NB Financial Health
The Elusive Long Track Record in Impact Investing: How to deliver social and financial returns over the long term
In an article published in Financial Advisor Magazine, the authors reported on the results of a recent survey indicating that “nearly five of six advisors said they were exploring impact investing, with growing client demand cited as the top reason for the interest.” According to the survey, conducted online by Incapital, 60 percent of those advisors said client interest in these products has increased over the past year. But not all the news was good: while the interest in impact investing is growing, the most frequently cited barriers to participating in impact investing products include the lack of long-term, successful track records, followed by performance and yield considerations.
Global Partnerships (GP – where I work as Chief Investment and Operating Officer) started as a family foundation making grants 20 years ago, and moved into impact-led investing a decade ago. We have a longstanding, successful record of investing, with over $132 million in over 200 loans successfully deployed and paid back as planned across five funds. This represents 37 consecutive quarters of repayment of interest and principal to our investors with no late or missed payments. As GP celebrated its 20th anniversary last month, we’ve reflected on why impact-led investing organizations with long-term track records are so few and far between. How have we managed to deliver both consistent financial returns and social impact over the past decade – and why hasn’t the sector seen more investors making similar impact over the long term?
Interestingly, in GP’s case it was our early work in microfinance that had the greatest impact in shaping our current strategy in impact investing. From that work, we learned that it takes more than a loan to make a difference, and our investments in microentrepreneurship and rural livelihoods reflect emerging best practices in combining access to credit with the training and access to markets that are required to help people living in poverty to stabilize and increase their incomes. We’ve recognized that one of the greatest challenges in global development – actually getting basic products and services into the hands of impoverished families – can be tackled, in part, by leveraging the sustainable delivery channel created by microfinance. This insight is guiding our investments in health education, essential medicines and health services. We’ve also learned how markets can drive impact on a global scale; nowhere is this more clearly demonstrated than by microfinance, which now reaches almost 200 million families worldwide. GP’s most recent investments in solar lights, for instance, reflects our belief that, like microfinance, these technologies will not only have a significant positive impact, but are likely to achieve social impact worldwide.
But perhaps the lesson that has had the most profound effect on our strategy was this: In order to bring opportunity to millions of people living in poverty, we needed to think differently about capital. GP spent its first decade as a grant maker. But ten years ago, before “impact investing” had burst onto the world stage, we realized that we needed both philanthropic and investment capital to unlock market-based solutions to poverty and achieve better results. Philanthropy fuels innovation, funds learning and leads the way, while impact-led investment capital sustains and grows proven solutions to poverty. By embracing a different mindset and a hybrid approach, carefully choosing our partners to deliver market-based solutions, and holding those partners to measureable high standards, GP has been able to increase our impact from 23,000 lives touched to more than 2.7 million lives touched in less than a decade.
As we look forward to the next ten years, we believe that there are several keys to being truly successful as a social impact-led investor with the mission to expand opportunity for those living in poverty. Investors must:
seek out new types of products and services that make a real difference in the lives of the poor,
broaden the types of social enterprises in which we invest,
continuously innovate in terms of how capital is used to advance mission,
relentlessly apply rigorous standards to choosing market-based partners who deliver those services in sustainable and scalable ways, and
expand geographically to reach more people.
If we continue to apply these standards for success, GP will in the next decade increase our impact investments from just over $132 million to $500 million, and in doing so, multiply our impact more than tenfold, expanding opportunity to touch 30 million lives. We believe that if other investors take a similar approach, concerns about a lack of long-term track records will no longer be holding the sector back in ten years’ time.
Mark Coffey oversees Global Partnerships’ social investment funds.