It's time to address the standards, risks and norms of investing for impact

Written by: Shamsah Alali with contributions by Rhonda Binda, 2/13/19 

Recently at The Economist’s Investing for Impact event in New York City, technology companies, policymakers, investors and philanthropists analyzed and discussed the future of impact investing. As businesses become increasingly aware of the importance of investing to generate measurable social or environmental impact, it is also vital to understand both the opportunities and obstacles that these businesses may face in pursuit of these goals. Venture Smarter was proud to partner with The Economist in support of the event and will continue to be involved in assisting solution providers, project owners and officials to implement their technologies to create positive social impact.

Key Takeaways from The Economist’s Investing for Impact Event:

Standardizing ESG Criteria

During the opening strategy session, executives and editors discussed sustainable investment during turbulent times and how this will impact investing in the coming years. The discussion mainly focused on the Environmental, Social and Governance (ESG) criteria, which was introduced to help socially conscious investors screen potential investments. Typically,  investors would focus on the environmental and governance aspects of a company or investment and place less emphasis on the social impact. However, there is now an urgent need to place equal emphasis on all three parts of the criteria, as well as to define what social impact is in order to create a standardized ESG criteria that will allow for investments to be as impactful as they can be.

Currently the ESG criteria lacks standardization, allowing some companies to claim that they are socially conscious and driven, while taking minimal measures to ensure social and environmental impact. In contrast, some attendees recognized that all investing has impact and recommended that we allocate more of our efforts on what that impact is itself rather than developing a standard criteria upfront.

Reevaluating Risk of Regional Approaches

When investing in cities, transnational solutions and technologies that cross municipals boundaries can result in impactful returns but are often seen as high risk.

The impact investment industry has to address the level of risk that they don’t take. Given the scale of the problems that we’re tackling, we seem to leave the risk for people who are investing in social media. I don’t see that level of risk taken in the impact space, which is where it should be taken.
— Sean Hinton, Chief Executive of the Soros Economic Development Fund

In order to address the complexity of the problems being tackled in the impact industry and to achieve the desired outcomes, there is a need to reevaluate the level of risk being taken in order to see significant social, economic or environmental returns. "I don’t think the fight is on the federal level, it is on cities,” says Sean Hinton, chief executive of the Soros Economic Development Fund. He encouraged especially the large municipalities to develop technologies that can cross boundaries by updating regulatory environments so that those technologies can be made available to impact more people regardless of where they are.

Social Impact Investment Funds

As we become increasingly aware of the importance of creating a positive impact, we have also seen the rise of social impact focused technology companies. Social impact investment funds were in past created to lower the cost of capital for the social impact companies so that they can deploy their technologies at lower costs.

Impact funds like the UNICEF USA Bridge Fund are innovative financing vehicles that allow us to use investment dollars to increase the efficiency and effectiveness of UNICEF programs and accelerate cash when needed – fast-tracking emergency relief to children and families after an earthquake strikes, or delivering desks before school starts. Impact funds expand the financial options that can be used to create real change – in our case, putting children first when they need it most
— Caryl Stern, President and CEO of UNICEF

The society we live in today is more socially and environmentally conscious than before and many business models have adapted to aim to create a net positive impact. While there are some challenges that both investors and businesses face in doing so, there are still ways in which we can ensure that investments are positively impacting society.

In order to do this, businesses and investors can overcome the challenges faced when trying to fund and implement projects by using platforms such as Intelliscope. Intelliscope makes it easy to scope, plan and fund smart infrastructure and development projects by matching project owners with trusted solution providers and capital partners early on in the procurement life cycle. By injecting collaboration into the planning and procurement model early on, we see how Intelliscope will save these stakeholders time, reduce risk of investment, and ultimately increase their projects’ rate of success.

 

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