Geoff Burnand featured in Financial Times Adviser

IFG Head of Partnerships Geoff Burnand featured in FT Adviser on how the social bond market growth presents both risk (a race to the bottom on impact or greenwashing) and opportunity (a chance for investors to differentiate themselves in the market through investing into bonds issued by non-traditional impact drivers such as INGOs or via sustainability linked bonds).

As Geoff explains: "Impact covenants can be negotiated directly between the investor and the borrower, and it is also possible to create a time-bound link through the coupon to the borrower’s social impact. These developments add an impact focus to the traditional construct of a bond and align the interests of social purpose organisations and mainstream capital"

For the full article see: https://www.ftadviser.com/investments/2023/08/10/dramatic-rise-in-esg-bond-issuance-attracts-scrutiny-on-sustainability/

GIIN Conference 2022 - Rounding up the round ups

Attending the first major impact investing Conference since the pandemic, we came away energised by the conversations and what we see as the great, yet mostly still untapped potential for innovative finance. This was the first true gathering of impact investors at scale.1,500 attended.

Having spent most of our time at the water cooler rather than in the plenaries, breakouts and other sessions, we nonetheless wanted to learn from others what key developments in the broader impact investing field were reported by leaders in the sector.

Here follow a dozen or so key takeaways from the round up of reports, augmented by a few of our observations:

• From a systems change perspective, climate and gender/diversity lenses should be integrated in every investment.
• It is insufficient to decarbonising an investment portfolio, rather we need to articulate the ESG business case for corporates to transform their value chains and create broader decarbonisation in the economy.
• Big blind spot is the tension between the E & S in ESG. Large unemployment rate that the transition to a greener economy will generate. Apart from investing in green infra and tech, need to re-skill the workforce.
• The megatrends attracting the source of capital at scale, being health, education, climate. Another sector piquing investors’ interest is food systems investing – such as alternative proteins. There’s a growing belief that the way we produce and consume food needs deep innovation to fight climate change.
• It’s often been assumed that impact-linked would become the norm among all impact fund managers but it is meeting some resistance linked to reasons of perception and challenges in implementing.
• Ownership models including employee ownership initiatives, which grant company share options to portfolio companies’ employees, have several impacts for the company and the workforce It is “a meaningful economic incentive” for employees’ performance;
• Funds which employee ownership initiatives are increasingly favoured by investors as “a meaningful economic incentive” for performance and to align incentives The Ford Foundation is seeking fund managers that are “25 percent diverse-owned”
• Said carbon markets currently present authenticity and reliability issues, such as the permanence of carbon removal. Both investors have set net-zero 2050 targets
• Public market funds are claiming to deliver impact, albeit this risks adding to the existing confusion around terms such as sustainable investing, socially responsible investing and ESG. There is a determination to make sure impact in public equity helps reinforce the notion of impact investing, rather than abandons its core principles. The GIIN foresees great growth in this market, alongside fixed income.
• Corporate interest in investing for impact is ripe to take off and GIIN and others are looking to highlight the growth of the space via deployment of corporate venture funds, treasury assets and other means.
• Emerging market fund managers are proving they’re possible in markets many mainstream investors deem too risky.
• Critical gaps in the impact ecosystem remain, including small business financing in emerging markets, climate adaptation, and women-led funds.
• Climate has become the key impact focus area for institutional investors.
• Disagreement on notions of impact linked carry - a ‘must-have’ for some impact investing funds, for others too problematic to implement.
• Building impact talent across an institution is essential to deploy large amounts of capital effectively.
• Other sustainability areas such as biodiversity and regeneration need more attention than they have received to date. Regeneration may be the buzzword of the conference.
• Our sector has not yet developed the targets for maintaining long-term biodiversity goals.
• Impact management continues to evolve. The chatter among many attendees included the impending arrival of the EU SFRD Article 10 and its burdensome reporting requirements.
• Some asset owners suggest giving up altogether the use of market-rate, risk-adjusted benchmarks for making decisions about their impact portfolios.

The Equality Impact Investing (EII) Project

Investing for Good is taking part in the inaugural Leading Equality Impact Investing course this month. This is based on the Equality Impact Investing (EII) project, which aims to explore and advance ways to increase the positive equality impact of impact investing. Supported by Social Investment Business and Connect Fund, the report outlines the multidimensional and intersectional nature of inequality and makes recommendations on equality impact investing principles, strategies and practices to advance equality and human rights. The report brings together partners and collaborators from both impact investing and equality and human rights.

The report defines equality impacting investing, what it implies and involves, both in theory and in practice, and what conditions help it to flourish. It also assesses the extent that these conditions exist, and the equality approaches being used in UK social investment. In particular it assesses how social purpose organisations are realising benefits from adopting an equality focus. Finally the report makes recommendations on how conditions for a flourishing equality impact investing market could be advanced, and how the sector could be better engaged.

