Christian Kingombe Managing Partner, Geneva, Switzerland 24th of July 2024 Today’s Roadmap ❖ ❖ ❖ ❖ ❖ Types of Impact Investing Faith as the future of Impact Investing? Implementing Impact Investing: How To Start Case-studies A few conclusions and policy recommendations. Figure 1: The social finance landscape Table 2: The Characteristics of Entrepreneurial Philanthropy Models TYPES OF IMPACT INVESTING New, deeper impact allocations within faithbased portfolios Impact investing can match specific non-profit needs Impact investment only works under specific conditions Investment Universe 40% 60% CATEGORISATION OF SUSTAINABLE INVESTMENT APPROACHES The Origins and Expansion of Impact Investing II. Faith and the Future of Impact Investing For faith-based investors already deploying other responsible investing strategies Why Should the Secular World Care What the Faith-Based World Is Doing? • Since the very early steps of investing, religion has been the first motivation for socially responsible investing (SRI). • A common way of defining the faith-based approach is investing in a way that does not violate the investor’s religious beliefs. • This approach manifests in various sub-terms such as faith-based investing, morally responsible investing, faith consistent investing (FCI), value aligned investing, biblically responsible investing, and Sharia compliant investing or Islamic investing. • As such, faith-based investing is regarded as a special subset of Socially Responsible Investing (SRI). • Despite being historical pathfinders, faith-based investors have since lost their position as thought leaders in the SRI movement. • The investment industry has seen massive growth in thematic and impact investing in the recent years – of 92% and 33% per year respectively – • yet the faith-based community has not been keeping up with the industry, let alone leading it. The history of faith-based investing • Faith-based investing is often regarded as old as religion itself. • The impact of faith-based investment decisions reached public knowledge through early activism through shareholder engagement on social and environmental topics. • Several divestment movements have since been driven by religious investor institutions, and examples range from protests against the apartheid system in South Africa and the fossil fuels industry more recently. • A concrete example can be found from the early engagement of religious institutions in the fossil fuel divestment movement starting in the beginning of the 2000s, • followed by the announcement of the Church of England in 2015 to divest their 9 billion pound investment fund from the most heavily polluting fossil fuels. • Accounts of faith-based organizations pioneering in the community development impact investing field are also common. • For instance, both Oikocredit and the Genesis Community Loan fund are faith-based impact investing organizations that pioneered the sector. • Oikocredit, a USD 1 billion sustainable development financing organization, provides microcredit and financing for small and medium enterprises (SME) in emerging markets where access to credit is limited. Potential of faith-based investors today • Historically seen, faiths have always dared to take on a leading role when it came to social development needs. • Today, faiths continue to have substantial potential to create change through investments. • More than 7% of global land surface is owned by religious institutions, speaking of the sheer volume of wealth steered by these actors. • A recent GIIN report illustrates that “[w]hile no specific figure has been estimated for total assets held by faith-based investors, there is strong evidence that illustrates vast accumulation of wealth and most likely represents trillions of global assets under management”. • In addition to the already existing wealth of these actors, faith-based investing has seen increasing growth in recent years. • John Siverling, the executive director of the US-based Christian Investment Forum, estimates that 260 billion US dollars are invested in alignment with biblical principles, yet very little information going beyond estimations of the total sums exists as of yet. • Interestingly, nearly a quarter of the approximately 90 biblically responsible investing funds in the USA, have been launched after 2015. Potential of faith-based investors today • Clearly, religious institutions have significant economic resources at their disposal. • It should also be emphasized that money is only one part of how faiths contribute to sustainable development. • Religious groups, institutions and individuals run schools, social agencies, and have significant political power. • At the institutional level, they are able to reach a broad audience through their own networks as well as through interfaith coalitions, ecumenical groups, or faith-based transnational. • “The reason that faith can be so powerful – for good and sometimes for bad – is its personal and community transformative power – which money can sometimes, but not always, assist.” • Additionally, the international recognition of faith leaders, especially the Dalai Lama and the Pope, can be seen as symbolic resources with powerful and influential