GIIN GIF16: Accelerating impact investing to the next stage (part 2/7)

By Christian Kingombe, 16th February 2017

Which Impact Investing Course to Choose?

I am currently preparing for an in the near future launch of an Infrastructure (People First PPP[1] for Sustainable Development) & Impact Investing Advisory Boutique, LLC (Sàrl in Geneva), ‘compliant with’ the UN SDGs and in support of moving impact investments into a mainstream financial asset class. To help realize this vitally important endeavor, I this week chose a course, which would give me the necessary expertise and credentials to work in this essential and fast growing field, in addition bringing more than 17 years of experience in areas revolving around the field of global impact investing, albeit the term was only coined 10 years ago.

At the GIIN GIF16 in Amsterdam I encountered a delegate who earlier last year had attended the University of Oxford’s Impact Investing Programme organized by Sa?d Business School. Moreover, as mentioned in my previous blog, Gayle Petersen, Programme Director, also attended the GIIN GIF accompanied by a big delegation from Sa?d Business School, which according to the participation list was the biggest academic delegation at the event. Besides disseminating their Oxford Impact Investing Programme (OIIP) Brochure she also chaired one of the GIIN parallel sessions like a typical Oxford executive education based on discussion and debate. According to the brochure, what makes the OIIP different is that it allegedly is “the only fully comprehensive programme that covers all aspects of impact investment from the point of view of all stakeholders in a deal. It delivers a broad understanding of the sector as a whole, as well as supporting participants in developing their own strategies and action plans. As a four-day programme, subjects can be covered in considerable depth and there is room to explore subtleties and nuance.” The OIIP Brochure further asserts that “it brings together leading scholars in the areas of social entrepreneurship, finance, and social change. The programme draws on rigorous, empirical research to suggest solutions and approaches that have a demonstrable impact.” The brochure further underlines that it is not just an academic programme. The OIIP “invites industry pioneers and experts from four continents to share first-hand insights and experience from their work on the ground. ‘Participants are able to learn from the experience of professionals who are active and successful in the impact investing sector etc.” However, while the OIIP promises the potential “clients” that it will help them/me understand the wider impact investing ecosystem, enable me to identify suitable investment propositions, and structure deals for maximum effectiveness, it comes at a very expensive 4-day programme fee of ￡5,000, with accommodation not included. Notwithstanding the competitive advantage of having world class academic faculty joined by members of the global community of industry pioneers as well as the possibility to join the influential Oxford Business Network and its associated (fringe) benefits, the OIIP course still costs more than what I paid for a 9 weeks post-graduate course at Harvard University Summer School?

 

Nevertheless, the OIIP benefits all sounded very convincing to me, until I a few weeks ago came across a discussion on one of my LinkedIn groups “Impact Investing Forum” (with currently 24,605 members), in which someone had raised the question “where can you get Impact Investing training courses?” In other words, where can you find a training programme that will develop the practical skills necessary to implement investments that will make a positive contribution to community programmes and yield both social and financial results.

 

Subsequently, I came across one of the numerous Impact Investing Platforms Asia IIX which had uploaded the following announcement “Time is running out to register for the IIX Impact Institute! The spring IIX Impact Institute is 14 weeks of immersive impact investing courses for professionals run by 5 of the leading minds in the space...check out their bios below! Learn more and register here: https://iixglobal.com/iix-impact-institute/

 

What makes this course truly one of a kind? I honestly don’t know, because the course only starts on the 23rd of February next week. Well the inaugural IIX Impact Institute just like the OIIP promises to “take me on a thought-provoking 14-week journey of the Impact Investing movement. Guided by high-profile professionals in the field” (the academic faculty is truly outstanding even compared to that proposed by OIIP). The teaching on the other hand will not take place on campus as with OIIP but via Weekly Webinars (Thursdays) in a lecture and discussion style relying on the required readings and complemented by 1 hour Q&A (Tuesdays). Anyone who have taken MOOCs like myself either via COURSERA and/or edX will know that while the academic experience might not be as intense and inter-active as by being physically present in a class-room at Sa?d Business School, the advantage is that you can listen to the lectures as often as you like, and take notes and carry out the necessary readings at your own discretion each week.

 

Moreover, I believe that IIX’s coverage of Impact Investing is both broader and more in-depth than what is being offered by OIIP. And the fact that each student participating in this course will be going through regular assessment of their understanding of the subject matter and with each participant needing a passing grade score to earn a certificate from IIX Impact Institute makes this course stand out from any other course that I have come across so far, including the OIIP. In addition, the IIX also offers an In-person Immersion week in Singapore at the end of the course, which will enable the participants to apply the theoretical knowledge gained through the Weekly Webinars to practical applications (impact assessment and investment readiness) by participating in a group project and on-site impact assessment.