Read the full report here.

Investing for Good to work with North Devon UNESCO Biosphere

Investing for Good is working with North Devon UNESCO Biosphere to promote green growth and investment in the area while raising well-being for local communities through nature based solutions.

The North Devon UNESCO Biosphere’s CRF programme has two linked elements - the Green Biosphere, focused on woodland, regenerative agriculture and agritech; and the Blue Biosphere focused on offshore wind, aquaculture. marine biodiversity and ‘blue carbon’. Both elements have strong skills development and job creation elements as well as plans to redirect private investment into the area.

The programme will offer solutions for economic development and raising wellbeing for local communities through innovation projects in nature – on land and at sea.

Investing for Good will support North Devon UNESCO Biosphere's ambitions to raise £50 million of private sector investment into the environment and potentially create up to 1300 new jobs by 2026.

The North Devon UNESCO Biosphere is a UNESCO protected area because of its unique ecosystem. It is one of 730 Biospheres globally, that together cover 5% of the earth’s surface and are home to ¼ billion people. The Biosphere Foundation is the non-profit trading arm of the Biosphere focused on testing and proving new nature-based economic models and then scaling them regionally, nationally and even internationally

Impact-Linked Finance Report: Does Incentivising Impact Work?

Click here to view the report.

Background

This study was commissioned by Esmée Fairbairn Foundation with a view to understanding more about impact-linked finance globally and exploring its implementation in the UK social/impact investment market. The key market-builder Roots of Impact, has created the following definition for impact-linked finance – ‘the linking of financial rewards for market-based organisations to the achievements of positive social outcomes.’ They underline three key design principles: i) incentives go to the value creator; ii) a focus on outcomes (rather than outputs); and iii) impact additionality meaning that the financial rewards should drive the organisations to deliver additional outcomes that would not have happened without these. Roots of Impact has primarily envisaged impact-linked finance as a subset of blended finance and for use in that context, where it can achieve both impact and financial additionality. This study has an investor focus, although it is recognised that a next step would be to develop more understanding of the demand from investees for this tool. The research consisted of a global review complemented by a UK review with qualitative interviews and a UK investor survey.

Illustrative examples of impact-linked finance transactions by complexity

Click here to view the report.

Scaling Impact Investing – An Outsider’s Perspective

“Can we ever scale impact investing?”

This is a question that the impact investing community is all too familiar with, but one that I only confronted in the past year. I joined Investing For Good (IFG) as a part-time intern in February 2020, a month before COVID-19 took hold.

My background was in brain sciences. Without any knowledge of finance, I learned everything from scratch – from basic things like the distinction between a bond and a loan, to more niche concepts like blended finance. I also picked up on the impact investing language, like ‘SIFI’, which stands for Social Investment Finance Intermediaries, or ‘SIB’, which is short for Social Impact Bond. Of course, I now know SIB isn’t actually a bond, but a form of pay-for-success contract that shifts the risk of public service delivery onto private investors.

What I was most surprised to learn was perhaps how impact investing – as with my understanding of it – is still in its infancy. Even though the practice of socially responsible investing dates back hundreds of years [1], the term “impact investing” was only coined in 2007 at a Rockefeller Foundation forum [2]. With the term, came greater clarity and consensus around how best to practice impact investing [3]. The sector is also coming up with ever more innovative social finance models that ultimately aims to solve the problem of ‘scale’, or of attracting larger scale private capital [4].

My main role at IFG has been to research these innovative models. A few models, like SIBs, have made headway but are still largely being driven by public institutions or impact-first investors [5]. Others such as sustainability linked loans (or bonds) are more controversial, because while they are gaining popularity among mainstream investors [6], the impact targets are often modest [7]. In short, no model has scaled both the impact and the investment component of impact investing.

Why scaling impact investing is tricky

It is arguably a wicked problem. At its root, the problem stems from what our economic system does or does not put a price tag on (e.g. the price of a T-shirt may include raw materials and labour, but not costs to the environment or the workers’ wellbeing). The additional costs or benefits that stem from the production or consumption of goods/services, but that are not captured by the price, are called externalities. The difficulty is that even if we all suddenly agree to include all positive and negative externalities in the calculation of the so-called investment ‘return’, this cannot happen overnight, because the challenge of effectively quantifying impact (and standardising this) is another ‘beast’ in and of itself [8].

Impact investing is an important concept and tool in which some of this failure could be overcome by considering social return alongside financial return. However, there are challenges also at the implementation level, because impact investing deals often have markedly different requirements and characteristics compared to traditional finance-oriented investments.

