Global Impact Investing Network Investor Forum: Happy 10 year anniversary. By Christian Kingombe, 13 January 2017 (part 1/7) The Important Impact Investing role of DFIs According to the GIIN 2016 Annual Impact Investor Survey The Sixth Edition among the 158 total respondents over half of the respondents (87) made their first impact investment within the last ten years. Among the remaining 71 respondents, 21 (or 13% of the full sample) made their first impact investment before 1995. Amongst the only four bilateral DFIs (CDC Group; FMO; OPIC, from the list it is not clear to me who the 4th DFI was?) covered by the GIIN Survey, FMO, the Dutch DFI, has been investing for social and environmental impact since 1970. Impact Investments is generally defined as “Investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return.” The topic of definition and segmentation of the impact investing market attracted several interesting comments from respondents to the 6th GIIN Annual Survey. One investor noted there is a “need to move away from a single definition of impact investing – there are different risk, return, and impact characteristics in different sectors, geographies, and deal sizes.” Oddly, it was only in 2007 that the term “impact investing” was coined at The Rockefeller Foundation’s Bellagio Center. Moreover, the mission and strategy of my own former employer - the African Development Bank (AfDB) Group “is to spur sustainable economic development and social progress in its regional member countries (RMCs), thus contributing to poverty reduction.” And this strategy is being financed by mobilizing and leveraging new sources of development finance, including SWFs, Pension Funds, wider use of PPPs, co-financing arrangements and risk-mitigating instruments drawing in new investors. The AfDB’s “impact investing” operations with a Total Cumulative Loan and Grant Approvals, 1967–2014 of 4,185 loans and grants totalling UA 71.72 billion have been understanding almost since its foundation in 1964. The Unit of Account of the AfDB has been set to be equal to the IMF’s SDR (Special Drawing Right unit), which is defined as a basket of major world currencies. For example, as of December, 31, 1997, the value to the U.S. dollar was UA1 = U.S.$1.35. And yet this year (2017) we mark the 10th Anniversary of the birth of the Impact Investing Industry through the coining of the term ‘Impact Investing’? Despite the necessary entrance of many types of investors into the growing impact investing market, one shouldn't lose sight of pioneer role played by Development finance institutions (DFIs), which are leading capital providers in the impact investment market. DFIs’ objectives are often multiple, and may include investing in sustainable private sector projects; maximising impacts on development; remaining financially viable in the long term; and mobilising private sector capital. Generally, the DFIs prefer to be catalytic and provide anchor funding, and thus are most active for first-time funds or investments. For example, shortly before I joined the AfDB, the Board of Directors of the AfDB approved on 16 May 2012 in Tunis, an equity investment of USD 100 million to Agvance Africa, the first agribusiness-focused Fund of Funds on the African continent. The strategic objective of Agvance Africa is to increase private investment flows into the agribusiness sector on the continent to address growing food security concerns and unleash the largely unexploited potential of African agriculture and agribusiness sectors. The idea was that Agvance would be managed by Credit Suisse Customized Fund Investment Group (CFIG) In January 2014 Grosvenor Capital Management and its affiliates acquired Customized Fund Investment Group (CFIG) from Credit Suisse Group AG. and will target total capital commitments of USD 500 million. It is anticipated to invest in 15 to 18 best-in-class private equity and mezzanine funds targeting portfolio companies along the agribusiness value chain and across the continent. The Africa Assets database is a searchable online platform, which provides fundraising and investment information for roughly 200 active PE and VC funds targeting sub-Saharan Africa. Africa Assets data has been collected from press releases, third party news sources and through conversations with GPs, LPs and other industry stakeholders. It is constantly updated to reflect the latest market activity. In addition to being Agvance’s anchor investor, AfDB also played a key role in developing the Agvance concept, with support from the Fund for Private Sector Assistance (FAPA), and worked closely with the CFIG to design a state-of-the-art environmental and social management system in cooperation with the World Wildlife Fund (WWF). Yet while the bilateral DFIs only constituted 3% of the total respondent sample of GIIN’s Annual Impact Investor Survey 2016, among the full sample, the total number of respondents (158) committed USD 15.2 Bn to 7551 deals in 2015 of which the 4 DFIs alone committed USD 5.012 Bn (i.e. 33% of total) to 305 deals (i.e. 4% of total number of deals) in 2015 with by far the highest median of 76 of all organization types. Moreover, the DFIs also account for 18% of the sample Impact Investing Assets under Management (AUM). Overall, the median AUM for DFIs are USD1,742 Mn compared to USD435 Mn for pension funds/insurance companies ranked second far ahead of the other organization types: Bank/diversified financial institutions ($181 Mn); Fund manager ($77 Mn); Family Office ($66 Mn); and Foundation ($58 Mn). Impact Investing