From dealflow to a lack of education, this week leaders in social finance addressed some of the key barriers preventing the UK market from flourishing. Last month Antony Bugg-Levine, the chair of the Global Impact Investing Network, told delegates at London’s Critical Mass conference that in the world of social finance there were “hypers, haters and […]Read More ›
Capital Markets Solving Social Challenges: Perspectives from Antony Bugg-Levine
“The question isn’t how do we give better? It’s how do we solve social problems better?” (Antony Bugg-Levine)
Over the course of two days at MaRS (April 6-7) Antony Bugg-Levine, Managing Director of the Rockefeller Foundation and leading visionary behind the impact investing movement, imparted his vast knowledge on many impact investing related subjects to over 200 people interested in the field. Though native South African, Antony has close family ties to Canada and showed he is a kindred spirit, demonstrating a keen understanding of our Canadian context.
Impact investing addresses deficiencies in our current system and attempts to solve the world’s most pressing issues, such as accessible education, clean water for all, disease prevention, food security. People are starting to realize where the traditional system (foreign aid, charity and government intervention) fails and where new labour and market-based approaches can help. Impact investments can seed innovation to solve these challenges while generating a financial return at the same time. For the new generation of wealth and socially responsible consumers, this makes for a very exciting proposition.
Philanthropy is necessary, but not sufficient to solving big social problems
Bugg-Levine made the clear assertion on Tuesday night at the MaRS Global Leadership Series presentation that while grants and donations are an important element of addressing social issues (and Rockfeller grants millions each year to non-profits), investment capital can be crucial to creating changes at the system level.
According to Antony, the math is simple: the capital required to solve all of the world’s problems is in the trillions. However, private giving is just a few hundred billion globally and foreign aid contribution is currently at $150 billion. There is major gap, but also a $50-$100 trillion dollar opportunity by tapping into global (for-profit) capital markets.
What does this look like?
Some of you might be wondering, practically speaking, what types of investments are we talking about here? Here are a few examples of impact investing:
- Providing a loan to a Canadian business that hires people with barriers to employment and tying the interest rates not to prime, but to the number of “social hires” they employ
- Giving a loan to a microfinance institution run by and for women entrepreneurs in Afghanistan
- Providing an equity investment in a construction business focused on low-income homes in rural areas of Mexico
What is needed for this emerging marketplace to flourish?
Lack of capital is not stalling the growth of impact investing; economic empowerment is. Politicians and investors are not aptly educated on what the potential is and how they can either support the development or channel money into designated vehicles. There is also a clear lack of evidence on the performance of many of these blended-value organizations.
According to a Monitor report released last year, “Investing for Social and Environmental Impact”, impact investing is in the marketplace-building stage and Rockefeller has stepped up with an ambitious plan to catalyze the industry. This plan includes areas like:
- Establishing clear leaders in the form of the Global Impact Investing Network (GIIN)
- Supporting the development of intermediaries that reduce transaction costs
- Supporting research and advocacy
- Setting standards for reporting on double- or triple-bottom line impact (Impact Reporting and Investment Standards) plus a rating agency (PDF) to act as a clearinghouse
Creating an inclusive standard
“Currently, investment money is going to the best story teller, not the best problem solver.” (Antony Bugg-Levine)
In designing their approach, Antony and others from Rockefeller spoke to more than 1000 investors around the world and asked one central question: What would it take to use market forces to solve more social problems better? The resounding answer was: develop better metrics.
And so began their work in establishing IRIS (Impact Reporting and Investment Standards). The belief was that establishing a set of standards for measuring and benchmarking performance would unlock additional capital. Investors would be better able to compare investment opportunities and both ventures and investors could benchmark and monitor performance of organizations in similar sectors. Similar to the role the International Financial Reporting Standards (IFRS) plays for financial terms, IRIS provides a model for reporting on social and environmental performance.
Ways to accelerate impact investing in Canada
At Social Innovation Generation (SIG), we are exploring:
- Support of new intermediaries and infrastructure that will make it easier to improve social outcomes (e.g. Social Venture Exchange, Causeway Social Finance, hybrid corporate entities)
- Cross-sector approaches to innovation (government, non-profit/charity, corporate)
- Innovative special purpose financial vehicles to channel new funds
- The root cause of social problems (e.g. Social Impact Bond)
- Demonstration vehicles or funds serving social entrepreneurs, social enterprise and social purpose business
- Conventions of those interested in utilizing new impact reporting standards by emphasizing the importance of measuring social performance
- Global thought leadership and open-source platforms to advance the Canadian agenda
All that being said, it’s important to keep our eye on the ultimate goal. Although new capital is important, as Antony stated, the end game is really about demonstrating that social problems are being clearly solved. Impact investing isn’t a silver bullet, but a key ingredient to unlocking new ways to address old problems.