Impact Investing: Building an industry

Impact Forum 10 January, 2011 Dhaka, Bangladesh Margot Brandenburg Associate Director The Rockefeller Foundation

What is Impact Investing?

Investments intended to create positive social impact beyond financial return

Provide capital
Transactions currently tend

Expect financial returns

The investment should be

to be private debt or equity investments

We expect more publicly

expected to return at least nominal principal

Grants and donations

traded investment opportunities will emerge as the market matures Business designed with intent
The investment should be

should be excluded
Market-rate returns in

scope to generate positive social and/or environmental impact

Positive social and/or

designed with intent to make a positive impact

This differentiates impact

investments from investments that have unintentional positive social consequences

environmental impact should be part of the stated business strategy and should be measured as part of the success of the investment

Global Impact Investing Network, 2009

Why Impact Investing?

20th century Private charity substantial funder of social innovation Government and charity scale solutions Now Not enough charity and government subsidy to address global challenges

Need to harness creativity and reach of private sector

Global Impact Investing Network, 2009

A convergence of forces
Investors and consumers increasingly values driven
Eagerness to adopt new tools Growing inequity and environmental crisis Track record of early success

Impact investing now locked in

Can it take off?

Talent pushing new careers

Openings for policy change

4
Global Impact Investing Network, 2009

Who are impact investors?

A heterogeneous group:
Foundations Family offices DFIs Banks Pension funds High Net Worths (HNW) Social Investment Funds

Global Impact Investing Network, 2009

What is industry potential?

Potential profit and invested capital to fund selected BoP businesses over the next 10 years

Sector
Housing: Affordable urban housing Water: Clean water for rural communities Health: Maternal health Education: Primary education Financial Services: Microfinance

Potential invested capital reqed, USD bn

$214 - $786

Potential profit opportunity, USD bn

$177 - $648

$5.4 - $13
$0.4 - $2 $4.8 - $10

$2.9 - $7
$0.1 - $1 $2.6 - $11

$176

Not measured

Source: JPM Morgan Global Research/Rockefeller Foundation

Global Impact Investing Network, 2009

Phases of industry evolution

Impact investing is positioned along a trajectory of industry evolution that mirrors what we have seen in other, related industries
Evolution of social and environmental impact investing
Uncoordinated Innovation Marketplace Building Capturing the Value of the Marketplace Maturity

1946

Benefits of a common language of metrics and definitions Unlock Latent Supply of ----- Community DevelopmentIncrease Transparency Finance --------Capital by Building and Credibility in Impact ----- Clean Tech Finance --------Efficient Intermediation Investing
----- Microfinance ---------

----- Venture Capital ---------

1900s

1970s

Build Enabling Infrastructure for the Industry

Present

1970s

Global Impact Investing Network, 2009

Status of impact investing industry

Launching a marketplace requires both public goods and hybrid public/private infrastructure. This infrastructure requires significant philanthropy and patient investment capital.
Evolution of social and environmental impact investing
Early State Current State Future State

Uncoordinated Innovation

Marketplace Building

Capturing the Value of the Marketplace

Maturity

Building Efficient Intermediation

Build

Build a cr Develop Industry and Credibility in Impact Infrastructure Investing

P Build Enabling Buildromote through research, outreach, Infrastructure for the enabling policies Industry

Global Impact Investing Network, 2009

What will it take to capture the potential value of impact investing?

Facilitate leadership Build infrastructure Catalyze intermediation Research and advocate

IRIS

What will it take to capture the potential value of impact investing?

Build infrastructure
standard language and framework for tracking and of A shared vocabulary for describing the performance performance impact investments
Repositories of comparable data used to produce anonymous performance benchmarks Regulated exchanges and other mechanisms for reducing transaction costs and improving liquidity Ratings systems that assesses the social and environmental performance of companies and funds seeking investment capital from impact investors

What will it take to capture the potential value of impact investing?

Catalyze intermediation
standard language and framework for tracking capital Funds that can mobilize institutional-scale and performance
Exchanges that to raise appropriate capital for SEs, provide on-ramp for individual investors, improve liquidity Databases, subscription facilities that facilitate deal sourcing, reduce transaction costs Investment clubs that reduce transaction costs, share dd

Why Impact Investment Exchange Asia (IIX)?

Why an exchange?
Enables social enterprises to attract capital without compromising mission Drives adoption of standard social and environmental reporting and measurement

On-ramp for individual investors (HNW and retail)

Reduce transaction costs for enterprises and investors (search and market-clearing) Improve liquidity for investors

Global Impact Investing Network, 2009

Why Impact Investment Exchange Asia (IIX)?

Why an Asia regional exchange?
Regional nuance and presence matters Leading role of enterprises in region, esp. Bangladesh Opportunity for regional application of global social and environmental reporting and measurement

Global Impact Investing Network, 2009

What else does an exchange need to be successful ?

Parallel investments are required to
Build capacity of social enterprises to list, use capital to scale, report Engage national, regional policymakers on enabling regulations Build awareness among private banks, gatekeepers for HNWs

Improve offerings of relevant service providers (accountants, auditors, legal services, etc.)
Promote and refine standardized social and environmental reporting metrics

Global Impact Investing Network, 2009

Thank you
Margot Brandenburg The Rockefeller Foundation mbrandenburg@rockfound.org +1 212.852.8464

Global Impact Investing Network, 2009