Private Sector

Background

Why impact investments can be an effective tool for social development

18 April 2017 | Minutes

Wordled Jeju Declaration from the September 2012 #iucncongress. Credit: Ron Mader

Panellists:
  • Marc Jourdan, UN Programs & Outreach Manager, Global Foundation for Democracy and Development (GFDD) (Moderator)
  • Dr. Muthukumara Mani, Lead Environmental Economist, Office of the Chief Economist World Bank Group
  • Jenna Giandoni, Research Fellow and Author of Impact Investing in the Dominican Republic, GFDD
  • Nicola Sanna, CEO at RiskLens, President of the FAIR Institute, Board Member of the North American Economy of Communion Commission

Jenna Giandoni

Conducted research in Dominican Republic

Standard investment strategies limit access to renewables and unconcerned with other social and environmental consequences.

Global Impact Investment Network – ‘triple bottom line’ – people, profits and planet.

In many cases market-beating rates. Focus on measurement of  impact investments. Available across a variety of classes. New World Bank report highlighting Green Bonds issuance.

What drives impact investments: climate change, increasing pandemics and increasing inequality. New generation of investors are increasingly socially conscious and would like to contribute.

Studied four cases in Dominican Republic:

1.Promotion of organic dairy farms:

Social impact – improved jobs, also increased access to products by consumers.

Challenges: limited access to data. Impact investments require data for effective evaluation. Small business were concerned with sharing of data.

Business knowledge was an issue, as was ‘cultural clashes’ between funders and businesses, also unreliable electricity.

2. Chocal and Cocolada:

Environmental impact – organic and efforts at responsible use of land.

Social impact – principally women, allowed to adjust to childcare requirements, transportation not an issue.

Challenges: short-term contracts, business knowledge, electricity.

Both businesses received government loans above – diary farm and chocolate production.

3. Solar energy association – Dominican Republic spends substantial sums on fossil fuels and fossil fuel subsidies.

Environmental and social impact:

Increased jobs compared with coal and natural gas.

Challenges:

Funding for renewables is very capital intensive.

While Germany leads the field, Dominican Republic has large potential as gifted with sun exposure.

4. Wind farms:

Job creation, literacy creation, bee keepers, etc.

40 wind turbines.

Challenges with farmers living in areas where turbines were placed. Paying farmers for use of land.

Far superior job-creation compared with oil.

Network – $11 trillion dollars under management. Committed capital $25 billion.

Cambridge Analytics study: In many cases impact investments are in many cases beating markets.

Needs identified by field research:

Continued capacity development is required, as are standardised metrics. 400 metrics available thus far, however this must still must be standardised. 1,400 signatories to UN responsible investment principles ($62 trillion in assets).

Dr. Muthukumara Mani

Focus on clean energy from a policy perspective.

How can countries tap into resources? Principal context –climate change and Paris agreement. Nationally Determined Contributions.

Needs principally in developing countries, which can benefit from technological leap-frogging.

Needs add to billions of dollars. Obviously needs depend on aspirations vis climate change temperature targets.

After Kyoto – Clean Development Mechanism was established, but it is now basically dead.

World Bank and other financing resources are increasing but remain a drop in the bucket resulting in a significant investment gap.

Carbon markets are in disarray – ODA is limited, intellectual property rights pose a challenge and foreign direct investment is limited to a few countries.

Private sector investment is increasing – thus perhaps diminishing need for public resources.

Governments must create ‘enabling’ environment. Must encourage purchase of clean energy – need energy efficiency standards, procure clean energy, etc. Back seat in terms of financing but must establish regulatory framework. Most countries do have some initiative in place.

How can public sector play a role:

1. Address bottle necks,

2. Leverage private investments – eg, World Bank and IFC,

3. Provision of information.

Policies:

1. Investment policies, environment: need domestic energy policies that attract investments such as concessionary financing, pricing mechanisms. Building codes, labelling standards, etc can be used to attract investments.

Recent research on wind sector:

Philippines number one in having in place enabling policies, however it is not a destination of  clean energy financing as implementation is patchy.

Obstacles faced by private sector in the Philippines:

1. Additional policy clarity

2. Consistency,

3. Standardised contracting, faster clearances

4. Financing should be facilitated by government

5. Need for grid connectivity

6. Improved cartography.

Funds are available – however many places lack an ‘enabling environment’

Nicola Sanna:  ‘The economy of communion’

Frustrated by lack of effectiveness of economic development policies.

Story of ‘grass roots’ entrepreneurial movement. 1990s – entrepreneurs decided to share some profits with communities. 10,000 people within five years were met through the actions of small group of entrepreneurs.

Objective – promote a culture of giving and social justice. Of course focused on profitability – fund education to multiply the model.  Must avoid ‘dependency’ – must tap into pre-existing relationship of trusts.

New private school built in Dominican Republic – as government was unwilling to build a school. ‘Culture of giving’ contributed to positive development results – less drug trafficking, more years of schooling per pupil, etc.

Questions and Answers:

Practical Action (UK) – has found that many larger scale energy projects don’t reach those without energy access. However mini-grids seem (from Malawi experience) not well-suited to investors.

Question about the role of private sector in service provision – such as fee-charging education example above – and government mandate/ obligation.

Answer: depends – looking for governments to produce an ‘enabling’ environment – through, for example tax deductions for charitable donations. The relationship is very much assessed on a case-by-case basis.

Note – even in large-scale renewable sector- many companies cannot operate in a commercially viable way. Too much focus on impact investment as the solution to ‘off-grid’ population.

Question: where are smaller investments available for charities, for example?

Answer: Need to pool investments for smaller organisations. Micro-credit bonds, etc. Some organisations that pool resources for smaller businesses.

Question: has Bank issued an official statement on bitcoin. What is the latest on crowd-funding?

Answer: crowd-funding is growing. Kiva as an example.

Working on a crowd-funded projected to support women with criminal records to re-integrate

WB has no official position on bitcoin. IMF has a note on the site. Things are very much on the research stage, although considering the impact on financial inclusion is being considered.

Question: Do impact investments actually work vis-à-vis social impact. What about impact investment that has been able to scale up?

Answer: Tellingly no answer on evaluation of social impacts.

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