voices. Impact investing and faith – a rising trend • Increasingly, impact investing is making its way into the investment and mission strategies of faith-based organizations. • The trend is most clearly seen in the three existing impact investing conferences hosted by the Vatican, as well as the emergence of new faith-based investors networks such as the Catholic Impact Investing Collaborative and JLens. • These developments highlight that faith-based actors are increasingly seeking to have intentional and additional positive impact with their investments. • When it comes to financing positive impact and sustainable development, impact investing has risen as one of the solutions that uses market-based mechanisms to solve social and environmental problems. • A common issue seen across the field of impact investors is the concern that investors favor financial return over social or environmental return and perceive impact investments as a substitute for philanthropic donations. • This is where faiths can take on a leading role and light the path for impact investors. • Faith-based investors have the ability to truly prioritize impact by acting as impact-driven investors with a clear mission. Unleashing the Potential of Faith-Based Investors for Positive Impact and Sustainable Development What Is Faith-Based Investing and How Is It Distinctively Different? • Faith-based investing means investing without violating an investor’s religious beliefs. • Faith-based investors can range • from small communities consisting of few members • to larger organizations that encompass several communities. • Many faith-based investors are small to mid-sized organizations who have assets but limited investment capacity and expertise. • Such organizations often find it challenging to approach and engage with their investment activities. • Faiths with larger capital pools tend to have an institutionalized set-up, such as endowments or pension funds, and a professionalized team with expertise and capacity to oversee the investment process • The most prominent difference between faith-based investors and secular investors is their strong and welldefined value set that is easily transformed in exclusion criteria. • Consequently, the biggest difference from secular investors in their investment behavior are their strict and detailed exclusion criteria, also called negative screening. Table 1: Examples of Christian exclusion areas Table 2: How Christian values correspond with SDGs Investment Characteristics of Faith-Based Investors 1. Low-risk appetite and market-rate return expectations 2. Dependency on external advisors and managers 3. Acceptance of higher management fees for faith-alignment 4. A desire to collaborate or join communities The different organizational set-ups of sizable faith-based investors • Pension funds are the largest asset owners and are similar to their secular counterparts due to their fiduciary duty and regulatory environment. • Denominations and endowments can also be large asset owners with clear financial goals in order to finance their missions. Endowments typically have core programmatic activities in order to fulfill their purpose and are dependent on the returns of their investment portfolios to support this work. • Therefore, they tend to invest and behave more conservatively. However, depending on the set-up, denominations or endowments can substantially focus on financing impact, such as women-led faith organizations, who are currently leading catalytic impact investing. • Foundations and development aid agencies approach investing from two sides: • 1) investment teams that are responsible for investing the foundation’s endowment see the value of SRI and impact investing, but are limited by financial goals; and • 2) program teams, which are responsible for funding impactful projects, may see the value of impact investing in creating even more impact but are concerned about becoming too commercial and drifting too far from deep impact. Graph 1: The typical investment decision-making process of a faith-based organization III. Implementing Impact Investing: How To Start • There are many paths how a faith-based organization can implement more impact investing throughout their portfolio. Based on research reviewed, we have listed some key steps and mentioned illustrative cases. • Depending on the organization, the investment team would use several steps, either alone or in combination over time, to implement impact investing: • a) C-level executive(s) develop(s) capabilities, • b) hire someone new with expertise, and/or • c) identify an advisor, such as 4IP Group LLC, specializing in impact investing. Exploring faith beliefs and values Exploring faith beliefs and values Exploring faith beliefs and values Faith-consistent investing Does FCI differ from other approaches to investing? Key differences between FCI and other approaches to investing GOOD INTENTIONS What faiths say about how they invest ~ and how they can do more Essential Guiding Principles • “Investment policy and guidelines (IPG) statements are the essential guiding principles and prescriptions for how faith-based investment portfolios are managed,” • “Turns out, faith-aligned IPG statements