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The idea of generating financial returns along with making an impact has seen sustainable investing assets in the world’s five biggest markets grow to $30.7 trillion at the start of 2018, a 34% increase in two years, according to the Global Sustainable Investment Alliance.
Indeed climate change and sustainability topped the agenda at meetings held between banks at the International Monetary Fund (IMF) meetings in Washington in October.
According to Investec Bank Ltd CEO Richard Wainwright, this is the first year in the seven years that he has been attending the IMF that things like green bonds were being discussed. “It is on everybody’s agenda and all senior management in banks around the world are interested in this topic and are getting ready for it.”
At Investec we have a commitment to the UN Sustainable Development Goals. In an exploration to possible solutions, we are highlighting the complexity of the issues and curating a series of expert speakers who address the role technology can play in scaling solutions. In addition to this we are showcasing innovative business and funding models that help address the social and environmental challenges in new ways.
In the second instalment of Investec’s Tech4Good event series focused on the UN’s 4th Sustainable Development Goal of “access to equitable and quality education” Focus interviewed Tine Fisker Henriksen to discuss impact investing.
Henriksen is the Innovative Finance Lead at Bertha Centre for Social Innovation and Entrepreneurship.
Tine Fisker Henriksen: A
Q: What is impact investing?
A: Impact investments intend to create positive impact beyond financial returns. They’re usually guided by four key principles:
- Intentionality: Positive social or environmental impact
- Investment with return expectations: A financial return on capital or, at minimum, a return of capital
- Range of return expectations and asset classes: Returns range from concessionary to risk-adjusted market rate, made across asset classes including fixed income, venture capital and private equity.
- Impact measurement: Commitment to measure and report social and environmental performance and progress
Q: When you talk about impact investing what does it include and what does it not include?
A: Impact investments are additional and intentional. Impact investing is therefore not Environmental, Social and Corporate Governance (ESG) and it’s also not CSI (Corporate Social Investment). However, it moves along the capital continuum and we increasingly talk about investing for impact, as that enables us to use multiple investment strategies across the risk/return continuum.
Q: What is the difference between impact investing and CSI?
A: Impact investments have return expectations; the return expectations might sometimes be concessionary, but they’re there. As such, it’s an investment strategy that covers multiple asset classes and a range of returns. Impact investments are deployed to a range of enterprises working in high impact sectors such as education, health care, energy, etc. CSI on the other hand is often grant based and deployed to NGO-type organisations.
Q: How is impact investing supporting sustainable development goals?
A: The SDGs have become an integrated part of the impact investing sector; They have become guiding principles for multiple impact investors, as they offer a good starting point for developing an investment thesis. They’re also the foundation of multiple impact measurement frameworks. As the impact investment sector grows – it’s currently valued to about USD502 billion by the Global Impact Investing Network - so does investments into the SDGs.
Q: In which sectors are you seeing the most successful impact investment projects?
A: The most usual sectors are education, financial inclusion, energy, healthcare, etc. Sectors which are high impact. At the moment, the majority of impact investing globally is going into climate finance, circular economy, green economy, and so on. That’s not necessarily mirrored in South Africa where a significant focus is on reducing inequality, poverty, and unemployment.
Q: How big is impact investing in South Africa?
A: It’s always difficult to estimate, but we’ve been publishing the African Investing for Impact Barometer annually for the past five years. It relies on self-reported data of five investing for impact strategies (ESG integration, investor engagement, screening, sustainability-themed investments, and impact investments) from institutional and retail investors. Out of 1208 funds surveyed in 2017, 57 were impact investment funds (South Africa) with $17.6bn invested (Southern Africa).
We recently hosted the second Impact Investment Forum in partnership with the President’s SA Investment Conference. It was clear that a sense of urgency has developed over the past year since we hosted the first Forum.
The 200 delegates from across the financial system agreed that creating positive social and environmental impact is no longer someone else’s problem. Increasingly, delegates are taking ownership within their own spheres to address the impact finance gap.
It was highlighted at the Forum that the recent protests in Chile are a wake-up call considering their GINI coefficient – a measure of economic inequality - is 0.42 and South Africa’s is one of the worst in the world at 0.63.
The National Taskforce for Impact Investing (IISA), which the Bertha Centre is the secretariat for, will be hosting the GSG Impact Summit in Johannesburg in September 2020. The Summit will be the largest impact investing gathering on the continent to date; as such, it provides a line in the sand for us as a market to work towards. It gives us an opportunity to showcase ourselves as a global market leader in impact investing on our home turf.