in Emerging Markets & Sub-Saharan Africa Finally, roughly half of AUM are in emerging markets, even though the investors managing the vast majority of this capital are headquartered in developed markets such as Geneva/Zurich in Switzerland where I live. According to the GIIN Survey 2016 19% (excluding outliers) of global AUM is allocated to SSA. In other words, 75 out of the 158 respondents have allocations to SSA. Looking ahead, emerging markets are a key area of focus for impact investors with 40 investors (25%) planning to increase their allocations to SSA over the coming year. In fact, for the past three years according to GIIN, more investors have indicated that they would like to increase their allocations to SSA than to any other region. Yet detailed information on impact investing in the SSA region has been sparse. However, recently three new studies published by the GIIN in partnership with Open Capital Advisors and Dalberg Global Development Advisors, focused on East (20 International DFIs and 135 Non-DFIs), West (14 International DFIs and 32 Non-DFIs) and Southern (23 International DFIs; 3 Domestic DFIs; and 81 Non-DFIs) Africa. In sum these studies found a total of USD7.3 Bn (19%) of private impact investment capital and USD31.1Bn (81%) of capital from DFIs deployed across the three regions over the past decade. Additional research published in 2015 about impact investing activity in SSA reflects broad interest in the region: UNDP. 2015. Impact Investing in Africa: Trends, Constraints, and Opportunities; and DFID. 2015. Survey of the Impact Investment Markets 2014: Challenges and Opportunities in SSA and South Asia.” Research Gap Partially, on this background a pluri-disciplinary group of researchers from the Graduate Institute Geneva (Centre for Finance & Development), including myself; EPFL and University of Milano in collaboration with the Open University of Tanzania decided to answer the 10th SNIS Call for Projects 2017 by focusing on the special theme 2017: Migration in the lens of the sustainable development goals (SDGs). The objective of our policy relevant and action-oriented project is to advance knowledge based evidence of diaspora investments and its Environmental, Social and Governance (ESG) impact, and to explore strategies and measures to leverage their potential and willingness to save and invest back home. We expect that our findings in cooperation with a number of international organizations (including the AfDB and ITC’s Africa Office), will contribute to a more significant transformation of remittances into diaspora impact investment in prospective SDG focus areas in SSA LDCs while also enhancing the understanding of the diaspora investment process per se. Introduction to GIIN’s Global Investor Forum On this background I embarked as one of very few academics (less than 4% of the delegates) The majority was Asset Owners 28%; Asset Managers 18%; Investment Advisors 12%; Banking 9%; Government 8%; NFP 6%; Service Providers 3%. to the GIIN’s Global Investor Forum in Amsterdam in early December last year. Other academics included: A delegation (6) from Saïd Business School (University of Oxford); three from the University of Pennsylvania (The Wharton School); four students from the INSEAD Business School; two researchers from Hasselt University; Professor of Ethics Harry Hummels from Maastricht University; a researcher from respectively Swiss Federal Institute of Technology (EPFL), University of Erfurt; University of Chicago; University of Dublin (Trinity College); University of Oxford; and only one academic from the entire African continent, namely the Federal University Ebonyi (Nigeria). Where business-minded millennials decide to pursue their MBA has far-reaching implications for where and how the largest wealth transfer in history unfolds. MBA graduates of the next ten to twenty years will change the face of impact investing and the schools they attend will help decide the flow of 21st century wealth. Only one of the three top U.S. based business schools and the two international schools, where some of the social investing leaders of the future will learn their craft, were present at the #GIF16. Now that we have completed and submitted the SNIS pre-proposal, I believe that the timing of the release of this blog post is perfect, here at the beginning of the year marking the 10th anniversary of the Impact Investing, to reflect on the implications of the many important announcements, knowledge sharing statements, innovative ideas, results and awards, I observed during my participation in this very successful and very well organized two-day event at the famous NH Collection Grand Hotel Krasnapolsky located in the heart of Amsterdam's characteristic historical center on the main square with a clear view of the Royal Palace (since curiously the lights of the big Christmas tree hadn’t been turned on?), albeit at a prohibitive price of €775+VAT (equivalent to almost €1000 paid out of my own private savings) for most academics as consequently reflected in the participation list. The €775 covered entrance to the event, along with all lunches, networking coffee breaks and cocktail receptions. However, it didn’t cover hotel accommodation, so I tried Airbnb for the first time to lower my logistics costs associated with my participation. Travelling was indeed much easier and more fun, when I was working for the AfDB… Evidently, I can’t share the wealth of insights collected and knowledge acquired in just one blog-post, so I have instead decided to write a series of short thematic