are more a rarity among faith-based asset owners than one might expect.” • With 84% of people globally belonging to a religion, according to the Pew Research Center, and thousands of religious organizations worldwide • “We were surprised to find only 164 publicly available statements about faith investment policies.” • Of these, only 42 provided enough information in their investment policy statements to make a credible analysis, and just 69% of these indicated that faith values have a role in the principles and guidelines that govern their financial assets. • Even among this group, the extent to which faith values were integrated into portfolios varied widely. • In fact, only two of the 42 investment policy and guidelines statements studied indicated extensive integration of faith values in their investments. • “We found that many faith organizations make at least some mention of pursuing faith-consistency in their investments, and • some have done much to move toward full alignment, but • many others have a long way to go.” Billions of Dollars • Why is this important? Although a full picture of global faith investments is hard to come by, faith groups manage billions of dollars of funds. • Examples of faith holdings include: • Church of England’s Church Commissioners: £10.1billion and Church Pension > £3bn; • United Methodist Church in the US: $28bn fund managed by Wespath; • Vatican Bank: $5.6bn managed assets at the end of 2018; • According to the Zug Guidelines to Faith Consistent Investing, a landmark 2017 publication that outlined the investment priorities of dozens of faith traditions from eight of the world’s major faiths – including Buddhism, Christianity, Daoism, Hinduism, Islam, Judaism, Sikhism and Shintoism – faith organizations likely own 10% of world’s entire financial investment. Work to be Done • While it’s clear that a lot of work has been done by some faithbased asset owners to integrate faith values with their investable assets – i.e., faith-consistent investing – a study shows there is much more work to be done: • from a greater number of faith organizations declaring a faith role in their investment policies, • all the way to more detailed guidelines and robust reporting to ensure effective integration of faith-based guidelines. • “It’s likely that fiduciary concerns are holding back some faithbased asset owners from taking a more faith-aligned approach, • but with faith-conscious investments becoming more widely available, often providing market-like returns, this may not be a valid rationale for long,” The Findings in More Detail • 164 publicly available statements were found and considered • Of these, only a quarter (42) contained sufficient detail for an assessment to be undertaken. • 69% indicated that faith values have a clearly stated role in the principles and guidelines that govern their financial assets (labeled the ‘Yes’ group) • 31% made no mention of their faith (the ‘No’ group). The ‘Yes’ Group • Only two organizations had clearly documented that they had extensively integrated faith values throughout the entirety of their investments. • On average this group’s score was just 5.4 on a 10-point scale, indicating that better alignment is achievable for many. • Nearly 70% of the Yes group use • • • • • • • negative screening and/or • divestment practices Just over 50% use positive screening Nearly two thirds outlined engagement and advocacy activities Two thirds document a specific reason or goal for incorporating faith values Just over 40% document documented proxy voting policies 45% stipulated that faith values are integrated (ie, applied across all assets) 34% designated a separate sub-portfolio FCI Score Distribution Why might a faith organisation decide to pursue FCI? • To follow religious teachings or principles/ moral or ethical convictions & putting them into practice to advance mission • Out of the belief that morally sound companies are • less risky, • more profitable in the long run. • To help investors maintain integrity in their financial decisions • To support companies / businesses / solutions that align with the faith’s beliefs (eg., ethical, sustainable, socially responsible) • To encourage businesses to align with the faith’s values- Faith-consistent investing, based on clearly stated policies and guidelines: Common challenges for small faith organisations • The greater OVERSIGHT requirements of FCI • The need for CUSTOMISED versus off-the-shelf solutions to address unique faith values • The UNIFORMITY of commingled pools • The need to apply FCI across MULTIPLE ASSET CLASSES, including impact investments • The RESOURCES required for engagement activities • The EDUCATION & SUPPORT required for greater FCI participation by the faithful Catholic Impact Investing Collaborative (CIIC) A community for Catholic investors and partners to spread the word of Impact Investing through mutual learning and sharing best practices, resources and experiences New multi-faith climate fund aims to unlock billions managed by religious groups • The trend towards more impactful investing by faith organisations was underlined by the launch of the Multi-Faith Just Transition Fund (MJTF) initiative, at last November’s COP27 UN