Finance Media & Marketing

Money That Aims to Pack a Positive Punch

(Image via Shutterstock)

(Image via Shutterstock)

Impact investing is all the rage in billionaire circles. Unless you’re a billionaire, you might ask: “Why do I care?” I’ll tell you: Because this phenomenon is changing the face of both philanthropy and finance and has the potential to radically impact our communities, the causes we care about, and the world at large.

Impact investment funds, initially created by foundations like Rockefeller, Gates, and the Omidyar Network, seek to convert money destined for pure philanthropy to more strategic and business-driven investments. The returns on these investments are more measurable than those on philanthropy. Even while aiming to achieve financial gains, they support solutions for some of the world’s most pressing challenges around sustainable agriculture, affordable housing, accessible healthcare, literacy, employment, clean energy, and financial inclusion.

Enlightened investors, who recognize that the health of their businesses is inextricably linked to the long-term prosperity of their clients and communities, are increasingly interested in getting in on the game. The value of global business opportunities in social and environmental markets is projected by the World Business Council for Sustainable Development to be upwards of $3 trillion annually by 2050. That’s a lot of public good that can be generated via private funds.

Impact investors commit to measure and report their social and environmental performance, making them more transparent and more accountable for their decisions. This structure makes proof of impact a priority.

As marketers and innovators, we tend to look to the Googles and Teslas of the world for some of the most exciting and disruptive innovation. But impact investing mechanisms and models are eliciting some real creativity from the finance sector. New York City and Goldman Sachs have been experimenting with social impact bonds (SIBs) to finance a cognitive behavioral therapy program for young offenders at Riker’s Island, in hope of breaking the cycle of recidivism without putting tax payer dollars at risk. Although there is some debate about the wisdom of privatizing such programs, this kind of experimentation finances initiatives that otherwise might not have seen the light of day.

More innovative still, Barclays has created a Social Innovation Facility to serve as a catalyst for  commercially viable and socially impactful new product development for the bank itself. The goal is to develop sustainable revenue streams from new offerings that would otherwise be considered too high risk or too long term to meet the current hurdle rates established by the bank. Barclays’ leadership believes such initiatives may represent the future. This facility has already funded programs including the creation of a mobile social networking platform to help students connect with mentors while starting to save for college. (Recent data suggests that kids from the lowest income families are four times more likely to graduate if they have saved just $500.) Its work also led to a partnership with the Grameen Foundation to develop viable mobile financial-service products in Uganda, as well as funding for this past summer’s launch of the Women in Leadership index on the NY Stock exchange. According to Barbara Byrne, vice chairman at Barclays, the Women in Leadership index capitalizes on the growing body of third-party research suggesting that gender-diverse leadership may correlate with relatively stronger corporate performance. (Disclosure: the author’s firm does marketing consultancy work for Barclays.)

Impact investing isn’t just limited to the financial sector. Vodafone’s M-PESA mobile payments platform in Africa provides services to the previously “unbankable” by allowing users with a national ID card to deposit, withdraw, and transfer money easily with a mobile device. And B Corporations like Warby Parker and Etsy are legally committing to achieve social as well as business goals in their bylaws.

But despite all of the encouraging signs, the impact investment movement is still progressing slowly. The pipeline of investible deals is still thin because many social entrepreneurs aren’t aware of these new avenues for funding, or don’t know how to get started. It is also still hard to measure impacts and outcomes that would allow these funds to accurately report their performance.

Marketing and Analytics as Catalysts

Interestingly, many tools used to measure and market mainstream products can also be applied to address these issues. Danone Communities, the social business incubator of Danone, is perhaps the most famous example of a private corporation leveraging both its funds and its brand to advance social good. Coke’s #5by20 program is another. The term “impact investment” has itself driven heightened awareness and interest in the field, especially among millennial investors. A 2013 Spectrem group survey found that 35 percent of the ultra-wealthy below the age of 45 consider social responsibility a primary investment selection factor, compared with only 19 percent of ultra-wealthy investors overall.