By its very nature, impact investing deals involve lending money to organisations that do not seek to maximise profit. So from the investee’s perspective, the capital needs to be more ‘patient’ and risk-bearing [9]. Yet from the investor’s perspective, the risk-reward tradeoff often cannot compete with mainstream investment; the lack of a secondary market also means most investments are effectively illiquid. Impact investing deals also tend to be small in size with more complex needs, so they are more expensive to set up and manage than traditional investments [10]. The conundrum faced by an intermediary like IFG is therefore how to meet the idiosyncratic needs of a particular deal, while keeping the contract ‘lean’ and low-cost. Standardisation could help to some extent, but it takes time to develop the appropriate model.

An example: Quasi-equity model

Despite the non-trivial challenges, various ideas and solutions have been proposed. For example, quasi-equity models have emerged as an interesting candidate for providing more patient capital to investees [11]. It is so termed because it reflects characteristics of both debt and equity instruments, where a typical arrangement allows the investor to take a fixed percentage of the organisation’s future revenue or cash flow.

Aside from grants, social purpose organisations are most familiar with debt funding (e.g. a fixed rate loan) [9]. But debt is only suitable for a relatively mature organisation that is able to generate stable income. A quasi-equity instrument is more ‘patient’ than debt because the organisation does not need to repay until it is generating revenue, and its cash flow is also protected during economic downturns.

However, the quasi-equity model faces an interesting paradox. From the investee’s perspective, if they can confidently predict their revenue, taking a conventional fixed rate loan will most likely be cheaper. So it could be those that privately believe their future revenue streams will be disappointing that accept any quasi-equity deal; while those that are confident about their revenue streams would not. This is known as the adverse selection problem [12].

From the investor’s perspective, quasi-equity models are also riskier when used in the non-profit context, because unlike investing in a for-profit company, outstanding loans cannot be converted into equity (e.g. an NGO cannot issue shares due to its legal structure).

Importantly, the above critiques remain assumptions until tested. As of 2016, quasi-equity deals represent just 0.8-1.4% of all social investments [13]. There is insufficient empirical evidence to say if the adverse selection problem arises in practice, or if investees perceive the downside protection of the quasi-equity model to outweigh its costs.

Time and willingness to experiment

So perhaps what the sector needs most is time, and lots of, lots of data. Indeed, the quasi-equity model represents just one example of how, very often, the critiques and praises for a social finance model only exist at the theoretical level.

Even for the supposedly well-established SIB, there is still insufficient evidence to conclude that they produce cashable savings [14]. To highlight the immaturity of SIBs – the world’s first ever SIB was only commissioned in 2011. Its goal was to reduce reoffending by short-term prisoners in Peterborough, its final evaluation was published as recently as 2017 [15]. In this case, the reoffending rate was cut by 9% compared to a national control group (above the target rate of 7.5%).

Proponents of SIB may argue such programmes can be deemed a success as the model shifts the risk of failure onto private investors and encourages innovation in service delivery. While this is conceptually true, we still need to examine far more data to reach conclusions about SIBs. It is also unclear how much of its success can be attributed to the use of SIB – would the reoffending rate have fallen with a direct grant of equivalent magnitude? We simply cannot know this until we have data from many more similar deals.

Luckily, it is clear even just from my brief encounter with the sector that its participants are not afraid to experiment. Only last year Esmeé Fairbairn Foundation structured its first perpetual bond [16] – something of a rarity even among mainstream investments. This is a form of permanent capital with no fixed date of repayment. When done right, it is truly permanent – rumour has it, there is a 370 year old Dutch perpetual bond that is still paying interest to this date [17].

The growth of impact investing as a sector could be accelerated by once-in-a-century event like the COVID-19 pandemic, which acts as a magnifying glass for the inequalities built into our system [18] and a reminder that we needn’t take the old ways of doing things for granted [19]. If nothing else, COVID-19 has highlighted a greater need for impact investing [20] and how considering financial returns in isolation falls short for capturing the diversity of outcomes we value as a society.

