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Impact investing: the principle of leaving no one behind

Patrick Elmer - April 05, 2018

Prodigy Finance looks at impact investing

The 2030 Agenda for Sustainable Development and the Sustainable Development Goals (SDGs) created in 2015 are a universal call to action to end poverty and protect our planet - centered on the principle of leaving no one behind in a world where, according to Oxfam, the richest 1% still own more than the other 99% combined.

By mobilising 1.5% of total wealth for impact investing it would finance the 17 global goals set by the international community. According to the Boston Consulting Group, private financial wealth including life insurance and pensions is a huge pool of assets estimated at about USD 170 trillion.

The size of impact investing assets under management is currently at least USD 114 billion, as reported by the 2017 GIIN (Global Impact Investment Network) Annual Impact Investor Survey. And, increasingly, private investors are keen to align their investments with their values and beliefs – and make conscious investment decisions.

As the impact investing space matures, established institutional players are joining in too, such as insurance companies AXA and Zurich, big banks including JP Morgan, Credit Suisse, UBS and BNP Paribas, and leading global investment firms like BlackRock, Bain Capital and TPG.

Impact investing products, however, must fit with the institutional investors’ logic of investment, and the biggest challenge is finding investable deals and products; most aren’t the right size, cannot show a long enough track record and data set or simply don’t match with the required risk-return profile to qualify for institutional investment.

What is impact investing?

Impact investing refers to investments made into companies, organisations, and funds with the intention to generate social and environmental impact alongside financial return.

The practice of impact investing is further defined by the following four core characteristics:

  • Intentionality: An investor’s intention to have a positive social or environmental impact through investments.
  • Investment with return expectations: Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.
  • Range of return expectations and asset classes: Impact investments target financial returns that range from below market (sometimes called concessionary) to risk-adjusted market rate, and can be made across asset classes.
  • Impact measurement: Investor commitment to measure and report the social and environmental performance and progress of underlying investments; in 2009, GIIN launched IRIS to provide generally accepted performance metrics.

Compared to socially responsible investments, which seek to minimise negative impact by excluding certain sectors, or ESG (for environmental, social and governance factors) investments that identify potential risks and opportunities, impact investments involve a more deliberate and intentional process to promote inclusive global growth by investing in solutions and business models that generate both financial and social value.

Aligning investments with the SDGs

We have seen increasing support from governments around the world in the impact investing space, including the recently formed Global Social Impact Investment Steering Group (GSG), which is made up of 13 countries plus the EU, with the aim to accelerate the practice of impact investing.

In the United States, recent government policy changes have made it easier for foundations to direct their endowments towards mission-related investments. Cummings Foundation is one of the largest foundations to pledge that it will align its entire USD 443 million endowment overtime with its mission, following the footsteps of the F.B. Heron and Ford foundations.

It’s time for businesses to follow suit. After the launch of the SDGs, Business Call to Action and GRI published a report that guides businesses to measure, monitor and accelerate their contributions according to the SDGs.

Dutch and Nordic pension funds have taken the lead in ‘SDG investing’. About a year ago 18 Dutch financial institutions, managing more than USD 3 trillion in assets, have declared their commitment to contributing to the 2030 Agenda for Sustainable Development, describing the 17 SDGs as “a catalytic driver for positive change". They were quickly joined by a half-dozen of Sweden’s largest institutional investors, as well as major funds in Australia, Canada and elsewhere.

Investing in education

According to UNICEF just one additional year of education boosts individuals’ earnings by 10% and GDP per capita by 18%. However, only about 4% of impact investments go towards education based on the latest GIIN survey. 

The main reason is that most education projects and initiatives focused on underprivileged segments do not generate a sustainable cash flow and can only be funded through grants and donations. While it remains a challenge to invest in primary education, there are opportunities in the higher education space.

Prodigy Finance is one such example. Impact investing has always been at the core of the company’s business model. Prodigy Finance was born out of the belief that access to finance should be borderless and merit-based. Talented smart young people anywhere across the globe should be allowed to study at a top university of their choice and pursue their full potential.