 

After having compared these two leading Impact Investing Programmes, in the end the choice was clear, notwithstanding the fact that I have already had the privilege of living and studying at Oxford a whole academic year. Thus, after having been accepted and selected from a competitive pool of applicants e.g. based on my commitment to deliver social impact through my career path and my passion to explore and actively participate in the Impact Investing space (as mentioned in my previous ImpInv blogs), next week I will start participating in the IIX IMPACT INSTITUTE Spring 2017 (23 February 2017 – 8 June 2017) course with the title “Fundamentals of Impact Investing: A View from the Field.” This expensive choice (comparable to that of OIIP) is hitherto the strongest signal given as a pledge of my allegiance to II-movement, which I like most GIIN members believe will become transformational over the next decades.

 

A transformational movement – Views from a Dutch Labour Leader

What is meant by this exuberant expression was perhaps best encapsulated by the Ms. Lilianne Ploumen, Minister of Foreign Trade and Development Cooperation, Netherlands and Chairman of the Dutch Labour Party, at her opening presentation on Achieving the SDGs by 2030 at the GIIN GIF16 in Amsterdam, 7 December 2016. She talked about the necessity to work together to reach those goals by referring to a group of Dutch financial institutions, which said $5trn (€4.7trn) to $7trn in financing is needed each year to achieve the SDGs for 2030 but that “a ‘crowding in’ of private and institutional SDG investment … is not happening at the right pace and scale yet”.[2] This means to leverage development at a scale and a pace that the world hitherto has not seen before! It was interesting to hear a Social Democrat who was Chair of the Labour Party (PvdA) from October 2007 to January 2012 expressing an important message about the potential benefits of this huge investment sine qua none for reaching the SDGs by “doing good while doing business.” This significance of this message shouldn’t be taken lightly nor diminished, especially since I have many now ex-colleagues still working at UNCTAD who, together with many other anti-neo-liberals, still prefer the (grant-based Venture) philanthropic and cooperative approach to develop the local economy rather than an Impact Investing approach with the dual goal of making a profit and causing positive social and/or environmental improvements.

 

So, to persuade them and other sceptics of the impact investing movement let me again refer to the Dutch Labour Leader’s proposal on how to make this kind of impact investing happening in practice. Well in the words of the Dutch labour minister it is important to consider not only the trade-off between risk and return (of stocks and bonds) as done by the traditional fund managers (i.e. traditional investment strategy), but also the impact the investments have on society they operate in.[3] Investment managers need to take a long-term view. She further raised the question as to how to manage trillions of USD in p.a. investment in a way that would allow everyone to benefit while at the same time preventing negative impact, such as the violation of the ILO’s International Labour Standards. She also asked whether the (global, primarily institutional) client base who are being offered access to (debt and equity) investments are being kept properly informed, even consulted, or at least given an opportunity to express their consent on the investment strategy pursued, and if not, how to deal with this serious deficiency? She called this the “Free Prior and Informed consent concept”. This, she said, was in reality a difficult concept to implement in practice. She illustrated this with the example of a programme on indigenous lands being affected e.g. by a hydro dam, a road or a bridge with no free and prior consent of the local population. She emphasized that local consultation prior to granting these kind of infrastructure concessions is government’s responsibility. Unfortunately, she believed that this was not really happening. There still far too often seem to be a situation, where the parties involved are not too keen to do the right thing and the local communities are not used to being listened too either. Hence, she suggested the need for a strong vibrant civil society that can be the voice of these affected communities, in order to make sure that local consultations are carried out, so that everyone are heard. In Ms. Lilianne Ploumen’s view these consultations are the key to the success of the impact investment.

 

Dutch institutional investors and the SDG Investing Agenda

Ms. Lilianne Ploumen then went on to talk about the typical Dutch approach – that is a multi-stakeholders approach; (public – private) partnerships; and transparent procedures to detect all risks as soon as possible via voluntary corporate agreements. This is already happening in the following sectors: Textile, Food, Flowers, and with some minerals, to make sure that the VC do the right things.