climate change conference. • Developed by FaithInvest and Climate Investment Funds, the MJTF enables faithbased asset owners to invest in large-scale projects aimed at supporting vulnerable communities with the transition to a low-carbon economy. The essential components of FCI Putting faith first Putting faith first Putting VALUES first • “… trust and reverence for the dignity of every human being. We try with perseverance to help others grow strong in faith and lead fully human lives. Our shared lives and our personal relationships with God inspire individual and corporate actions toward a more just, compassionate and harmonious world…” • Source: Mission statement of the Society of the Holy Child Jesus Faith positions and Implementation What is investment governance? • Investment governance is: • The process through which an individual or group exercises • investment authority; • Makes investment decisions; and • Conducts investment oversight* and • Facilitates collaborative decision-making • Investment Governance ≠ Investment Management. • At its best, governance focuses on ... high-level investment policies in accordance with the objectives of wealth owners and beneficiaries. “The existence of an ethics committee is fairly unique to faith-based investors.” • “The committee is assigned the task of exploring set topics from an ethical and theological perspective and is therefore responsible for providing guidelines and investment policies. • “In practice, the committee is usually in charge of setting exclusion policies on a higher level.” • “When the investment team is undecided on the operationalization of certain investment policies, the ethics committee is consulted on the subject matter on an individual basis.” • “… can play a much larger role, such as leading engagement activities or developing thought leadership on certain topics.” • “The members mostly have a theological and ethics background, especially when highly independent.” Categories of Faith-Based Investors: Denomination/Endowment Challenges in Implementing Investing for Impact and Sustainable Development Current Challenges • Investment advisors and consultants specializing in impact investing, such as 4IP Group LLC, exist; however, they/we have had limited access to the faith-based investing community. • Uptake of impact investing has been limited (11% of AuM), • although faith-based investors have a history of utilizing other responsible investing strategies, such as negative screening (88%). • 2% use biblically responsible investing, • Christian faith-based investments with intended spiritual return strategies, and environmental screening. Drivers for Implementing Investing for Impact and Sustainable Development : Graph 2: Steps towards an impact-driven investment strategy The key drivers for impact investments Best Practice Case Studies • This endowment fund belongs to a large church in Europe, managing the historic property assets of the church for over 70 years. The entity is managing almost € 10 bn (Interview, 2019) in assets under management. The generated money is used to support the cost of mission projects, dioceses in low-income areas, bishops, cathedrals, and pensions. Like many other endowments, this fund aims to support the work and mission of the church and spends roughly 42% of its annual charitable budget on its mission activities. • In financial terms, their returns target is 5% above inflation over the long-term. It has a diversified portfolio with multiple asset classes, including private equity/venture capital, real estate, and infrastructure. • The investment of the endowment is, together with the church’s pension fund, governed by an ethical investment guideline that has been created by an independent committee. Within the organization, they recently built up more SRI and impact investing functions. • The trigger for the church to decide to embark on the impact investing journey was the simple idea of using the investment portfolio as a means for good instead of just avoiding the negative. There is a strong sense of responsibility to use the endowed money to the best of its capabilities for the benefit of society. From there, it was a gradual process until impact investing became an official part of the responsible investing team. Conclusions & Recommendations The Commonalities and alignment • The commonalities between • faith-based investors and • impact investors’ interests in the SDGs suggest opportunities for collaboration to pursue shared social and environmental goals. • Evidence from the GIIN’s • Faith-based investing survey and • 2019 Annual Impact Investor Survey also suggests that faith-based investors and impact investors are not yet aligning around shared interests! • Faith-based investing survey respondents stated a top challenge their organizations face in pursuing impact investing is finding/sourcing investments aligning with their faith tenets and values. Build the case for impact investing as a tool to further faith-based organizations’ missions and values Equip faith-based investors with the means to access relevant impact investment products • According to the GIIN’s 2019 annual impact investor survey, fund managers who raise capital from faith-based