Mandy Ho

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References

1. An often cited example is the Quakers and Methodists in the 18th century.
2. Harji, K., & Jackson, E. T. (2012). Accelerating impact: Achievements, challenges and what's next in building the impact investing industry. The Rockefeller Foundation.
3. Höchstädter, A., & Scheck, B. (2015), What’s in a Name: An Analysis of Impact Investing Understandings by Academics and Practitioners, Journal of Business Ethics, 132, (2), 449-475
4. The Rockefeller Foundation has a Zero Gap Fund dedicated to developing ‘innovative financial solutions that demonstrate the potential to catalyze large-scale private investment towards the Sustainable Development Goals (SDGs)’. https://www.rockefellerfoundation.org/initiative/zero-gap-fund/
5. Data from Government Outcomes Lab Project Database: https://golab.bsg.ox.ac.uk/knowledge-bank/project-database/; also see Gustafsson-Wright, E., Boggild-Jones, I., Segell, D., & Durland, J. (2017) Impact Bonds in Developing Countries: Early Learnings from the Field. Brookings Institute & Convergence.
6. Linklaters (2019) Sustainable Finance: The rise of green loans and sustainability linked lending. https://www.linklaters.com/en/insights/thought-leadership/sustainable-finance/the-rise-of-green-loans-and-sustainability-linked-lending
7. A notable example is the Enel sustainability-linked bond. Enel is an Italian energy company that issued a series of bonds in 2019, whereby a penalty (coupon step-up) would be issued if they missed their sustainability target. Specifically, Enel set out to increase their renewable energy capacity to 55% (of their total capacity) by the end of 2021. However, this target is far from ambitious because as early as November 2018, Enel already predicted 62% of their energy production will be emission-free in 2021. https://www.enel.com/content/dam/enel-common/press/en/2018-November/Enel%20Piano%20Strategico%202019-2021%20ENG%202.pdf
8. As soon as you try to quantify something qualitative, like social impact, you quickly run into the problem of “comparing apples to oranges”. Luckily, not all hope is lost: https://ssir.org/articles/entry/next_frontier_in_social_impact_measurement
9. Brown, D., & Fogg, D. (2020) Beyond Demand: The social sector’s need for patient, risk-bearing capital. Esmeé Fairbairn Foundation & Shift.
10. Many challenges with impact investing are highlighted in GIIN’s Annual Impact Investor Report (2020): https://thegiin.org/research/publication/impinv-survey-2020
11. Santa Clara University (2013) Demand Dividend: Creating Reliable Returns in Impact Investing. https://thegiin.org/assets/Santa%20Clara%20U_Demand-Dividend-Description.pdf
12. Cheng, P. (2008) Quasi-Equity: A Venturesome Case Study Using Revenue Participation Agreements. Charities Aid Foundation.
13. Flloyd, D. (2017) Social Shares: Risk finance for social enterprises and charities. Flip Finance & Access Foundation. http://access-socialinvestment.org.uk/wp-content/uploads/2017/02/Risk-Finance-slide-report.pdf
14. For a summary of the report by the London School of Hygiene & Tropical Medicine: https://www.lshtm.ac.uk/newsevents/news/2018/social-impact-bonds-have-role-are-no-panacea-public-service-reform
15. The background, method and the results of the Peterborough SIB can be found here: https://www.gov.uk/government/publications/final-results-for-cohort-2-of-the-social-impact-bond-payment-by-results-pilot-at-hmp-peterborough
16. Smith, B. (2020) Perpetual Bonds: An answer to equity-like social investments? Esmée Fairbairn Foundation.
17. Rumour has it… https://news.yale.edu/2015/09/22/living-artifact-dutch-golden-age-yale-s-367-year-old-water-bond-still-pays-interest
18. Many articles have been written on this topic. For example: https://www.weforum.org/agenda/2020/08/5-things-covid-19-has-taught-us-about-inequality/
19. For example: https://www.bbc.co.uk/programmes/articles/1tGpw4fG1PrfjN7Glvg2y1y/why-we-need-to-rethink-just-about-everything
20. Bass, R. (2020) The Impact Investing Market in the COVID-19 Context: An Overview. GIIN.

Reflections on the future of the ESG and Impact Investment space

**Robert Hughes-Penney, Director, Rathbones**

This month marks the end of my four-year tenure on the board of Investing for Good. Founded in 2004, Investing for Good has a mission to grow the pool of investment capital that is mobilised for social purpose, resulting in measurable benefits for society. My departure seems like an appropriate time to reflect on the recent evolution of this investment space and look ahead to its future in light of the global pandemic.

What is Impact Investment and ESG?

Impact investment is geared towards mobilising capital on the calculated assessment that it will deliver direct impact to a specific cause or community. Most investments are small-scale, in private-markets, and can cover an array of asset classes, including infrastructure and private debt, making for highly varied portfolios. In terms of its market size, the IFC claimed in their 2020 ‘Growing Impact’ report that 887 funds worldwide subscribe to the IFC’s impact criteria of intent, contribution and measurement and had $505 billion of assets under management (AUM) in 2019. A more generous reading, incorporating the 891 funds without a robust measurement system takes this figure to $2 trillion AUM. Closely related is ESG (environmental, social and governance) investment which also emphasises sustainable solutions, however there are two fundamental divergences from impact investment. The first is lower intentionality and evaluation precision, and the second is that financial return drives social impact, not vice versa. Partners Capital report that approximately 13% of global invested assets (which are worth $270 trillion) are now in ESG.

How has Impact Investment and ESG investment grown in the last four years?