 

What I found most interesting what related to the potentially very important role which the Pension Fund sector could play to make this happening. Since it manages EUR1.2 Trillions – if it decides to shift its focus towards Sustainable Development working conditions, then the companies (i.e. the investees and/or potential investees being analysed, monitored and reported on by the investment analysts in the Pension Funds) will be either invited or pressured to respect the ILO’s International Labour Standards – in other words, institutional investors could ensure impact investment at a massive scale.[4]

 

In fact, there already seems to be a paradigm shift happening in the Dutch Pension sector. Only 10 years ago the Investment Returns (RoI) were paramount. However, the mood started to change because the beneficiaries had their voices heard that not every investment done with their pension savings money where necessarily the kind of investment they wanted to see. This was done by exerting pressure on the board of directors, which in turn excluded investments in China, e.g. because of lack of press freedom. The Board was also criticised for investing in the arms industry. Moreover, media attention and parliament demand helped bring the Board of Directors of the Pension Funds to the negotiating table, so that today the Pension Fund sector is one of the leading voice in the impact investing movement – striking deals at a voluntary agreements basis. Hence, by doing the right thing and advocating for the right thing, a major institutional investor can in fact guide the government and other players by telling them what is needed to make the SDGs happen.

 

As a matter of fact, only a week after the GIIN GIF, major Dutch financial institutions, including the country’s largest pension investors, committed to an investment agenda pivoting around the UN SDGs for 2030. The 18-strong group, which collectively manages over €2.8 trillion in assets, includes the asset managers for the €179bn healthcare pension fund PFZW and €372bn civil service pension scheme ABP, and insurance companies and banks. The group had developed in a report entitled “Building Highways to SDG Investing” through which they propose an agenda for “SDG investing (SDGI)”, based around increasing the amount of institutional and private capital allocated in the Netherlands and abroad toward financing the SDGs. This laudable Initiative is the first in the world to bring together national pension funds, insurance firms, and banks around a shared SDG investment agenda. Thus, the group’s SDGI Investing Agenda calls on – “invites” – the Dutch government and De Nederlandsche Bank (DNB), the Dutch central bank, and pensions regulator, to take action in four priority areas alongside the finance industry, and made recommendations for each of these. The goals for the four areas are, in the words of the consortium:

 

1.      Catalyse significant SDG investment through the systematic deployment of blended finance instruments (WG1: Blending Public and Private Capital);

2.      Make SDG investment the ‘new normal’ by encouraging and enabling all Dutch retail investors to invest with impact (WG2: Mobilizing Retail – oriented Impact Capital);

3.      Establish an enabling SDGI data environment by stimulating the uptake of sustainability indicators and standards (WG3: Stimulating Data Standardization);

4.      Identify and address actual and perceived regulatory barriers and incentives to SDG investment (WG4: Ensuring a Supportive Regulatory Environment).

The Signatories of the Dutch SDG Investing Agenda (i.e. ‘Building Highways to SDG Investing’ Report) look forward to collectively build Dutch ‘SDG investment highways’ in the years ahead. Per Herman Mulder, co-facilitator of the SDGI Agenda stated: “In today’s tumultuous world, public-private action is ever more important as a driver for positive change. The 2030 Agenda offers not only a challenge, but also an opportunity to collectively do well by doing good.” Or to put it in other words, “we need to make sure that the highway is smooth so that all of us can reach the destination sooner rather than later.” Yet another strong statement that added to the GIIN GIF16 delegates’ feeling of the sense of urgency that will ensure that we all continue to press forward towards the achievement of the SDGs.

Accelerating impact investing to the next stage

The first lead panel of the GIIN GIF16 was moderated by Frank Elderson, Executive Director, De Nederlandsche Bank, who had invited four excellent panellists: Marilou van Golstein Brouwers, Chair of the Management Board, Triodos Investment Management & GIIN Board member; Jennifer Pryce, President and CEO, Calvert Foundation; Tim Macready, Chief Investment Officer, Christian Super – Australian Investment Fund; and Tilman Ehrbeck, Partner, Omidyar Network started by founder of E-Bay.

 

They were asked to address the following key issues:

·      Defining and mapping the impact investing ecosystem;

·      How impact investing is becoming ever more sophisticated;

·      Market rates: looking at the spectrum of offerings for institutional investors;

·      Innovations in accessing HNW and retail investors: the role of millennials.

 

Marilou van Golstein Brouwers started by highlighting that Triodos Bank NV actually have been carrying out sustainable banking since 1980 when it was established with EUR 540,000 in start-up share capital and a full banking licence from the Dutch Central Bank to start its operations in the Netherlands. Ten years later in 1990 Triodos Bank launched its first green fund in Europe: Biogrond Beleggingsfonds. A Wind Fund and a Green Investment Fund followed later. In 1998 Triodos Bank merged its three green funds to form the Triodos Green Fund and in 1999 it launches the first Impact Investing fund to invest in organic farm land to increase organic farming and today it manages 17 Impact Investing funds in over 50 countries. It started with the intention to address society challenges e.g. loss of fertile soil etc. According to Marilou van Golstein Brouwers the context for Impact investing funds has changed profoundly with the SDGs and COP21. She argued that there is a whole new context, a sense of urgency felt throughout the world, a new way of looking at Impact Investing and realizing the challenges ahead and the major role the private sector has been foreseen to play in this collective endeavour.

