led to the genesis of GIIRS, an impact rating tool, and B Analytics, a data subscription tool.
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www.bcorporation.net
Managing Impact
separating investing from philanthropy won’t help us solve these issues. Layer on top of that the fact that millennials, who are building significant wealth and will be inheriting wealth in the coming decades, are deeply committed to being values-aligned in all aspects of their life. Millenials want to work for, buy from, and invest in mission-aligned businesses – this recognition has spurred growth amongst the B Corp community. These factors are driving behavior change, where the normative action for business owners and investors is to think about and manage their impact.
In the public markets, there is broad adoption of the GRI framework and greater disclosure from public companies around their ESG performance, which has allowed ratings agencies to issue ESG and impact ratings and rankings. Initiatives like SASB, which has focused primarily on US markets, are elevating the conversation around disclosure and transparency. The investment that data platforms, like Bloomberg, have made to synthesize and share ESG data are enabling greater integration of these factors into portfolio management. Beyond these public market initiatives, initiatives with a deep emphasis on impact (as opposed to ESG measurement) include the IRIS taxonomy, which is housed by the GIIN and which most impact investors have adopted. B Lab’s GIIRS ratings are gaining strong adoption amongst PE and debt funds; we’ve rated more than 85 funds since our launch, including 46 funds last year. These funds managers and their LPs like GIIRS because it allows for comparability across a range of industries and sectors. In addition, there have been a number of industry-focused working groups that have been spearheaded by those industries. We’ve seen this happen in the microfinance space, through the leadership of the Social Performance Task Force and its Universal Standards. These focused working groups are best equipped to develop sophisticated outcomes-oriented frameworks that can be leveraged by a broader audience.
How important is measurement of impact in strengthening the Impact Investing market and increasing its sophistication/reputation? I would rank measurement and management of impact performance as imperative to scale impact or social investing in a meaningful way. There’s a lot of noise in the space about whether there are trade-offs between impact and financial performance. The answer is, sometimes. So we all need to be clear about what our impact and financial return goals are, and then measure and manage against those goals. There is a full spectrum of financial and impact return opportunities, from high-impact venture philanthropy to market rate impact and financial performance. Setting realistic goals and meeting those goals will make our space more credible. The other factor here is that investors and entrepreneurs need to be transparent about their impact performance. Transparency is a core component of B Corp certification – all B Corps must show their score from the B Impact Assessment. Transparency will help our industry understand what is possible from an impact perspective, and help drive a healthy competition to be more impactful and show what is possible through cutting-edge business models that focus on impact. But transparency must come from the industry itself in the absence of a regulatory scheme that requires impact reporting. I think we will see gradual progression toward ESG and impact integration in regulatory requirements; it’s just going to take some time.
What we need now is adoption of these common tools, recognizing that while they’re not perfect they’re a step in the right direction. To that end, we’ve partnered with SASB, SPTF, IRIS and others to build their frameworks onto our B Analytics platform. That makes the data we have on over 40,000 companies more leverageable across impact reporting frameworks. Whilst a good deal of social change is taking place in developed countries, US, UK & Europe for example, there is an increasing popularity for Impact Investing in the Emerging and Frontier markets as well. How might that change the dynamic of the sector, what have you seen going on in those regions? About half of the GIIRS rated funds we work with invest in emerging and frontier markets. Across our entire data universe of 40,000 businesses, about a quarter of them are located in those markets – our dataset represents companies
What developments have been/are being made in impact measurement? Compared to where we were five years ago, there has been huge progress in the development of impact measurement and management frameworks.
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in over 100 countries. So we’re uniquely positioned to make that comparison. The biggest difference we see when looking across markets is the impact of business models that focus on low-income beneficiaries. In emerging markets, these businesses are serving base of the pyramid populations that may live on $1-2/day. Basic needs – access to education, healthcare, clean water, electricity – are unmet due to weak governments and underdeveloped infrastructure. These unmet needs create tremendous opportunity for the private sector and as a result, the level of innovation we see from businesses built around meeting those needs is off-the-charts. And some of these ideas, particularly in areas of financial innovative and mobile technologies, leapfrog over what is accessible to consumers in more developed countries. What unites impact investing across geographies is the notion that any business can transform an individual, family or entire community. Regardless of where the investment is being made, what matters is the problem a business is trying to solve for, what impact the investor is focused on, and making sure that those interests are aligned. There are plenty of problems to solve and impact to be created and supported; we just need more capital focused on supporting these innovative impact businesses. We’ve got about 1700 of them within our B Corp community.