Impact investment and ESG investment have grown rampantly in the last four years. According to Investing for Good, the impact investing market size has doubled in two years, while capital inflows into the ESG market have increased by 14% a year for the last four years. Much of this growth, particularly that of ESG, has come from an increasing recognition that environmental, social and governance considerations are no longer considered a minority concern, but are simply best practice. The issues at the receiving end of invested capital, such as climate protection, infrastructure, and national health drive economies in the first place, and their security is intimately tied to holistic portfolio performance. In the same way, subscription to ESG investment means firms avoid the risk of severe regulatory penalty and the threat to stock market valuation of shareholder, investor, and employee exile. These costs were all incurred by both Boohoo and Volkswagen following their respective supply chain and carbon emissions scandals and will continue to be administered if firms dismiss their contribution towards the achievement of the UN Sustainable Development goals. Therefore, it certainly cannot be said anymore that ESG is a case of trading value for values.

On the impact side, we have witnessed the emerging phenomenon of impact-adjusted returns – a proposed reform to accounting standards which many experts in social finance expect will become more authoritative in the years to come. This year, Harvard Business School ran the Impact-Weighted Accounts Project which assessed corporate environmental impact using technology and big data. Strikingly, it found that of the 1,694 companies assessed, 15% would see all profit more than wiped out by the environmental damage they have caused. The turn to this alternative, rigorous form of portfolio assessment is a pattern corroborated by my old colleagues at Investing for Good, who attest to higher recent demand for their consultancy in proving impact to stakeholders.

Growth of impact investment may also be reflected in the boom of green bonds. One of the fastest-growing markets, green bond issuance has grown rapidly over the past four years and is still forecast to hit $175bn-$222bn for 2020 despite the incidence of Covid-19. These investments are perhaps the most attractive and best-suited to an impact-adjusted returns standard because their impact can be dependably and independently verified and empirically compared to other investments of the same class. In fact, Sir Roger Gifford, the Past Lord Mayor and Chair of the Green Finance Institute, goes as far as to say that “green bonds are the best example of impact investment”. Further than just producing a perceptible, quantifiable impact, green bonds also tend to offer competitive yields. The World Bank green bond yield, for instance, is the same as other issued non-green bond yields, and has thus far been unaffected by the recent high demand.

The impact of Covid-19

As impact investing primarily occurs in private markets, assets managed for impact have escaped significant impact from the Covid-19 pandemic. For the likes of Investing for Good, structuring work has occurred as before, but there are fewer grants available to clients in developing countries. However, in terms of sector trajectory, the onset of Covid-19 has arguably attracted greater interest in impact investing and ESG than ever before. Covid-19 has reminded us that both our domestic and global economies are highly complex and interconnected, shaking our habits and our narrow lenses. It has proven that matters of sustainability like human health are inextricably linked with our financial system. As a result, we are surely wise to take a more holistic approach to investment than we did pre-crisis, allocating capital based on an accounting of the entire operations of a firm.

David Blood, Generation Investment Management (former Goldman Sachs CEO of Asset Management): “Impact can no longer be an externality in investment”.

Sir Roger Gifford, Past Lord Mayor and Chair of the Green Finance Institute: “we are receiving new understanding of the triangulation of finance, science and society”.

Indeed, recent findings from J.P. Morgan Chase suggest that 71% of polled top global investors believe the incidence of a high impact, low probability event like Covid-19 will heighten awareness and feed efforts in finance to address similar threats with a higher probability, like climate change, especially in a time when the public sector is shackled by immense debt and reflation challenges. However, it is feasible that the catalysing effect on impact or ESG investing will not be realised for a few years yet. The financial sector will first have to deal with major economic disruption, risk-averse investors, and the fast rebalancing of portfolios in the short-term, which may jeopardise some impact investments.

How Covid-19 might affect the emphases of E/S/G In normal circumstances, social bonds are traditionally one of the least prominent investment vehicles because of the difficulty of accurately comparing performance across different investments of the same class, and for their relative illiquidity compared to the green bond market. Nevertheless, in 2019, there was a 61% increase in social bond issuance from the year before; a trend that Covid-19 has only accentuated with matters of public health, social security, and social housing sitting high on political and investment agendas, and more salient in the consciousness of the wider citizenry, who care more now than ever about where their pensions are being spent. The outworking of this is already manifest – on the 21st October, the EU issued an inaugural €17bn social bond under the EU SURE instrument (Support to mitigate Unemployment Risks in an Emergency) which was met by a monumental €233bn of investor demand – the largest supranational transaction ever launched.

Alex Jarman, Head of Investment Advisory, Investing for Good: “The social component of ESG investing is still the laggard, but is gaining greater prominence”.