 

She ended her intervention by referring to someone who worked on Paris Climate Change Agreement – and who had the following strong message for the financial sector gathered at the GIIN GIF16, namely that it took seven long years to reach COP21, “our best chance to save the planet” to quote Barack Obama. The financial sector only has 5 years to invest in the SDGs, which will determine what the world will look like in the next 300 years. What is needed is a catalytic force to change the whole investment industry. In other words, there is an urgent need for a paradigm shift from short-term results to investing in real value and creating a better world for all. That is the harsh challenge we all are faced with, and that is also the reason why I myself prematurely left the United Nations and the Conventional Development Industry using mainly traditional funding sources (and whose total funding, including donations to developing countries and multilateral organizations, peaked at $137.4 billion from DAC countries, $43.7 billion from multilateral donors and $24.7 billion from non-DAC countries)[5] for the Financial Advisory Sector to lend support to this indispensable private sector’s catalytic force to help make this vision a reality through innovative finance.

 

Jennifer Pryce explained that she represented a global Impact investor based in the US with a simple business model, to borrow money to raise capital, not endowed, and then lend globally to organizations with a social purpose and get repaid with a track record of 100% repayment of principal and interest since inception in 1995 with financial returns 0-4% at terms of 1-15 years while raising almost US$100 Bn (AUM $337,023,023). She said that the 2016-2030 means 15 years of engagement with a common conversation on the SDGs and quantifying why this is important and why investors move assets in this way.

 

The Community Investment Note (i.e. Asset Class = Fixed Income) is how you can invest (either online (min US$20); through a brokerage account (min US$1000); or directly (min US$1000) in the Calvert Foundation portfolio of non-profits, social enterprises, microfinance institutions, and other high-impact organizations. Since 1995, more than 15,000 investors have collectively invested $1.2 billion. However, she further said that the so-called debt investors – are not considered as sexy as private equity investors (PEI) or social entrepreneurs – but they still constitute a piece of the overall market that is vital! From a US capital perspective – Calvert Foundation is issuing a Community Investment Note, which is enjoying broad access and distribution of the market. The investors can purchase the note for as low as $20 on-line. This, she believed, is how to engage the younger generation – the diverse investor base and to scale and mainstream it to the (retail) masses, thereby gaining one foot into the capital market while mitigating investors concern. Regarding the liquidity issue (that is how to get cash from the investment).[6] Calvert Foundation offers a note with maturation of only 6 months. Moreover, Calvert diversify risk on both sector and geography. With this approach the Calvert Foundation, a Community Development Financial Institution, enables people[7] to invest for social good through their flagship Community Investment Note.

 

The fast speaking Tim Macready represented the award-winning Christian Super Fund whose vision it is to change the world through ethical investing. In fact, 100% of their investments are ethically screened based on values they find in the Bible,[8] make sure that Christian Super does not invest in industries such as stem cell research and atomic or chemical weaponry and greatly limits exposure to such industries as gaming, tobacco, sex industry or because of particular behaviours or incidents that the Fund considers to be significant ethical violations (e.g. human rights abuses, environmental destruction). He mentioned that Christian Super used to struggle to find deals (after negative/positive screening), however today there are more deals they can look at. They also launched an advisory organization helping other institutional investors to take the same journey as Christian Super had done in the last 10 years. The goal is to see the Impact Investing Industry grow so that it becomes the “norm” for investment funds.

 

The last panellist was Tilman Ehrbeck who emphasized that the objective was to create more opportunities so that people can improve their lives. His Foundation and Investment firm have been around for 10 years and have invested around US$1 Billion especially in the emerging market economies in areas of economic empowerment, inclusive finance,[9] etc. Mr. Ehrbeck fully believes in market based solutions, unlike some of the sceptics I referred to earlier in this blog. Financial inclusion and services in informal economies (where a lot of people are excluded from accessing financing) push the frontiers of those markets by combining the ability to make early stage PEI/VC behind new ideas with full profit combined with grants for sector specific public goods or fundamental research. He referred to a new paper published by Stanford Social Innovation Review – on the learnings after 10 years.[10]

 

The moderator Frank Elderson summarized the session by re-emphasizing that there is an urgency and a need for scale! We only have 5 years to make a difference…The question is whether the dream expressed at the GIIN GIF16 is realistic or not, and where the industry will be in 5-10 years time given the main barriers ahead? How far will we be from reaching the 169 targets for the SDGs? How many billions are being invested and will we have done enough to reach the scale?