blogs to address the various plenary panel discussions as well as some of the break-out stream sessions, which I was able to attend when not networking in the grand Exhibition Hall in the quest to convince some of the leading Impact Investing players to become Associated Members to our action-oriented SNIS research project aimed at influencing the stakeholders (and their clients) attending the GIIN GIF 2016. A Pivotal Moment for the Impact Investing Industry: Laying the foundation stone During the GIIN GIF 2016 welcome opening session a packed Plenary Assembly hall was informed by Amit Bouri, Chief Executive Officer, GIIN, that 800 delegates had registered from 45 countries, including around 107 speakers. He warned that a business as usual approach no-longer is not enough to tackle the challenges the world is facing, which are both very real and urgent. These challenges are captured by the UN SDGs, which overall aim to end poverty, protect the planet and create peace and prosperity for all. These SDG challenges coupled with the COP21 commitments, signed by 140 out of the 188 countries that have committed themselves to reducing greenhouse gas emissions countries, both require immediate actions. A mantra, which was repeated throughout the whole #GIF16 event, and rightly so. The goal of this important landmark gathering for the impact investing eco-system was to explore how the private sector can contribute to finding a more just equitable society and to consider how private capital can be allocated to achieve these long-term SDG/COP21 solutions. The #GIF16 aimed to explore topics that can advance these markers and explore ways to increase impact investing activities both by growing markets and advancing portfolio as well as by achieving deeper impacts, while also maintaining the integrity of this rapidly growing market. To achieve these ambitious goals (pluri-disciplinary, sic.) collaboration is key. He illustrated this with an interesting allusion to the 15th-century (it was consecrated in 1409 before the “discovery” of America Yes, I am fully aware that the Natives were already there even when my ancestors the Vikings began colonizing of North America as early as the 10th century AD.) new Church of Amsterdam (i.e. The Nieuwe Kerk), which it took generations to build. While, Amit Bouri might have preached to the converted in Amsterdam and the congregation had expanded significantly since 2007, it is important to stress that Impact Investing has nothing to do with a “spiritual” movement. Notwithstanding, a few months earlier, on June 26th 2016, at the invitation of Catholic Relief Services and the Pontifical Council for Justice and Peace, impact investing experts and Catholic leaders from around the world convened in Rome to explore how the Catholic Church and other faith-based institutions can harness the power of impact capital to attain and sustain their social mission. This was part of celebrating the Extraordinary Year of Mercy established by Pope Francis, and the conference was titled Making the Year of Mercy a Year of Impact for the Poor. Setting aside Impact Investing as a haven for repose free from political and religious polemics, on the 7-8th of December 2016 the Global Impact Investing Community laid if not the first stone of a “new Development Paradigm”, then at least an important foundation for a new structure for the coming centuries, with the full awareness that the global human community today doesn’t have the same time it took our ancestors to build these century old churches embellishing the skyline of Amsterdam. This opening and daunting statement was complemented by the welcome statement by the Conference chairman, Nick O’Donohoe, Senior Advisor, Gates Foundation and one of 10 Vice Chairmen (UK) of the Global Steering Group on Social Impact Investment established in August 2015 as the successor to the Social Impact Investment Taskforce (June 2013), established by G8 and chaired by Sir Ronald Cohen. O’Donohoe talked about the momentum and growth of the Impact Investing Industry and the diversity of the participants’ amazing energy, enthusiasm, intellect, a certain sentiment, which in my opinion was clearly perceived throughout the entire forum. The #GIF16 he added was the largest gathering of Impact Investors in the EU – possibly the largest in world especially compared to the GIIN event that took place in a small room in June 2008 when a broad group of 40 investors from around the world was convened by the Rockefeller Foundation The Global Impact Investing Network was conceived in October 2007, when the Rockefeller Foundation gathered a small group of investors to discuss the needs of the emergent impact investing industry. met to discuss what it would take for the impact investing industry to be able to solve more social and environmental challenges with greater efficiency. Today, according to Nick O’Donohoe, we are at a tipping point. We have seen it before with Venture Capital (VC) movement and the Private Equity (PE) and Hedge fund movements, he said. When investment movements get a momentum going it just doesn’t stop, but it instead accelerates. Impact is a critical component of an investment decision, which today is incorporated intentionally in the majority of investment strategies and it has also taken root in asset classes. One of the characteristics is that it fragments – a number of different segments include: Sustainable Investment, Microfinance, Output Finance etc. Moreover, the challenges don’t go away and there are still many challenges in world of Impact