investors were asked about their experience. • Similar to the faith-based investing survey findings, the top challenge cited by fund managers was • that their fund did not target specific impact themes of interest to faith-based investors. • There could, for example, be a mismatch in • the impact offered by fund managers (GP) and • impact sought by the faith-based investors (LP), so the development of new faith-based investor products may be needed. Conclude with the following findings on faith-based investors and actions that can be taken by faith-based investors • Faith-based investors seeking to engage in impact-focused investing face similar problems to their secular counterparts. Having said that, the common engagement of an ethic committee in decision-making processes is a differentiating characteristic of faith-based actors. Additionally, the presence of a greater being (i.e. God) shifts the understanding of the role of investing, and eases the dissonance faced by secular investors around marrying impact and financial considerations. • Faith-based investors engagement has been characterized by a focus on negative screening and shareholder engagement. There are signs that proactive investment for impact is starting to institutionalize within this space, with the formation of the Catholic Impact Investing Collaborative being representative of these developments. The movement is, however, still limited in breadth and scope. • Most assets under management are managed by legacy asset managers, many of whom have little exposure to and/or interest in impact investing. This leads to a lack of impact-related deal flow and a predominant ‘business-as-usual’ attitude. This is one of the major bottlenecks delaying a stronger engagement in impact investing among faith-based investors. • Most faith-based investment still seeks market-rate returns. While this is not necessarily negative, it does limit • the extent to which the faiths can influence the development of the impact investing sector and • the speed with which impact can be made more central within the investing practices of faith-based investors. Recommendations • It is recommended that African grant-making foundations and philanthropists who have operated along traditional grant-making lines, actively consider models of entrepreneurial philanthropy to complement their grant-making activities. • Additionally, it is recommended they support venture philanthropy and impact investing • by assisting with referrals, placing capital in venture philanthropy and impact investing funds, or • by co-funding investments. • Recognize and regulate impact capital as an investment strategy – which can • enable other recommended policy responses, • ensure impact investors operate at high standards (cf. SVI-UNDP SDG Impact Standards), while also • providing impact investors with the assurance that they can benefit from wider investor protections. • It is recommended to promote impact angel investing in Africa through existing angel networks. Thank You for your Attention Contact Details: Dr. Christian Kingombe E-mails: ckingombe@siia.ch ckingombe@4ipgroup.com Mobile: - +41 76 504 46 47 WhatsApp: +41 076 504 46 47 Homepages: https://siia.ch/ http://4ipgroup.com/ https://www.linkedin.com/company/35625719/ Annexes WHO ARE INVISIBLE HEART IMPACT FUND2? ▪ We are a joint venture fund, combining the expertise of Geneva-based 4IP Group and …. [looking for new faith-based GP2 & GP3] ▪ IHV We are focusing investment in both Africa and possibly in Asia (Global South) (s.t. GP2-3), with $50 million in assets under management ▪ We are proud members of the Solar Impulse Foundation World Alliance of Efficient Solutions Network OUR MISSION Invisible Heart Ventures’ (IHV2) mission, aligned with the SDGs, is to drive impact alpha by mobilizing US$50 million of investment capital and investing in start-ups and early-stage technology and innovation companies with impact worldwide, principally in developing and emerging markets, also called the Global South. Multiple outcomes are created by transforming many sectors to - enhance climate action through ClimateTech (which naturally includes Energy, AgriTech, waste management, and forestation & ocean), - access to reasonable healthcare through HealthTech, and - facilitate financial inclusion through FinTech companies. OUR VISION ”The more impactful we can make a company, the more valuable it can become” We embrace measurable impact as a driver in all our Venture Capital investments. In addition, we are shaping the way the venture capital market makes business and disrupts the revenuecost structure. This is the “invisible heart of markets,” guiding their “invisible hand.” INVISIBLE HEART VENTURES IHV2 Fund Edge over Traditional VC Funds IHV Evergreen Fund Traditional Fund Liquidity No lock-up period (with notice period) Lock-up periods Life Cycle No investment constraints Investment decisions based on pre-determined timelines Asset Management Priority Impact driven appreciation Gains and distribution-based investment policy Investor-Manager Alignment Impact and ethics driven collaboration, mandate for sustainable and socially responsible assets Performance measurement (high risk) Diversification