As our CEO Cameron states, “It is obvious that the success of the students we fund and of Prodigy Finance are closely interconnected. Our company can only be successful if we succeed in improving people’s lives, allowing them to access top quality jobs".

On the investor side, measuring, tracking, and reporting on the impact is paramount. Prodigy Finance has recently gone through a comprehensive process to make our impact vision and mission explicit, and set clear and measurable objectives, as illustrated in our first Impact Report.

Financial returns and social impact aren’t mutually exclusive

It’s remains critical, however, to educate investors that it’s possible to earn adequate financial returns while doing good at the same time; there need not be any concession.

There is growing evidence across different asset classes that impact investments can generate risk-adjusted market rate returns that are comparable to those among conventional investments. For instance, the Cambridge Associates and GIIN launched the Impact Investing Benchmark that analyses the financial performance of private equity and venture capital impact investing funds. The data shows that impact investment funds launched between 1998 and 2004 collectively outperformed their conventional peers, especially among the smaller funds. Some impact investments, such as microfinance, provide attractive portfolio diversification benefits to investors because they are not correlated with global markets.

Going forward, there is need for more (liquid) products and innovative solutions to “mainstream” impact investments, including (unusual) partnerships between the private, public and social sector as for example through blended finance. The World Bank has started to issue SDG Bonds and raised EUR 163 million from institutional investors in 2017 to support the financing of projects that are aligned with the SDGs. Back in 2008 the World Bank also issued the first green bonds and today that’s almost a USD 100 billion market.

Exactly 10 years after the term Impact Investing was coined, the GIIN released last week its roadmap for the next ten years of impact investing, codifying a shared vision for the financial markets, and outlining specific actions required to exponentially enhance the scale and effectiveness of impact investing across the world. These include rating systems, metrics and new product options, as well as fund managers and advisors who are trained and incentivised to deliver impact alongside returns.

The potential of the financial market is huge, and – as the clock is ticking – it’s our one and only option to close the funding gap and meet the 17 goals by 2030 – leaving no one behind.

Prodigy Finance is one avenue, and we’re grateful to be working with you to create a new generation of diverse global leaders – unlocking their potential anywhere across the globe and transforming entire communities.

We're working to leave no one behind. Are you?

Prodigy Finance connects students attending top universities around the world with the capital they need to succeed.

Patrick Elmer

Patrick Elmer is the Founder and Director of iGravity, and has previously worked as Head of Business Development for BlueOrchard; Head of Philanthropy Services and Responsible Investments for Credit Suisse, and spent many years in Mozambique, Tanzania and Madagascar working with microfinance banks and managing the private sector portfolio for the Swiss State Secretariat for Economic Affairs.

Risk warning:

This product may have limited or no liquidity and you may find it difficult or impossible to realise the value of your investment. Your Capital is at risk, be aware that by investing in this product you may lose some or all of the money invested. You have limited recourse to the issuer of the security, no recourse to the borrowers, and there are other risks including those relating to the default or insolvency of the issuer who is not an authorised or regulated firm.

This product is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions. You will only be able to invest once you are registered as a high net worth investor or a self-certified sophisticated investor and have completed a suitability questionnaire prepared by Prodigy Services Limited.

Prodigy Services Limited promotes offers of securities for third party issuers to eligible investors. Prodigy Finance loans are offered to eligible borrowers who are studying outside of their country of residence and the loans are governed by English law. Prodigy Services is an Appointed Representative of BriceAmery Capital Limited which is authorised and regulated by the Financial Conduct Authority. Prodigy Finance is authorised and regulated by the Financial Conduct Authority for certain consumer credit activities and for investment activities. Prodigy Finance Limited and Prodigy Services Limited are incorporated in the United Kingdom with registered address at Palladium House 1-4 Argyll Street, London, W1F 7LD. This document has been issued by BriceAmery Capital Limited as a Financial Promotion under Section 21 of the Financial Services and Markets Act 2000. PSL_23012017_BV_INSEAD_CAT4

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