I think the next five years will herald greater democratization of impact investing. What I mean is, there will be a proliferation of impact products available to all investors. Beyond ESG and SRI, truly impact focused products – think of a B Corp index, where someone could hold a basket of all publicly-traded B Corps in their portfolio – will be available for anyone’s portfolio. We’re not there today, but I’m confident in a few years’ time we will be. To make this happen, investors need to be thoughtful and explicit about their impact objectives, require impact reporting of every investment in their portfolio, and then use the data to engage with portfolio companies to help them manage for impact. The tools we have developed for our Measure What Matters program, B Analytics, GIIRS and the B Impact Assessment are intended to help investors accomplish that. And lastly, investors need to be more transparent about the results, so we can better understand what assumptions we make about impact that are true and which need to be re-evaluated.
Finally, what do you think the future might hold for Impact Investing and what more could be done by all associated groups to catalyse its growth and improve outcomes?
www.bcorporation.net
Impact in Frontier Markets
To much of the outside world, the frontier economies of Bangladesh, Pakistan, Myanmar, Sri Lanka and Vietnam are the Asian representation of Joseph Conrad’s Heart of Darkness. These lands remain synonymous with poverty, perpetual need for charity and disasters, both natural and all too often man-made. Stationed for lengthy periods in-country, even NGO and Development officials occasionally morph into a modern day Colonel Kurtz. Initially helping the locals see the light, these wellintentioned unexpectedly break, later witnessing only depravity and darkness. All the Conradian horrors stem from a system of endemic rentseeking, benefitting the “connected” while manipulating the poor. Ceaseless political demonstrations, military interference, monster traffic jams and low level bribes take their toll on millions; their voices lost among political parties’ agendas. The disenfranchised willingly take to the streets, but their futility accomplishes only more unrest and turmoil.
The orthodox economic view holds that capitalism works because it’s efficient. But in reality, capitalism’s greatest strength is its problem solving creativity and effectiveness. In other words, the essential role of capitalism isn’t allocation—it’s creation. Life isn’t drastically better for billions of people today than it was in 1800 because we are allocating the resources of the 19th century economy more efficiently. Rather, it’s better because we have life-saving antibiotics, air conditioning, electricity, access to vast amounts of information and an enormous number of disruptive innovations. The genius of capitalism is creating both incentives for solving human problems and making those solutions widely available. Technology is also an enormous enabler. When any one of us turns on a mobile phone, we all connect to the same infrastructure, no matter how rich you might be. Our fundamental belief is humans are the same everywhere, striving to become better with convenience and aspirations driving consumer behaviour. Put together, experience teaches us – impact investing in frontier markets is not only an opportunity to do some social good, but also an attractive investment opportunity in and of itself.
Thankfully, today’s reality diverges from this dark perception. Scaling disruptive innovation passing the “toothbrush test,” consumer products used daily making life better for the rural masses, continues to be the thread woven throughout our portfolio. Our premise for sovereign transformation is based on deep investment experience understanding the unmatched genius of capitalism; markets are evolutionary systems carrying out millions of simultaneous experiments each day, making our lives better.
While the tent-pole of impact investing is getting larger every day, and a little confusing - a more nuanced conversation around specialization, in our case, building rural community resilience in conjunction with government partnership is important. Frontier market growth equity investments, engaged Board memberships and
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scaling 21st century execution with ESG adherence is “getting-yourboots-dirty” impact investing. For the 3.1 billion village consumers around the world today, they won’t repeat the last 200 years of industrialization; we intentionally leapfrog development to build systems of the future, rather than the past. Market creating innovation, our area of expertise, transforms expensive and inaccessible offerings into cheap and accessible ones, enabling reach to an entirely new population of customers. By transforming previous rural nonconsumers into consumers, market creating innovation turns the liabilities of developing nations - the diverse unmet need of her populace - into a powerful asset allowing entrepreneurs win hearts and minds commercially scaling essential solutions. Frontier Disruptive Innovation and Impact, Fdi2, Is 21St Century Upgrade Where Fdi Transform Nations from the Grassroots In 1961, a pandemic wave of Cholera began in Sulawesi, Indonesia and violently spread across Asia, Europe and Africa. Extreme dehydration, induced by diarrhea and vomiting, triggered rapid death, killing tens of thousands of people in South Asia alone. Bengali doctors working feverishly in Dacca, East Pakistan found an innovative way to fight back. The Bengali’s revisited a century-old concoction of coconut water, carrot juice, carob flour and old bananas spiking rapid rehydration, healing the sick and ending the outbreak. This life-saving treatment of carbs, sugar and salt was later published in British medical journal, Lancet, and made its way to a doctor in the US. The physician, based at the University of Florida, was working with the school’s football team, on how to best deal with oppressive heat and humidity his players faced during strenuous games. The doctor saw a common solution in rapid rehydration, if it worked
www.the-osiris-group.com
Impact in Frontier Markets
for sick cholera patients, it would surely work for his healthy team, the Gators. Whipping up a formula of water, glucose, sodium and potassium, the genesis of the most popular sports drink in human history was created Gatorade.