Q: As a high-net-worth (HNW) individual, what should one be looking for when considering impact investing options?
A: There are multiple ways of engaging as an HNW with impact investing; one is of course engaging directly with your asset manager around where your mainstream assets are invested - increasingly there are options for high impact mainstream investment opportunities.
If your manager doesn’t have an immediate impact investing option at hand, keep asking, keep requesting opportunities – that’s also how the market evolves. As impact investing has not become completely mainstream yet, you might have to look for pockets of expertise outside of your day-to-day manager. These exist in South Africa as well as globally.
Also, there are courses and networks designed just for you as a HNW wanting to engage with impact investing; these include PYMWYMIC, TONIIC, the Centre for Sustainable Finance and Private Wealth at the University of Zurich and of course the Bertha Centre.
Separate to mainstream investment opportunities, there are multiple ways of investing directly. in high impact early-stage ventures working to make South Africa more inclusive and sustainable. There is a need for HNWs to invest locally in South Africa’s socio-economic development. However, this is of course more time consuming and requires a different type of capital.
Impact investing in education
Q: How big is impact investing in education?
A: Impact investors sometimes struggle to invest in education as the returns are not always straightforward. That’s why we often need to dive into the Innovative Finance Toolbox when it comes to education.
The Bertha Centre’s Innovative Finance in Africa Review defines innovative finance as follows: “Innovative finance is an approach to funding enterprises/ interventions that create positive social and environmental impact. It looks to use all available financial and philanthropic tools to support the growth of these enterprises.” Innovative finance is different from impact investing as it also covers outcomes-based funding, etc.
Q: How important are public-private partnerships (PPS) when it comes to investing in education?
A: PPPs are essential when it comes to impact investing and innovative finance for education. One of the best examples in South Africa is the Impact Bond Innovation Fund (IBIF), a Social Impact Bond for Early Childhood Development in the Western Cape. IBIF is a partnership between the Western Cape Department for Social Development, banks, academia, NGOs, etc.
A social impact bond typically involves an agreement between a government and service providers, such as social enterprises or non-profit organisations, and investors, to pay for the delivery of pre-defined social outcomes.
Socially-motivated investors shoulder the risk knowing that repayment is dependent upon the meeting of agreed targets. The IBIF is projected to reach 2 000 children through home visits over a three-year period.
The roll out of the project will be carefully monitored. The instrument
will produce data that governments can scrutinise to develop contracting and performance management insights - learnings that should benefit the rest of the ECD portfolio and other critical social services.
Q: What are some of the innovative models that can be used for impact investing in education?
A: Globally, declining aid to support basic education services for all children and adults has increased the funding gap from USD 16 billion to USD 26 billion. The diminished ability of the public sector to meet growing demand means the market for private education will grow even faster than the projected double-digit growth of the sector.
Some of the core investment opportunities could include:
- Student finance (particularly for low income students)
- Affordable private schools
- School in a box” technologies
- Other teaching and learning options as well as monitoring outcomes
Q: What impact innovations are we seeing in education?
A: Some of the existing impact investments that we’ve seen in education in South Africa include Prodigy Finance, which provides borderless postgraduate student loans to international students to attend a top school.
The company has disbursed over US$190 million in loans to over 5,500 students from 115 countries. Investors include alumni, impact investors, and other entities that have a commitment to supporting students completing their postgraduate studies while still earning a financial return.
At the other end of the spectrum, one of the exciting innovations actually came out of the UCT Student Seed Fund and has since been celebrated as one of South Africa’s leading social entreprises; ChemStart is a product of Nkazimulo Applied Sciences, a company founded by creator Bathabile Mpofu.
It is packed with hands-on chemistry and applied science experiments that learners can use to enhance their understanding of the high school science syllabus. It gives students an opportunity to learn science when their school doesn’t have access to a science lab.
In order to support innovators like Bathabile, we need more innovative finance such as venture philanthropy and revenue-based participations for early-stage entrepreneurs.
We need investors that are willing to look at alternative credit scoring made a lot easier by tech innovations, and we need more blended finance where private and public sector team up to fund good outcomes.
About the author
Digital content specialist
Lenyaro is a key member of Investec's Global Content team, based in Johannesburg, who focuses on relevant and topical issues for internal and external audiences including clients. She is a well-travelled multi-skilled multimedia journalist who previously held roles within eNews Channel Africa (eNCA) and Eyewitness News (EWN).