Considerations of governance have also received more emphasis during the pandemic. Whilst transparent governance structures are integral to effective business practice in any period, Covid-19 has crystallised the reputational significance of upholding high standards of protection for workers and stakeholders, and the ability to demonstrate stability and ongoing viability to investors amidst turbulent conditions.

The effect on environmental considerations is perhaps a little more complicated to discern. The green bond market suffered sharply in the first quarter, brought on by economic uncertainty and the subversion of environmental debate to international health, and it also endured a muted second quarter. Nevertheless, demand for these instruments, along with red and blue bonds, have rallied to a comparably healthy rate to last year. In a similar fashion to the social considerations, it appears likely that instead of slowing the environmental charge, the pandemic will instead push the reality of crises deeper into the public conscience. The steady stream of trillions that investors are willing to contribute to the decarbonisation effort show no signs of tailing off and I call on all those that have influence over allocation of capital to consider how their future decisions and actions might consider environmental, social and governance factors and be more impactful for the greater good.

Looking back on my time at Investing for Good

In October 2018, I joined the Investing for Good team as a flexible intern. Since returning from Kenya, I had nurtured a curiosity in the field of impact investing and was eager to develop further understanding of the sector, alongside my studies at King’s College London. This blog is therefore a brief account of how the twinned experience of my MSc in Entrepreneurship and Innovation and my experience at Investing for Good has sewn a deep interest in impact investing, social entrepreneurship and inclusive business.

Investing for Good is at the forefront of industry thought and development, and I enjoyed assisting on a range of projects. My principal responsibility at Investing for Good was to help build a Partnership Programme. By leveraging their FCA status, Investing for Good could offer appointed representative (AR) status to those companies and individuals who embedded social value in their business model. In addition to providing some practical business development experience, I had the perfect excuse to get to grips with the UK social impact ecosystem through market analysis.

The dynamism between my work at Investing for Good and my MSc studies was particularly satisfying and I began to notice a natural trend where one would influence the other. Using applied learning from my business strategy course, I could identify and build business models suitable for the BOP. I designed a social enterprise for rural honey in Ethiopia using a cross-subsidisation model and my appreciation for microfinance developed into an interest in inclusive and sustainable business. Investing for Good’s global perspective and ability to structure and advise on impact projects in developing countries may have also influenced my decision to undertake additional modules in African Development and to write a dissertation highlighting the importance of entrepreneurship development to state fragility.

Yet what I find particularly exciting, is the industry’s continued ability to converge established practices, such as philanthropy and commercial business, into a space which fosters social innovation. Blended finance is a powerful reminder of this synergy. By the strategic use of public development capital for the mobilisation of private commercial finance, blended finance improves the viability of SDG investments and improves the risk-return profile. It’s a catalytic instrument that I intend to explore further after my internship.

I have been extremely fortunate with my internship at Investing for Good. Not only have I been able to explore an industry which is exciting, tangible, human-centric and forward thinking; it has given me a fantastic platform to launch a career with meaning and impact (two highly illusive concepts for any graduate).

Angus Spratling

When the arts make a difference

“Governments come and go but, when it concerns culture, there is one thing that all political parties agree on: that the arts are good for us”, writes Ivan Hewett in an article in The Telegraph [1]. Even Theresa May and EU Chief Negotiator Michel Barnier should agree on this.

The arts and culture have a broad appeal that render them powerful means to tackle social issues, or to support vulnerable individuals. Arts therapies, for example, have grown over recent years into a credible method to improve mental health.

Illustration: David Shrigley, Arts Council England’s website

The arts as a means to support disadvantaged groups

Music and Memory, relying on a collaboration with Grammy winning musicians, uses music to provide alternative healing treatments that allow those with dementia, Alzheimer’s and other cognitive and physical challenges to reconnect with the world through music.

Despite the enormous sums of money spent on mood and behaviour-altering medications that are often not particularly effective, nothing compares to these iPods when it comes to improving quality of life.”
— Tony Lewis, President and CEO, Cobble Hill Health Care, Brooklyn, New York

The University of Edinburgh and Limelight Music also explored how music could help disadvantaged groups, focusing on people with physical or cognitive impairments. The project, Music as Social Innovation, seeks to capture any social benefits that musical participation might engender.

Life for elderly people in the UK seems more dynamic since EASOP - Arts Enterprise with a Social Purpose – was founded. The programme they launched, Dance to Health, aims at preventing falls among older people whilst giving them the opportunity to have fun.

Dance to Health Programme, EASOP

Motion, part of last October’s National Theatre of Scotland’s Futureproof festival, is a theatre company unlike any other. All members of the cast are offenders serving a sentence, and the audience was guided through locked doors by prison officers to the performance space. Theatre behind bars can transform lives, not only for the time of the sentence, but also as part of people’s rehabilitation when they leave.

One Festival of Homeless Arts brings together works of art that have been created by artists who have experienced homelessness.

