Published on September 11, 2018
Purpose vs Profit: How can we encourage corporates to engage in direct impact investing?
Last week the World Bank Group announced it has created a list of ‘13 principles of impact investing’. Reacting to investor concerns over ‘impact washing’ and ‘brand dilution’ the principals have been designed to secure a more solid definition of what has long been a shifting sector.
Sometimes referred to as ‘sustainable development goals investing’ Impact investing is a $1.3tn market and is one of the fastest-growing sectors in asset management. The Financial Times outlines two characteristics that must be met for impact investing to fulfil its promise: ‘the products and services must have a direct and verifiable impact on the lives of the poor, and the companies must provide risk-adjusted market returns’.
Direct impact investing
The UK Government’s Newton Fund (part of the UK’s Official Development Assistance) is in its fifth year of funding the Leaders in Innovation Programme. Delivered by the Royal Academy of Engineering, the programme works with researchers and academics selected from 17 partner countries to build their capacity for entrepreneurship and commercialise research projects that address the global challenges set forth by the UN Sustainable Development Goals.
What was the impact?
Within the first three years, the LIF programme supported over 350 innovators who went on to secure over $52 million in public and private sector funding, creating over 650 jobs from their innovation projects and spin-out companies.
“As CSR teams embrace complex strategies to
drive greater brand differentiation and loyalty,
why are global corporates still so reluctant to
embrace the reputational ROI that direct impact
investing can create?”
It’s clear that there is an untapped opportunity to increase the benefit of corporate and public-sector impact investing activities in emerging economies. Fundamentally the focus needs to change from supporting the development of economic activity, which is ultimately focused on contributing to the corporate ‘bottom line’, to building in-country human/ intellectual capacity; getting research ideas and talent out of laboratories and growing them into businesses and products that generate long-term economic growth and social impact.
As the power of ethically minded millennial consumers and investors grows, and CSR teams embrace complex strategies to drive greater brand differentiation and loyalty, why are global corporates still so reluctant to embrace the reputational return on investment that direct impact investing can create? We know that broader, more sustainable impact can be realised through training and mentoring programmes that develop the inherent talent and innovations in-country – but there are no short-term returns here; investing in growing societies and economies is a long-term venture. How can we make these direct impact investment opportunities more attractive and encourage corporates to ultimately put some skin in the game?