Investing. O’Donohoe highlighted that we increasingly are getting good data to managing the risks, and creating sustainable and profitable business structures. Today, Impact Investing, when perusing through the financial/business press, clearly is embracing the mainstream. Like many of us gathered in Amsterdam O’Donohoe expressed his belief that this ‘new’ Movement truly can be transformational over the next decades. May I add that the future of humanity, and that of my own two toddlers, whose life expectancy will allow them to live well into the 22nd Century, to a large extent depends on the fulfilments of these (SDG/COP) promises. During the opening session of the second day as chair of the #GIF16 Mr. O’Donohoe again highlighted the impressions held by most participant that the organizers had a assembled a series of panels with excellent speakers and that these panels expressed both great engagement and energy by the key stakeholders, which also left me with the impression that I was surrounded by an exceptional group of Impact Investing actors whose engagement, commitment, entrepreneurship and innovation might hold the answers to the enormity and sheer scale of the challenges of realizing the 2030 Agenda for Sustainable Development that humanity is faced with. Each SDG requires a range of different solutions, with Impact Investing being one of those potential solutions. He again alluded to the urgency of finding solutions to these challenges highlighted by David Blood, Co-founder and Senior Partner, Generation Investment Management – and that it is not enough to see the Impact Investing industry grow in a linear fashion but instead it needs to grow in an exponential fashion, since every investment has an impact. Another important issue is how to measure these interventions/investments and how to hold people accountable for the impact they create, which I will address in my 5th blog (see below). An indication of this exponential trend is reflected by the fact that the GIIN GIF, as mentioned above, now has become a much more mainstream conference, and no longer just a small specialist event as in June 2008, given the fact that some of the largest pool of money in the world were represented at #GIF16 in Amsterdam. Visions of the future: Where will impact investing be in two years? According to Amit Bouri, Chief Executive Officer, The GIIN committed itself to intensify efforts to drive the issues discussed (to be further developed in my ensuing blogs 2-7, see below) to dramatically accelerate the Impact Investing growth in terms of e.g. onboarding new (traditional/conventional) investors; ensuring more effective use of blended finance; elevating the sophistication of measurement practices (see blog 5). He further concluded that along with the GIIN members, The GIIN proposes a collective action platform to advance best practices to most successful solutions and to enable the Impact Investing Industry to think and act as a cohesive market. The progress that the industry needs to make over the next 10 years needs to be multiples of what have already been accomplished through an exponential progress. While he didn’t exactly answer where the industry needs to be at 10 years from now, his plead to the assembly was that there is “No time to waste” in terms of determining the future trajectory of this Impact Investing market. His wish was that the Next GIIN in 2018 would allow the existing and new stakeholders to celebrate progress together through daily reminders of what we are all aiming to accomplish by 2030. His idealistic vision led him to summarize the underlying value: Idealistic at heart (i.e. a recognition of why we all attended the #GIF16 in Amsterdam and why we are all working within the Impact Investing industry); Pragmatic at approach (i.e. the debates and demonstrations at #GIF16 showed how thoughtful the Impact Investing industry is in terms of creating deep impact by being intentional in approaches); and Ambitious in action (i.e. time needed for pragmatic and time for urgency, we can’t afford to wait for perfectionism – what we need is more impact and more action now). With these words of motivation and encouragement most of the 800 like-minded professional delegates left this landmark event in Amsterdam almost with this vision, mission and values in mind as encapsulated by the Barack Obama slogan: “YES WE CAN” in order to phase out and eventually replace the old fossil fuel addicted dependent world with a cleaner, environmentally friendly energy system before its too late… Key features of the Global Investment Forum 2016 As promised from the promotional GIIN GIF16 brochure, attending the event did allow me to network with Impact Industry peers, learn about market trends and investment opportunities, and look for partners to collaborate on issues and strategies at the forefront of the market. I met and got business cards from participants ranging from industry leaders (e.g. Symbiotics; Rockefeller Foundation; EIB; FMO; EUNIFI, and even my former ILO Social Finance Programme colleague Dr. Jim Roth today with LeapFrog Investments, etc.) to those looking to build an impact investing practice (such as Ricardo Pinho (Mitrelli), Attique Saleem (CreditAccess) and Chaitezvi Musoni from Vakayi Capital, one of the very few Africans present at the event!). This event, especially since the industry-led (by the GIIN advisory board) GIF16 agenda covering a broad variety of impact strategies (infrastructure, private equity; debt; social impact bonds; venture capital etc.) as promised was developed through