NB Financial Health

Wednesday
September 10
2014

Abigail Noble and Marina Leytes

Ideas to Practice, Pilots to Strategy: World Economic Forum report shares best practices and lessons learned from impact investing innovators

Impact investing is a rapidly growing sector that’s generating a lot of knowledge, yet this expertise is spread among dozens if not hundreds of practitioners and academics. Last week, the World Economic Forum released the second edition in its series “Ideas to Practice, Pilots to Strategy,” with the goal of democratizing and disseminating this expertise.

Ideas to Practice, Pilots to Strategy” is both an attempt – and an opportunity – to share the best practices and lessons learned from the first movers, early adopters and bold innovators in the field of impact investing, with the goal of further advancing the sector. It targets three key groups:

(1) traditional investors (both institutions and individuals) who want to start impact investing;

(2) investors who are already engaged with impact investing but want to either expand it into a full-fledged strategy or continue within their current scope by learning and incorporating best practices; and

(3) intermediaries, foundations, development finance institutions, financial advisers, members of academia and policy-makers whose support is vital for the sector’s growth. The report contains eight articles, divided into three main sections:

Frameworks to build an impact investing strategy for asset managers

Impact investment funds can best manage for success on multiple bottom lines through a methodology developed by Bridges Ventures and highlighted in the report, which includes: selecting high-impact investments; engaging with investees to manage impact risks and identify opportunities to create additional societal value; and tracking progress to inform portfolio management decisions and investors. Institutional investors can pursue a variety of investment instruments, but in many cases, long-term private debt offers unique benefits. These include larger allocations, more predictable cash flows without investment limitations inherent to early-stage private equity, and legally enforceable covenants around social performance.

Innovative products designed to engage retail investors

For impact investing to become mainstream, the participation of retail investors must be increased. The U.S. retail market counts 75 million individuals who collectively control in excess of $17 trillion investable assets. Evidence is growing that millennials and women prefer investments that generate social impact in addition to financial returns. Financial advisers who are mindful of the evolving preferences of their clients are best able to retain and grow their client base.

The role academic institutions can play in building the field of impact investing

Five universities representing five continents were profiled in the second edition of the World Economic Forum series: Duke University (United States), Insead (France and Singapore), INSPER (Brazil), University of Capetown (South Africa) and University of St. Gallen (Switzerland). While each university has crafted a multi-faceted engagement strategy to build their programmatic offerings and research capabilities on impact investing, the report reveals key insights from each institution that illustrate how universities can play a strategically important role.

Because the impact investment sector is in a nascent stage and engages diverse individuals, organizations and societies, no one solution will apply to every situation. Rather, this series can serve as a trailhead and as a semi-trodden path for new practitioners – though much more trailblazing will be necessary before the sector matures. With that in mind, we advocate learning by doing, failing fast, synthesizing feedback and quickly re-engineering shortcomings into a more informed approach. Above all, it is clear that intentions (and certainly good ones) matter with every action and step towards building a new sector. With these principles in mind, it is possible to collaboratively and proactively ensure that the impact investing sector is on the best path forward.

We look forward to hearing your feedback on the second edition of “Ideas to Practice, Pilots to Strategy” and your perspectives on what else you think is helping advance the impact investing sector.

Abigail Noble is Associate Director, Head of Impact Investing Initiatives at the World Economic Forum. Marina Leytes is a Project Manager for the World Economic Forum’s Impact Investing Initiatives.

Categories
Entrepreneurship, Impact Assessment
Tags
impact investing, investment fund, social business, social enterprise, social impact