Elsewhere, arts and cultural interventions have been often used to support peace-building, helping communities to deal with the sources of trauma and bring about reconciliation: from participatory theatre initiatives in DRC, to drama in Yemen, or Peace Songs in Nepal[2].

When diversity is core to the project

“Publicly funded art is still dominated by a privileged elite who fail to engage the majority of the population. The majority of artistic directors, producers and chief executives in British theatre are still white, privately educated men. (…) Just like the conversation around ethnic diversity, we are often talked about rather than talked to.” This is the provocative picture of the arts, especially the publicly funded one, painted by Javaad Alipoor on The Guardian in June[3], advocating for the need to “fundamentally change the makeup of who is creating and watching work”.

If some initiatives target specifically communities from disadvantaged backgrounds, or groups in need, should we not consider the unequal access to artistic and cultural institutions as one of the main limits of the arts in tackling inequalities and social challenges?

·       Inequalities in creating in the arts

Women artists, and artists from black, Asian and ethnic minority backgrounds, are still significantly underrepresented in the main artistic and cultural institutions. Of the 663 arts organisations in the national portfolio of Arts Council England (ACE), only 8% of chief executives, 10% of artistic directors and 10% of chairs come from black and ethnic minority backgrounds. The ACE also claims that the sector faces a “major challenge” around disabled representation[4] ; and there is no disability data for nearly half the NPO workforce, making it “extremely difficult” to draw accurate conclusions in this area.

·       Inequalities in watching the arts

Around 80% of white adults engaged with the arts in 2014, compared with 68% from black and minority ethnic groups, according to a survey, Taking Part. Engaging with the arts can be very diverse however, and these figures do not convey the low participation of BAME population in some of the most elite forms of arts.

·       Towards a better representation of disadvantaged minorities

“Theatre companies must diversify or risk losing funding” announced the ACE, that takes this issue very seriously. The ACE has launched the “Creative Case for Diversity”: funded organisations are expected to show how they contribute to diversity through the work they produce, present and collect.

“Arts should do more to embrace diversity. It is crucial to the way in which society and the arts connect.” Sir Nicholas Serota, Chair of Arts Council England, former Director of Tate galleries.

INALA Show, Sisters Grimm. Photo by: Tristam Kenton

Among other examples of how subsidised cultural institutions are active in this field: The Royal Opera House, Opera North and London’s Lyric Hammersmith launched in 2017 a workshop week for black, Asian and minority ethnic artists interested in opera.

In non-subsidised cultural institutions, progress is being achieved as well in terms of diversity and inclusion. Investing for Good has worked with Sisters Grimm, creators of the Grammy nominated show INALA, who are developing a new show to celebrate the Zulu culture. This company is launching a “schools outreach programme”, aimed at offering children from disadvantaged backgrounds the opportunity to see an inspiring show in a theatre, and to learn more about careers in the arts.

The role of impact investing

The Arts and culture sector accounted for less than 0.5% of the impact investing market in 2015, according to a survey co-published in 2015 by the Global Impact Investing Network (GIIN) and J.P Morgan. We believe that the sector, and particularly artistic initiatives tackling pressing social issues, will attract more attention from impact investors.

Investing for Good is committed to fill the gap in the impact investing sector for investible opportunities. We are working alongside Arts Council England, the Mayor of London and Outset Contemporary Art Fund to design the Creative Land Trust, which will provide secure and affordable studio space to creatives in need. 

[1]: https://www.telegraph.co.uk/art/what-to-see/how-weve-got-it-wrong-about-the-arts/

[2] See “The Value of Culture in Peacebuilding -- Examples from Democratic Republic of Congo, Yemen and Nepal”, Master thesis, Dorota Piotrowska, CUNY City College, 2016.

[3] https://www.theguardian.com/stage/2018/jun/05/arts-working-class-people-britain-theatre

[4] https://www.thestage.co.uk/news/2018/bame-disabled-staff-still-significantly-underrepresented-theatre-arts-council-report/

Gender Lens Investing: A smart lens, but where is the focus?

Whether it’s labelled “gender lens investing” (GLI) or “gender smart investing”, there is increasing recognition of the need to incorporate gender factors into investment analysis and decisions. Why is this? Some will argue on economic grounds that women’s participation in the workforce and leadership provide underexploited opportunities for innovation and growth (McKinsey), are linked to greater productivity and return in companies (MSCI) and bring opportunities for better customer insights – for example, in the consumer goods industry where 70-80% of purchasing decisions are made by women. Others will remind us that gender equality is vital to the achievement of the 2030 Sustainable Development Goals – and that there’s still a long way to go.

