Impact Investing Digest #2 - 15th February 2024

Sharing the more thought-provoking things I have come across seemed to get a good reaction last week from my peers on here - so I'm going to try and make this a regular post.

Ecosystem News

Within the general impact investing ecosystem, a few news items I came across that stood out this week.

Blue Earth Capital AG (a manager in the Ceniarth portfolio) and British International Investment closed an innovative secondary transaction, with Blue Earth acquiring a partial interest of BII's stake in three leading impact funds across Africa and Asia. The absence of secondary markets in emerging markets is a real barrier to scale, and also prevents leading actors such as BII from recycling capital into more impact investments in emerging markets.

Continuing the theme of scaling capital for impact investing, the UK's ￡370 billion Local Government Pension Scheme (LGPS) sector is showing increasing appetite to increase allocations to private markets, in sustainable investment and climate solutions. According to a 2023 survey by Room151 (with support from Schroders ), 64% of funds saw themselves as a key role in supporting the levelling up agenda through targeted local allocations.

BlueOrchard Finance Ltd (another Ceniarth investee) have over $1bn AUM in blended finance with targeted themes such as enhancing climate resilience and education outcomes in emerging markets. A recent blog sought to draw key lessons as they move towards "Blended Finance 3.0".

On a more sobering note, Oxfam take aim at rising inequality globally in a new report "Inequality Inc.". Despite all the positive narrative about scaling impact investing, SDG alignment and social accounting, the introductory quote paints a fairly grim picture: "Since 2020, the richest five men in the world have doubled their fortunes. During the same period, almost five billion people globally have become poorer. Hardship and hunger are a daily reality for many people worldwide." We know from recent 世界银行 statistics that 2020 saw the greatest set-back to poverty reduction in decades and the recovery has been highly uneven. Low-income countries are still above pre-COVID poverty rates, and are not closing the gap, as they saw poverty increase modestly between 2022 and 2023.

Impact Measurement & Reporting

60 Decibels ' second iteration of their Global Microfinance Index launched at the end of 2023, but for various reasons I've been coming back to it recently. The data generated from interviewing 32,000 microfinance clients across 32 countries provides an increasingly robust way to answer the questions about "how much impact is microfinance having?" overall, but more importantly in a comparable way across MFIs and geographies. I'd thoroughly recommend reading the full report, as well as recent insights focused on gender and groups vs individual lending.

This kind of more robust, standardised and comparable analysis is to some extent the utopian end state for impact allocators - FMO - Dutch entrepreneurial development bank published a thoughtful piece this week on NextBillion discussing the bigger question of impact management standardisation.

Better data and increased comparability will be key to an area many see as the next frontier for impact investing - embedding impact-related incentives to drive decision-making for asset allocators, asset managers and social entrepreneurs. A recent report on Impact-Linked Compensation led by Aunnie Patton Power (with support from The ImPact and Tipping Point Fund on Impact Investing ) provides a useful summary of the current state of play.

As final data for 2023 is consolidated, a few quality impact reports for any impact nerds out there.

• VisionFund International , a recent Ceniarth investee, recently released their 2023 Impact Report. This is a great example of the kind of commitment to reporting on, and more importantly improving the delivery of, social impact in our portfolio. The combination of external, independent research from 60 Decibels and internally generated data provides rich insights into the deep impact VFI are creating via their operating subsidiaries in Africa, Asia and Latin America.
• Better Society Capital published their 2023 Impact Report this week. This is a comprehensive and insightful report from one of the leading actor's in the UK impact investing industry. In particular I liked how they cover the wide spectrum of systems level change initiatives through the underlying beneficiary impact created by their portfolio. Active Ceniarth co-investments include supporting pioneering organsiations Key Fund Investments , Social Investment Business , Business Enterprise Fund (BEF) | Loans & Finance for Small Businesses , Bridges Fund Management Ltd. and Resonance Limited .

Academic research plays an important role in unpicking the many complexities of trying to reduce poverty globally. I find VoxDev a really accessible source for robust insights relevant to my work. A few recent summaries include:

• The investment returns to infrastructure provision - High-speed internet connectivity in Africa increased FDI into the services sector with the technology, finance, retail and health service subsectors the main beneficiaries.
• Farm security and agricultural development - Crop theft is an understudied risk faced by smallholder farmers that may impose pervasive costs on farmers. New evidence from Kenya reveals the different ways that theft, and the fear of theft, constrain agricultural development.
• Dominant buyers and rural development: Evidence from China - Agricultural markets in developing countries might be insufficiently competitive. A case study of cigarette manufacturer reforms in China casts new light on the adverse consequences of imperfect competition on rural poverty and economic growth.

Sector-specific content

• Lessons from 30 years of African commercial forestry investments and implications for the future - sustainable approaches to forestry have the potential to drive economic development while also making a significant contribution to climate change mitigation. It's a sector where I have limited experience to date. Gatsby Africa have been a thought leader in this space, and this recent report in collaboration with Criterion Africa Partners and Wellspring Development provides some useful learnings in the African context. Comparisons with Asia and the potential role of carbon finance to support further sector development stood out.
• Predatory loan apps are thriving in the Google Play store, despite ban - despite policies in the Play store, a recent article by Rest of World highlights emerging evidence that predatory loans apps continue to thrive in Latin America. I've long been concerned about the negative impacts of the fintech revolution in emerging markets, which have been well articulated by MSC (MicroSave Consulting) and others.