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Impacting Investing
Investing in the right organizations has the potential to change the world. Impact investing is a type of investment that focuses on social or environmental benefits as well as financial or capital returns. Impact investing can be done through for-profit or nonprofit organizations that are looking to improve the world. It can be done in emerging or developed markets anywhere in the world as part of a growing market that provides capital to address global issues in sectors like “sustainable agriculture, renewable energy, conservation, microfinance and affordable and accessible basic services including housing, healthcare and education,” as the Global Impact Investing Network (GIIN) says. The market is estimated to be at around $502 billion as of April 2019.

According to GIIN, there are four primary characteristics of impact investing:

  1. Intentionality – The intention is one of the main things that differentiates impact investing from regular investing. The intention behind impact investing must be the desire to create measurable social or environmental benefits.
  2. Use evidence and impact data in investment design – Investments must have evidence or data that indicates the investment will have social or environmental benefits.
  3. Manage impact performance – Investments must be managed toward the specific intention of the investment. This would mean having feedback loops and means of communicating performance information to ensure that the investment is working toward the intention of the investment.
  4. Contribute to the growth of the industry – Impact investors must use shared industry terms to communicate their goals, strategy and growth. They also share information so that others may learn from their experience and adjust their investments accordingly.

Examples of Impact Investments

  • The Omidyar Network – Pierre Omidyar, the founder of eBay, and his wife Pam obtained large quantities of wealth after the company went public and wanted to do some good with it. He set up a limited liability company (LLC) to make investments in early-stage innovations that are able to generate profits. He also set up a 501(c)3, a tax-exempt nonprofit, to provide grants for public goods and assistance to disadvantaged communities as well as subsidize the production of beneficial goods. The use of both of these allows the Omidyar Network to use for-profit capital and nonprofit grants to benefit society.
  • Actiam Impact Investing – Actiam Impact Investing invested in Pro Mujer Bolivia, an organization that provides training and financial services to women in Bolivia. Janeth Villegas is one of many women who benefited from the program. Pro Mujer taught Villegas a number of skills including accounting and business management which empowered her to start her own chocolate company that she is now teaching her kids to run.
  • Salkhit Wind Farm – Impact investors invested capital in Salkhit Windfarm, the first renewable energy generator connected to the central grid in Ulaanbaatar, Mongolia. The installation of this wind farm has reduced coal burning by 122,000 tons annually and has created over 3,000 local jobs.
  • General ElectricGeneral Electric (GE) provides impact capital through its Ecomagination Accelerator to finance energy conservation efforts. Ecomagination investments totaled $1.4 billion in 2014. “We want to inspire more companies to work together and tackle the world’s greatest resource problems,” Ecomagination’s global executive director Deb Frodl said. With this goal in mind, the company also aims to decrease reliance on fossil fuels in order to reduce greenhouse gas emissions.
  • d.light – This for-profit company invests in and manufactures solar energy and distributes its products through the developing world. d.light’s mission is “To create a brighter future by making clean energy products universally available and affordable.” The focus here is on providing clean energy to the developing world which helps reduce dependence on fossil fuels and provides electricity to people who might not otherwise have it.

– Sarah Faure
Photo: Wikimedia Commons

Poverty Reduction Through Entrepreneurship
There are two types of programs most commonly associated with helping the global poor.

The first is government to government aid. The second is a direct service NGO that performs tasks like building wells and distributing medicine. However, another effective way to boost poverty reduction is through entrepreneurial assistance.

There is a persistent impression of the world’s poor as being entirely dependent on others and incapable of improving their own lives. Contrary to this belief, there is a vibrant entrepreneurial spirit in the developing world. After all, given the lack of government support in these regions, citizens have to become creative in order to simply survive. The problem is just that most of these individuals lack the knowledge, skills or financial means to turn their ideas into reality.

The Transformational Business Network (TBN) explains that growing entrepreneurship can be a powerful means of poverty reduction for three main reasons. First, it provides individuals with the tools to improve their own circumstances as opposed to relying on aid from foreign governments or NGO’s. Second, it gives people the means of achieving a sustainable income. Third, it improves overall economic growth which benefits all the citizens of a country.

The TBN identifies microfinancing as a popular means of facilitating entrepreneurship in the developing world. Microfinancing involves providing individuals with small loans, usually a couple hundred dollars, to help them set up micro businesses. Microfinancing has shown a large degree of success with an extremely high loan repayment rate and has grown into a multi-billion dollar global enterprise creating millions of entrepreneurs.

Microfinancing does have its limits. The Carnegie Council identifies two different types of entrepreneurship: opportunity entrepreneurship and necessity entrepreneurship. Opportunity entrepreneurship involves the creation of real businesses that have the capacity for significant growth. Necessity entrepreneurship usually involves self-employed individuals who are barely surviving.

The Global Entrepreneurship Monitor project found that opportunity entrepreneurship is a much more effective way of growing a nation’s economy and lifting entire populations out of abject poverty than necessity entrepreneurship. Microfinancing, however, tends to create more necessity entrepreneurs.

USAID’s PACE initiative is currently engaging in a comprehensive strategy to increase both necessity and opportunity entrepreneurship by partnering with over 40 accelerators, incubators and seed-stage impact investors. According to the PACE initiative website, the idea is “to catalyze private-sector investment into early-stage enterprises and identify innovative models or approaches that help entrepreneurs bridge the” gap between promising enterprises and potential investors.

The PACE initiative also hopes to expand the entrepreneurship knowledge base by partnering with a number of organizations including the Omidyar Network, the Argidius Foundation and Emory University. Together these groups are launching a research project designed to assess the efficacy of accelerator programs, providing these programs with “statistical data and market insight to better inform their own decision-making.”

It’s clear that the future of anti-poverty efforts will and should involve an increased investment in entrepreneurial enterprises.

James Long

Photo: Flickr