alpha. Our process of creating new jobs and educational training helps development. Obtaining a beta blocker solution when you have heart pain is an example of prosperity. Making sure every man, woman and child irregardless of GDP per capita levels have access to a better life – that’s real economic growth. The perceived tradeoff between returns and impact is a false dichotomy, there are tradeoffs with any strategy; but investing in ventures scaling need-gaps investments across multiple sectors propels procyclical, virtuous sovereign growth.
Gatorade is a rare example of reverse innovation, an idea first adopted in the developing world, and defies gravity by flowing uphill to the developed world. It runs counter to the dominant innovation pattern we think happens in places like Silicon Valley, London or New York. Reverse innovation pushes the performance paradigm, offering more for less while recognizing an entirely different user context. Around the world low-income rural villagers, measuring 3.1 billion people, represent half the world’s population and nearly $15 trillion in income. The fact is – globally the middle class is getting larger – but it’s really happening from the very bottom up. Geopolitically, engaging the frontier market consumer is the most important secular investment trend of the 21st century, and is at the heart of our impact process.
The Conradian darkness in Frontier Asia is slowly fading. You can curse the darkness, or you can light a candle. Each time a rural consumer accesses electricity for the first time, with a child safely studying indoors at night, or a garment worker earns valuable interest while keeping her salary safe from preying hands, a grandmother receives life-saving emergency angioplasty or a misguided youth re-centers when enjoying streaming entertainment from his smartphone – a little light pierces through the darkness. And as our investees scale their solution domestically and across borders - this light shines even brighter. The central question for us is not whether we can profitably make rural lives better, but whether we are producing more opportunities than the darkness can destroy and whether we are addressing more grievances than it can record. 6000-years of human history have taught us, while pain, injustice and suffering might last for generations, when good men and women finally come together with a single purpose and properly aligned - light eventually vanquishes the darkness. The power of proper impact.
One of the important lessons of the past two decades has been the pivotal role of innovation in economic development. Every industry dealing with information can be efficiently modernized – and disrupted with innovation. Innovation has globalized; business models and technology developed in one country can be easily exported to another. Orthogonal processes relevant in one industry are pertinent to others. Innovation makes a significant difference commercially addressing urgent developmental challenges such as universal access to electricity, rural cardiac care, bridging the “digital divide” or better financial inclusion – all challenges Osiris is currently tackling today. In the next three years, smart phones will replace feature phones, and a billion more frontier market consumers will connect to the Internet. The most important challenges facing society today create investment opportunities transforming commerce, education and infrastructure management as well.
The Osiris Group is a boutique private equity firm scaling innovation in frontier markets. We are the financing engine for profitable disruption - intentionally building systems of the future, rather than the past. A top priority for the firm is allocating capital into investments leapfrogging long-term development, prosperity and growth. Pioneering impact investing in Frontier Asia, the Group integrates public policy, entrepreneurship and operational leadership, creating sovereign alpha while best capturing risk-adjusted growth returns.
We painstakingly source, invest and enhance dominant Frontier SMEs building capabilities, marketplaces or payments in rural communities. With 21st century technology, rural innovation strengthens community resilience and creates two sources of alpha: sovereign and deal
Managing Partner, Jason Bajaj (impact@osirisgroupllc.com); www.the-Osiris-group.com; @OsirisGroup
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Jason Bajaj (Bio)
Jason Bajaj is Co-Founder & Managing Partner of The Osiris Group, a frontier market private equity firm. Intersecting entrepreneurial capitalism, disruptive innovation and rural economic development, the Group intentionally builds systems of the future, rather than the past. Osiris allocates capital to transformative investments leapfrogging sovereign development, prosperity and growth. Jason is the key architect of the team’s investment process, and is responsible for providing portfolio investment, structuring, operating and impact measurement oversight.
www.the-osiris-group.com
The impact of shareholder power
Impact investing uses the power of capital to intentionally generate positive social and environmental impacts. But whether we like it or not, all investments have impacts, not just those designed to do so.
