Impact Investing: The Big Bang Theory

"Tonight we move forward a new idea, that capital is used for meaning." Naomi Smith reports from SOCAP/Europe.

By Naomi Smith

"This impact investing space is kind of like the big bang," says Brian Walsh, director of Liquidnet for Good. My first night at the SOCAP/Europe conference and Brian has summed up the 100+ page masters thesis I have just completed in these two words. As we stand together in the Beurs Van Berlage historic stock exchange in the centre of Amsterdam, surrounded by 650+ attendees from over 50 countries, I see exactly what Brian means. All around us are investors and entrepreneurs who share a common vision of a blended value approach to the way we should do business. Age old capitalist thinking in which profit maximization has stood as the cornerstone of purpose is being shaken up by this small yet rapidly growing industry of social business where financial returns are partnered with social and environmental impact.

People all over the world passionate about this idea of money and meaning are spiralling off in all directions to see it happen. Conferences like SOCAP/Europe serve as a venue for these people to come together, build connections and strengthen the development of this industry. It is here where we are starting to see the particles settle, in the hope this emergent industry will form into a robust platform that fosters the growth of money and meaning.

Partnered with Dutch angel investor PYMWYMIC (standing for Put Your Money Where Your Mouth is Company), the San Francisco-based SOCAP organization hosted the first European SOCAP conference from May 30th - June 1st. Discussions that covered themes from the missing middle and business in fragile states, to the showcasing of innovative energy and water products, enabled attendees to delve deeper into these issues. While the official sessions were very interesting, for me, I gained the most value from the discussions I had outside the formal agenda. It was in these moments, over a coffee or sitting by the canals, where I was able to ask social entrepreneurs and investors alike why they were at SOCAP, what their biggest challenges were and what fueled their passion to work in this emerging social business space.

My take aways from the three days were numerous. But there are a few that stood above the rest.

1. Diversity is good. Perhaps this sounds like a bit of a contradiction after I just stressed bring order to the big bang chaos, but let me explain. A reoccurring theme throughout many of the talks was a debate over whether social business should work within more traditional institutions and models - altering them in ways that bring this blended value approach - or whether it needs to emerge as a new type of business model all together. If you talk to Klaus Tischhauser of ResponsAbility he would likely promote the former, while many others promote the latter. So what is the answer? Do both! On the 2nd day of the conference Prince Carlos de Bourbon de Parme, from the Institute of Sustainable Development and Innovation (INSID), summed this issue up perfectly when he expressed "we need all of them and those that are competing within different fields within this just didn't get it."

   Impact Investing as a new asset class has a lot to gain from diversity. Throughout the conference discussions over diversification of portfolios showed the power of such investing to be valuable to even the most hardnosed investor. Sprinkle in a little impact investing into a portfolio and it is likely to make it more attractive, purposeful and limit the risk of being behind the times as social business grows into international markets.

2. While diversity is key, common ground is also important. As the particles settle and the industry develops, having a common language and making some ground rules is also needed. Measuring qualitative impact is not going to be easy, but there are some standardization tools that are emerging and could be very valuable to investors and entrepreneurs alike. Take the Global Impact Investing Rating System (GIIRS) for example, which offers the GIIRS online Impact Assessment, a survey that enables social enterprises to communicate their impact performance through the scored responses to standardized questions. Some of the GIIRS pioneer companies were at SOCAP/Europe, for example Liberty and Justice, a garment producing social enterprise in Liberia, which recently received the first 5 Star GIIRS rating.

   ForeFinance, part of the Netherland's based NewForesite, also show promise with their models to rate impact and financial performance in sustainable agriculture. Through their method of 'credit-scoring' ForeFinance certifies sustainable farmers and scores them on their credit-worthiness. ForeFinance then works to link these farmers to local banks and social investment funds and keep track of the payback behavior of farmers, allowing them to build a credible track record over time.

3. The creativity and passion is impressive. Meet STIMA systems, a solar energy provider that works in rural Kenya. This company does not sell its solar chargers, as they feel strongly that taking liquidity from these rural populations is unproductive. Instead they sell the service of the charger through their pay-per-use program. Chargers are activated each week by an activation key operated by an on-site agent (local entrepreneur). Running this business through a group-based model (weekly payment is done as a group of 10) and engaging trusted individuals in the communities to work with STIMA, the project is seeing great and sustainable success.

   Another impressive initiative is that of the Uganda Carbon Bureau, a carbon credit organization that is maximizing the value of the cook stoves it currently distributes in Uganda, by having a strategic maintenance program. The maintenance program has multiple benefits, offering users of the cook stove a tri-monthly tune up, while also serving as monitoring process for carbon credit legitimacy. Furthermore, this maintenance of the stoves is estimated to increase lifespan of the product by 15+ years, creating a more sustainable and profitable solution for all involved.

4. Get out there and invest! There is a lot of talk in this industry and a lot of effort being put into perfecting investment process and measurement tools. While these aspects are highly valuable there are many saying we need to stop talking about it all and get out and invest. I have to say I see their point, although I am admittedly one of the ones 'talking about it.' There are initiatives underway to promote social businesses and get them to investment ready stages. For example, take UK-based Unltd's Big Venture Challenge. Launched in March, this initiative aims to find and support the 25 most ambitious social entrepreneurs in England. On the other side of the pond there is the Unreasonable Institute, bringing together innovation and investment by supporting another 25 of the world’s brightest entrepreneurs to partake in a six-week summer program at the Unreasonable Institute in Colorado.

So what's on for next year? Let's hope SOCAP and PYMWYMIC decide to do another conference in Europe. While I was very impressed by the event, personally I would have liked to see more social entrepreneurs. It was an expensive conference and as a result inaccessible to many of the innovators in this space. Having said that, I feel that SOCAP did try and account for this as best they could. Fifty fully scholarshiped entrepreneurs were invited to the conference and, as Megan McFadden of SOCAP explained to me, SOCAP is also a small organization that wants to fund everyone but needs to keep itself a float as well. One other group I would have liked to see at the conference were government officials and policy makers. In my opinion, in order to truly have this industry recognized, government needs to be involved in the discussion.

Overall though, this universe is an exciting place to be, it is inspiring and clearly driven by a desire to improve the social and environmental sustainability of our planet. The more we talk, share and collaborate, the more this will grow and the better it will function. Please feel free to join the adventure!

About Naomi Smith

Naomi has just completed her Master's in Strategic Sustainability at the Blekinge Institute of Technology in Sweden. For the past several months she has been writing for the SOCAP/Europe blog to share her discoveries, questions and queries as she travels around Europe researching early-stage impact investing and sustainable social enterprise for her graduate thesis. This writing and research has also given her the opportunity to write for dowser.org and now CSRwire. Naomi will be moving to London, UK, this summer where she hopes to pursue a career in the social business space.

This commentary is written by a valued member of the CSRwire contributing writers' community and expresses this author's views alone.

Readers: Has impact investing diversified your portfolio? Share on Talkback!