extensive industry consultation, did provide our SNIS pluri-disciplinary research preparation team an unparalleled opportunity to further develop and advance the research design of the Diaspora Impact Investing project and it allowed me to check whether our ideas were cutting-edge and relevant for the industry and not just abstract science. I left Amsterdam with the assurance that our project indeed is fully aligned with and ahead of the knowledge frontier, thereby reassuring me that the project potentially could strengthen our impact on some of the most pressing social and environmental challenges in SSA’s EMEs. Even for someone like me who have attended numerous academic conferences, NGO/CSO events, and (Inter-) Governmental events, I must admit that I was very positively surprised by the professionalism and some of the innovative state-of-the-art features of this multi-streamed event, a few of which I only recently had witnessed at the Private Sector (Business-to-Business) “Les Rencontres Africa 2016” event in Paris, such as the networking/match-making on-line service on the Forum website’’, allowing to write to or set-up meetings with other delegates beforehand and during the event in reaction to interventions heard during various sessions. Another innovative feature that impressed me the most was the distribution of Ipads on every second chair in the General Assembly Hall with the purpose of carrying out short real-time polls on the topics being discussed by the panellists. For example, one of the real-time surveys asking the delegates to express the most important ‘Impact Investing’ word, and on the screen the most important words were: Climate Change; Poverty Eradication; Education; Health and Water etc., all related to the SDGs. Unfortunately, the organizers lost a few Ipads in the process, which some delegates apparently thought that they were entitled to take with them back home. Perhaps an airport detector should be placed in front of entrance to the main assembly hall at future fora to avoid this unnecessary loss. Because you can’t be at two different places at the same time, I wasn’t able to attend the Mobilising More (MoMo) providing early stage businesses who have the intention to positively impact the natural environment, the chance to share their business case with climate change and finance experts with the aim to help them develop into international successes. MoMo was initiated by the National Committee of IuCn in Netherlands, the Netherlands Energy Center (eCn) and the Dutch Ministry of Foreign Affairs. Instead, I was able on the 2nd day to witness the award wining ceremony, where the two top businesses in the energy and food security competitions were designated based upon a vote from the attending audience. Both innovative winners proposed fantastic solutions to respectively solving the massive deforestation in Africa with a substitute to charcoal and a solution to food insecurity due to climate change induced drought via a sea weeding project. Way forward The #GIF16 did indeed offer a valuable learning opportunity both in terms of content and who was there. But because only 800 delegates, given the limited availability and prohibitive high price, benefited from this fantastic opportunity, in what follows (blogs 2-7) during the next few weeks I will share my own knowledge learning with the reader based upon my observations, learning and competences acquired at the GIIN’s GIF16 in Amsterdam in December last year by addressing the following topics discussed: Blog 2: Accelerating impact investing to the next stage; Blog 3: How the capital markets are being used to overcome global challenges; Overcoming the barriers to institutional allocations; Why invest into impact: A pension fund’s perspective. Blog 4: Implementing impact investment strategies; Developing your impact investment strategy; How the product spectrum has developed across asset classes. Evolution in microfinance: 10 years of research & practice Blog 5: Do we need an evidence base to grow the Impact Investment industry? Blog 6: COP 22 and the Sustainable Development Goals (SDGs); Developing infrastructure to support the SDGs; Blog 7: Overcoming the barriers to scale in Sub-Saharan Africa; Developing an impact investing platform within a financial institution; Extending impact investing towards the mass market. It is my hope that before I finish the last of the seven blogs, that our SNIS pre-proposal will have been pre-selected for SNIS funding and that I will have succeeded the difficult professional conversion from a multilateral DFI official to either a national DFI investment analyst / manager (such as SIFEM/Obviam or CDC Group) or one of the other organizational types Fund manager; foundation; Bank/diversified financial institution ; or why not an institutional investor given their market size! by fully entering one of the Impact Investing industry’s leading players either as an advisor/consultant or as an actor (e.g. in BlackRock Impact; Bain Capital, LP’s new unit focused on impact investing; Imprint Capital; or the new TPG’s $2 billion RISE Fund backed by all-stars on the impact billionaire circuit; or why not some of the Geneva based players such as: ResponsAbility Investment AG or Symbiotics to avoid moving to Paris or London again) thereby contributing directly to making the great #GIF16 expectations a reality within the next 5-7 years as advocated by the GIF16 organizers, after which it will have become too late. Then I would really have optimized the best value for money of attending #GIF16 in person. 7