Diversified investment base Limited diversification Return Profile High Yield PE returns Subject to market conditions Non-financial ESG Data Collection Technology platform enabling automation, consistency, and an ability to store and share manual, time consuming, and clunky ESG Framework Proactive management by adopting industry framework – SDG Impact Standards (IMP) Simple ESG measurement Management Fee & Carried Interest Founder friendly: We reward Investees based on SDG outcomes performance. Lucrative 2 (AuM) – and - 20 (capital gain on asset) fee arrangement structure. INVISIBLE HEART VENTURES Values Invisible Heart Impact Fund 2 [Tech Impact Venture Fund] Our Values (ESG & SDG for Tech Ventures) Reshaping Corporate Strategy Many progressive corporations are paying greater attention to environmental, social, and governance (ESG) measures. They are broadening their approach to building competitive advantage and new business in a way that includes thinking deeply about their activities’ impact on environmental sustainability and greater societal welfare. Such efforts demonstrate that companies can rethink how to factor societal issues into corporate strategy and performance while ultimately being rewarded by investors. Innovating for Sustainable Development Answering a few questions can help companies step up innovation efforts for achieving SDGs: • Does the tech company’s growth strategy identify new business opportunities in SDGs and consider ways that the company’s capabilities can be extended to achieve a positive greater societal impact? • Does the tech company understand what pieces of its innovation portfolio (new technologies, products, or services), could make a difference in achieving the SDGs? It’s time for SDG champions in the public, social, and private sectors to assess how well they are running the race to 2030. With the help of private-sector innovation with focus on sustainable development, we may significantly increase our chances of winning that race. Every investment has an impact. • A growing community of ministries, businesses, entrepreneurs, investors, and fund managers have all experienced God awakening a movement. • It’s bigger than simply avoiding “sin stocks.” • This movement is all about • investing in human flourishing and • driving capital into initiatives that stand for something significant. A Faith Driven Investor is... Therefore, they... Identified in Christ Reflect Creation in Making New Things The Servant of One Master Redefine Investment as a Partership Following Prayer and Scripture as the Handbook for Investing Think Differently about Risk Aware of the Power of Money and Markets Will They Speak Sacred or Secular in Africa? Pulling from One Pocket Toward One Goal Are Known For What They're For Redefining Return Seek Collaborative Community Fix Broken Things Think Eternally Investing In God's Glory • What if, instead, we could align all our investments with God’s heart? • As Christians, we seek to make God a part of every decision we make. • The way we parent, lead, serve, and spend. • We can do the same with our investments. • Just imagine how our faith driven investments could then influence a disproportionately positive impact on the world? • That is our hope. And it’s our purpose that every Christ-following investor would come to believe • that God owns it all and • that he cares deeply about the how, where, and why behind our investment strategies. • Money is put into our hands to steward wisely— • for His glory and • for the flourishing of the people around us. There are existing tools and resources that can be shared with faith-based investors on the technical aspects of impact investing. • Common impact measurement and management (IMM) systems can guide faithbased investors in measuring, managing, and optimizing the impact of their investments. • In addition, financial performance studies on impact investments can be utilized by the faithbased investing community. Partner to amplify work and increase reach to faith-based investors • In order to engage faith-based investors, it is advantageous • to already be active in faith communities or • to collaborate with other organizations trusted by faith-based investors. • Moreover, a number of faith-based networks have indicated that their members would like to learn more about impact investing. • The scaling-up of opportunities and partnerships can happen through conferences such as • the GAF’s Faith-based Investment Conferences and • The Vatican Conferences on Impact Investment. Faith positions relevant to Investment Guidelines Negative and Positive Screening • "Applying rulesbased ondefined criteriathat determinewhether an investment is permissible"(UN Principles of Responsible Investment, 2023) • A range of terms used to explain negative and positive screening, including exclusionary, negative, positive, best-in-class, and norms-based investing. Impact Investing • "Investing with the intention to generate a positive, measurable social and/or environmental impact alongside a financial return"(UN Principles of Responsible Investment, 2023) Essential elements: • Investing with intention • a positive, measurable social and/or environmental impact • a financial return