 

Let me end this blog by quoting Frank Elderson ,who concluded by mentioning Winston Churchill’s visit in May 1946 to Leiden University,[11] to celebrate Leiden’s spirit of resistance during the Spanish siege. At that occasion Churchill received a honorary doctorate of law presented by Professor and Rector-Magnificus Dr. B.G. Escher, who cited the degree’s three areas of qualification. The third of these, Escher said, applied to Mr. Churchill: “For his moral qualities and strong character that influenced history in a positive manner.” The recipient gave an eloquent speech of thanks,[12] in which Churchill said: "The great wheel has swung full circle." And Europe then stood at the threshold of a new era, an era whose hope Churchill expressed in a single, simple phrase: "Let freedom reign."

 

The GIIN moderator’s takeaways from that historic speech that still represents the exciting time in which we live, which is a time of new hope, as well as this GIIN GIF16 session were the following:

 

·      Don’t forget the next generation – we are doing it for them;

·      Think broadly across the spectrum of invest opportunities;

·      Market the knowledge gained;

·      Don’t forget about the SDGs – the common strategy and framework;

·      We need to think thoroughly about how to internalise externalities and how to price those;

·      All investment need to be impact Investing;

·      The last challenge – don’t do all you can but do all that is needed that is more than what you can.

[1] People-first Public-Private Partnerships set out a clear statement that out of all the stakeholders, ‘people’ should be the priority and main beneficiary. Their focus should be on improving the quality of life of communities, particularly those that are fighting poverty and by creating local and sustainable jobs. Projects should fight hunger and promote wellbeing, promote gender equality, increase access to water, energy, transport, and education for all, and promote social cohesion, justice and disavow all forms of discrimination based on race, ethnicity, creed and culture.

[2] The institutions’ stance on investing to achieve the SDGs and concrete recommendations for “SDGI action” are formulated in a report presented to the Dutch minister for foreign trade and development cooperation, Lilianne Ploumen, at the GIIN GIF16. The report is the outcome of six months of consultation with more than 70 investors, government representatives and “expert practitioners”.

[3] In the book "The Four Pillars of Investing" by William J. Bernstein, the author examines the risk and returns of stocks and bonds over the centuries, going back as far as the 13th century. This study of the history of financial assets' prices gives strong empirical support to the intuitive idea that higher financial performance is achieved by bearing more risk.

[4] In comparison The General Conference of the International Labour Organization, in virtue of the Financial Regulations, adopted for the 75th financial period, ending 31 December 2017, the budget of expenditure for the International Labour Organization amounting to only US$797,390,000 and the budget of income amounting to US$797,390,000. Source: https://www.ilo.org/public/english/bureau/program/download/pdf/16-17/pb-2016-17-en.pdf In other words, my former employer the ILO’s contribution to the SDGs is just a small drop in the ocean.

[5] The 2015 donor current price data trends downward, revealing record 20 year lows in funding from a number of DAC countries. In total, 98 of the almost 200 recipient countries and regions OECD collects data for lost funding in 2015, impacting the ability to deliver, manage and monitor development projects within these countries. The concern is that with the growing refugee crisis, 2016 data will continue to show ODA from DAC countries being directed to in-country processing, housing and even detention of refugees.

[6] The 3 advantages that private investors enjoy over their professional counterparts are: The ability to deal with illiquidity; the ability to take a much longer term view than professional investors; and the fact that they do not have to track or try to beat a particular benchmark.

[7] Community organizations, investors, financial advisors, and other impact investing organizations.

[8] It also means developing an investment strategy that focuses on investments that support core Christian beliefs including – the authority of God, respect for human life and the importance of caring for God’s creation.

[9] Robert Cull, Tilman Ehrbeck, and Nina Holle, “Financial Inclusion and Development: Recent Impact Evidence,” CGAP, April 2014. Available at https://www.cgap.org/sites/default/files/FocusNote-Financial-Inclusion-andDevelopment-April-2014.pdf

[10] I was unable to find the article, so if someone could please let me know in which issue the paper is printed I would be much obliged? A complete archive of Stanford Social Innovation Review magazine from 2003 to present.

[11] The oldest in The Netherlands, founded in 1575 by William of Orange, leader of the Dutch revolt against Spain in the Eighty Years’ War, in honor of Leiden’s resistance during a Spanish siege.

[12] He recalled in his speech the day that the Netherlands was invaded – 10 May 1940. This was also the very day he became Prime Minister of Great Britain.

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