However, there are still many uncertainties around what gender factors are exactly and what issues they should cover. In the international development world, the focus is more on Women’s Economic Empowerment (WEE), from their access to resources to their ability to make economic decisions, whereas in the private sector much of the conversation focuses on corporate activities related to diversity and inclusion; for example, the representation of women on board and the gender pay gap.

There are also various ways in which GLI can be implemented – from integration of gender considerations into ESG analysis to a more hands-on approach to address gender disparities.

The thoughtful investor and the hands-on investor

Increasingly, gender dynamics are integrated into ESG analysis and analysed to better inform investment decisions. They can fit in the Social indicators, for aspects such as gender equality and diversity in the workplace or women’s rights in supply chains, and in the Governance indicators for aspects such as the presence of women on the board. Thoughtful investors can use these indicators to align their investments with their values and minimise risks – for example, by reallocating investments to companies with strong diversity policies and screening out those a history of sexual harassment controversies.

Even if still limited in number, some more ambitious, ‘hands-on’ investors are emerging – and they are looking to intentionally address gender disparities. While there are diverse ways in which they can do this, they can be categorised into the following:

• Channelling capital to women as leaders, entrepreneurs – especially in areas where they lack access to capital, for instance rural areas in developing countries. Considering that women entrepreneurs and venture capitalists are underfunded and often discouraged, there is a real opportunity to tap into the value that women can offer to society and the economy, by prioritising or targeting new investment flows to women-led organisations.

For example, Merian Ventures aims to address the systemic underfunding of female entrepreneurs with a specific focus on the technology sector, by finding and funding “the next woman-led Microsoft, Apple, Alphabet or Facebook”.

• Investing in products/services companies that address women’s needs – especially in markets where those needs are not sufficiently addressed, for example sexual health products in remote areas, education and financial services for the underprivileged. There are plenty opportunities to support companies with a strong gender case in their market research, product development and distribution efforts, especially in early stage and scaling up phase.

For example, the SPRING Programme, funded by the UK’s Department for International Development (DFID), the Nike Foundation, and USAID, delivers technical and financial support to early-stage enterprises that accelerate women and girls’ empowerment in parts of Africa and Asia. One of them is Zoya in Pakistan, a mobile app that delivers health and wellness information to adolescent girls via mobile phones. The App also connects adolescent girls to locate physicians and health care facility in their area.

• Investing in companies where workplace equality and economic opportunities for women are there across the value chain – from leadership through to employees and supply chains. As too few women hold executive and board positions, the thoughtful investor often finds it difficult to invest in a well-diversified portfolio of women-led companies. Here the role of proactive investors can be more focused on pressing companies to improve their gender diversity and equity through shareholder engagement on issues like the gender pay gap and women on boards.

For example, Trillium Asset Management describe in detail how they integrate LGBT Equality across investment asset classes. Instead of creating a specific LGBT fund, they incorporate LGBT issues into the investment analysis and decision-making process across all their strategies. LGBT issues are analysed alongside a wide range of other concerns, such as board diversity, community relations, and income inequalities – many of which have disproportionate impacts on the LGBT community.

From counting women to valuing women

As of today, the most prevalent understanding of gender lens investing is workforce diversity and leadership in business, whether it is for screening public entities or targeting women-led businesses. But if you want to have more substantial impact, you should also look at how women are valued in business operations or through the company’s products, services and supply chains, for example:

• The extent to which women reap the benefits of a particular product or service;
• The extent to which a company promotes shared childcare responsibility and parental leave between men and women;
• The extent to which a company’s policies and practices are used to promote economic inclusion of women and other underrepresented social groups when selecting suppliers.

This requires a new type of strategic considerations and related metrics that are still underdeveloped. Some efforts are worth following, such as the GIIN’s Gender Lens Investing Initiative, launched in October 2017 – which aims among other things to compile a database on gender lens investing allocations and strategies. Also, all the ongoing efforts to identify potential business strategies and indicators on the UN Sustainable Development Goals (including on Goal 5: Achieve gender equality and empower all women and girls) can give fresh ideas to the debate in this emerging field. Finally, the Criterion Institute offers a wide range of resources on Gender Lens Investing, helping to build knowledge and consensus in the field.

Is it all about economic empowerment?

While GLI has focused mainly on economic empowerment issues (workforce diversity, promotion of female-led suppliers, investment in women entrepreneurs, etc.), there is a need to look at the broader picture, which is that women often find themselves at a disadvantage in society on multiple levels relative to their male counterparts, not just in their economic lives. Persistent inequalities exist in legal rights, health status, inclusion in decision-making processes and political representation, education training and professional development, as well as other areas. An exclusive focus on the economic aspects of women’s lives, without considering other factors that negatively affect women’s status in society, may mean that any positive outcomes remain limited. For investors and businesses to effectively promote gender equality, a more holistic lens on all underlying barriers needs to be adopted.