Today’s data analytics that evaluate new media impacts can also help investors measure whether their funds are being put to good use. Basic analytics are built into virtually all digital platforms. However, there are also specific tools being developed in each sector to provide richer measurement and feedback loops. Two examples are Wegowise—a service that tracks, aggregates, and benchmarks utility use in North America to measure ROI on green building investments—and Movercado, a platform that virtually distributes health commodity vouchers in several African countries and then tracks their purchase/use. Today it is thus possible to tally how many more girls are reading in Tanzania as a result of a digital literacy app or how many of the healthcare vouchers for pre-natal checkups are being redeemed. Jeff Martin, CEO & founder Tribal Planet, a company that develops intelligent databases behind mobile applications, talks about creating a Yelp of social investment to help all investors judge whether we are really making a difference.

Despite the obstacles, the prognosis for impact investment is good. The will of a new generation of investors to make a positive difference, the acceleration of innovation in financing mechanisms, and the growing ability to measure impact are clearly pushing us into a brave new world where, as the Case Foundation expresses it, “Money becomes more fearless in delivering its disruptive potential.”

Leslie Pascaud is the executive vice president at Added Value, a marketing consultancy.

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  • iulian circo

    Great article, Leslie (and thanks for mentioning Movercado – http://enter.movercado.org).

    While innovations and resources coming from large corporations are exciting, progress is indeed slow. Obviously the lack of awareness you mention and the lack of data are critical factors. But there is more: Many of the projects and initatives put forward are actually quite similar, and similatly flawed. They often lack actual inisghts from the ground. They are company or government or donor centered. There is physical distance between decisionmakers and the markets that these decisions impact.

    Our industry has historically failed to harness the improbable value chains that have been successfully delivering information, products or services deep into some of the most isolated communities, for decades. The reasons are operational: it is hard to work with fragmented, informal networks and it is impossible to track resources and results. Instead, parallel delivery networks have been built to deliver subsidies, products and services to communities.

    Unfortunately large companies often have the similar instincts and they need to be careful not to inherit these mistakes from the development incumbents. If we are to succeed in truly delivering impact, we need to harness rather than bypass fragile but potentially effective value chains, even if they are fragmented and informal. And further, we shouldn’t simply treat these value chains (and the players within) as “beneficiaries” of some sort of expertise, as is done in the occasional project about “empowering the entrepreneurs through training”. But rather find ways to recruit and treat them as partners in the wider development efforts.

    Finally we need to watch for initiaves coming from small, nimble players who are already out there, solving problems we have not even begun to comprehend . Those are the real innovators we should celebrate.
    While innovations and resources coming from large corporations are exciting, progress is indeed slow. Obviously the lack of awareness you mention and the lack of data are critical factors. But there is more: Many of the projects and initatives put forward are actually quite similar, and similatly flawed. They often lack actual inisghts from the ground. They are company or government or donor centered. There is physical distance between decisionmakers and the markets that these decisions impact.

    Our industry has historically failed to harness the improbable value chains that have been successfully delivering information, products or services deep into some of the most isolated communities, for decades. The reasons are operational: it is hard to work with fragmented, informal networks and it is impossible to track resources and results. Instead, parallel delivery networks have been built to deliver subsidies, products and services to communities.

    Unfortunately large companies often have the similar instincts and they need to be careful not to inherit these mistakes from the development incumbents. If we are to succeed in truly delivering impact, we need to harness rather than bypass fragile but potentially effective value chains, even if they are fragmented and informal. And further, we shouldn’t simply treat these value chains (and the players within) as “beneficiaries” of some sort of expertise, as is done in the occasional project about “empowering the entrepreneurs through training”. But rather find ways to recruit and treat them as partners in the wider development efforts.

    Finally we need to watch for initiaves coming from small, nimble players who are already out there, solving problems we have not even begun to comprehend . Those are the real innovators we should celebrate.