Impact investors range from development finance institutions, private foundations and pension funds to commercial banks, private companies and large-scale financial institutions. Photo/FILE
Over the next 10 years, investors across the world will not just be preoccupied with financial returns, but will also pay closer attention to the social, environmental and development impacts of their activities, says a report.
This will see impact investment, as this trend is known, rake in up to $667 billion in profits over the period and achieve the billing of the newest emerging asset class of the next decade, according to the report prepared by JP Morgan and Rockefeller Foundation.
It indicates that market opportunity for investment is vast, including among the poor population, who earn less than $3,000 a year.
In this category of the population, the potential for invested capital is estimated at between $400 billion and $1 trillion over the next 10 years, realising profits of between $183 billion and $667 billion.
These estimates are based on analyse conducted on selected businesses in the housing, rural water delivery, maternal health, primary education and financial services sectors for this portion of the global population.
“Impact investing will reveal itself to be one of the most powerful changes within the asset management industry in the years to come,” the report states.
This will result in more investors developing strategies where capital investments simultaneously generate both financial returns and social and environmental returns.
Currently, impact investors range from development finance institutions, private foundations and pension funds to commercial banks, private companies and large-scale financial institutions
With the high levels of poverty in Africa, it is set to be a major destination for such investments and an alternative vehicle for channeling private capital for social benefit, backing up government and philanthropists’ efforts.
Over the years, there have been such investments on the continent in sectors such as clean technology, microfinance, and community development finance.
“Though it is still at a nascent stage of development in Africa, in the past few years, there has been a robust uptake of the idea and practice of impact investment and there is clear evidence that it is taking root in key markets across the continent,” says Margot Brandenburg, an associate director at the Rockefeller Foundation.
This includes Standard Bank’s $100 million investment in 2009, in support of smallholder agricultural development in Ghana, Tanzania, Mozambique and Uganda.
This was an expanded form of a programme implemented in Kenya, in which the Alliance for a Green Revolution in Africa (Agra) and the International Fund for Agricultural Development provided $2.5 million each as a loan guarantee that leveraged $50 million from Equity Bank to support investments in smallholder agriculture.
Other impact investors in the region include, Root Capital that focuses on rural small and medium enterprises in Africa and Latin America, and recently made a $100,000 loan of working capital to Tanseed, a Tanzanian seed breeding company; and E+Co which supports businesses providing clean energy in developing countries and has invested in Zara Solar, a company that sells solar home systems to rural homes in Mwanza, Tanzania.
However, experts say that more still needs to be done to encourage impact investment in Africa.
Ms Brandenburg says that governments and the private sector need to work together to develop a favourable institutional and regulatory environment to support it.
“Key to this is the institutionalisation of impact investing reporting standards which enable investors to consistently track and report the social and environmental performance of investments,” she adds.
This would give investors the tools for monitoring their performance besides aiding in avoiding negative consequences that have left them hesitant to invest in the past.
The evolution of impact investment has not been smooth. In the past, such investors were the target of criticism for allegedly taking advantage of the poor in the areas they operate.
Ms Brandenburg explains that such criticism stems from failure to distinguish between impact investments and investments into other businesses that sell basic products and services to poor people; and misunderstanding how important impact investing businesses can be in improving poor people’s lives.
She adds that impact investors only back businesses that aim to create sustainable ways to provide basic goods and services to poor people in a way that generates social good for the customer as well as profit for the business owner.
To her, impact investment is a vehicle for delivering the underserved segments of the market whose access to basic goods and services is limited, resulting in the poor people paying high prices for low-quality products and services because they are not adequately served by existing markets or government services.
“So the prices that impact investment-backed business charge may seem high to outsiders but are actually much lower than the alternative the customer would have to pay,” Ms Brandenburg says.
It is from such attributes that experts describe impact investing as one that provides social or environmental impact at a scale that purely philanthropic interventions usually cannot reach.
By: Cosmas Butunyi (East African Newspaper)
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