“At IKEA we’ve gone all-in for renewable energy because really electricity and energy is just a cost, unless you start internalizing it. So, if you generate your own from wind turbines or solar panels on your rooftops, then something that would have been a cost becomes a profit centre,” Whilst reducing millions of tonnes of C02, Ikea is making money in the process. That’s some pretty useful impact. The investors now working on this project have already persuaded several large public companies to make the “RE100” pledge and their goal is to rapidly grow the pool of pledgers in the global corporate community, using their combined shareholder power to make this happen.
At ShareAction, we’re in the business of making mainstream investors aware of the impacts their portfolios have, and encouraging them to use their voices to influence those impacts. We promote the practice of Responsible Investment, which means undertaking thoughtful voting of shares and dialogue with investee companies, analysing the environmental, social and governance impacts of different investments, and taking these into account when setting investment strategies.
Another example of achieving impact through shareholder voice is our work on the UK Living Wage. Since 2011, we’ve supported public equity investors with a programme of company engagement aimed at getting FTSE 100 firms to pay their staff and sub-contractors the UK Living Wage. This rate of pay is set independently and calculated to allow workers to cover their basic needs in one of the world’s most expensive economies. It is 20% higher than the national minimum wage set by the UK government. When we began this initiative, just two of the FTSE100 were independently accredited as Living Wage employers. Today, that figure stands at 30 firms. As a result, over 50,000 low-paid workers can now make ends meet. What has been particularly encouraging is that firms committing to the Living Wage see this as a logical business decision. Dominic Johnson, Employment Relations Director at Barclays said this, “Pay is part of the rational dimension, but it is the emotional dimension of ‘do I feel valued’ that drives people behaviour… Paying at or above the Living Wage is a key part of that”.
Owners of shares that are traded on global stock markets have stakes in some of the world’s largest companies; companies whose strategies and business models have profound impacts – both positive and negative - on communities across the world, as well as on our environment. Instead of excluding stocks deemed unethical, Responsible Investment involves becoming an active and vocal owner of assets. By making use of the opportunities and rights attached to shareholdings, investors can have significant positive influence on company strategies and behaviour, particularly when they work together. And the great news is that this isn’t just a well-intentioned thing to do, it can also be the smart thing to do: there’s a growing body of academic evidence to show that companies which pay attention to their social and environmental impacts, and manage them well, produce better financial returns for their investors.[1] Here are just two examples of this positive dynamic at work. First, an example driven by the financial and environmental logic of shifting major companies off reliance on fossil fuels to power their operations. In December 2015 during the COP21 conference in Paris, ShareAction launched a coalition of 22 institutional investors from right across the world (with $350bn of assets under management between them) whose intention is to actively encourage public companies to commit to moving their global operations onto 100% renewable electric power. Companies that have already made this bold commitment include BT Group, H&M, Commerzbank, Coca-Cola, Johnson & Johnson, Nestle, Nike, and Philips[2]. One such is IKEA, whose Chief Sustainability Officer, Steve Howard said this:
At ShareAction we see an encouraging trend in which so called mainstream investors are starting to recognise the logic of focusing attention not only on the risk-return profile of their investments but on their social and environmental impacts also. A critically important way of achieving this is through shareholder dialogue with companies. Meanwhile, self-declared ‘impact investors’ have typically given very little time or attention to this distinctive approach to achieving impact. ShareAction believes this is a wasted opportunity. Bringing the impact investors and the mainstream investors together around this agenda would be enormously exciting: a true recipe for impact.
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Biog Profile Catherine Howarth has been Chief Executive of ShareAction since 2008. ShareAction is a leading civil society organisation in Europe promoting Responsible Investment, transparency and good governance by institutional investors. Core to the organisation’s work is giving pension savers a voice in the investment system. The organisation undertakes shareholder activism to promote corporate policy change on a range of social and environmental topics. In June 2011 Catherine was named a ‘Rising Star of Corporate Governance’ by Yale University’s, Millstein Center. Catherine was recognised by the World Economic Forum as a Young Global Leader in 2014.
https://shareaction.org/
The New Dynamics of Investing for Impact
Louis Khan, National Assembly Building of Bangladesh