July 14, 2020

More than ever before,  the current pandemic caused by the Corona virus has increased the need for investment all over the world especially in emerging countries where the level of economic development is still very weak; many already live in abject poverty. In order to change this situation, the desire to invest in projects by individuals, assets managers, and organizations that are eager to show that they care about humanity and not profitability is on the rise. Their main objective for investing is not particularly profit making but to ensure positive social and environmental outcomes and impacts. These investors are referred to as Impact Investors. They invest in Agriculture, Renewable Energy, Micro Finance etc.

 

IMPACT INVESTMENT

To the Global Impact Investing Network (GIIN), impact investment is made with the intention to ensure or generate measurable, positive, environmental and social impact alongside a financial return. These investments can be made in developed and emerging economies in those aforementioned areas. International Financial Corporation (IFC), views this investment vehicle as one ‘made in an organization or companies with the intent to contribute to social or environmental impact alongside financial returns’ . According to GIIN, impact investment has four key components: intentionality, financial returns, range of assets classes and impact measurement. IFC on the other hand stated that it has the following attributes: intent, contribution and measurement improvements.

Regardless the nature of assets,  at the core of impact investment are impact,  be it social,  economic and environmental; and/before financial returns.

One unique quality of impact investing when compared to other forms of social investments is the fact that the investors provide more than just funds to their partners.They also support them through capacity building, by providing access to new technologies and skills. This helps the investees to grow and improve the products and services they offer to their clients.

 

THE ROLE OF IFC AND GIIN IN ENSURING STANDARDATION

The social enterprise sector faces quite a number of constraints all over the world especially when it comes to access to appropriate and well priced capital. In order to ensure proper coordination and acceleration of the sector, impact investors all over the world are making collaborative efforts to ensure that the investment made yield the right impact. To achieve this, there has been focus on impact measurement and management using standard metrics.

GIIN and IFC are two of the major leaders in this area, with support from other entities such as some International Finance Institutions (IFIs) who have signed a memorandum of understanding regarding common metrics for impact investment tracking through the Harmonized Indicators for Private Sector Operations (HIPSO).

Working with other major stakeholders in the sector, IFC has developed some set of operating principles to guide impact investment so as to achieve the stated objectives. A review of the principles shows that they were designed using the following factors: strategic intent, origination and structuring, portfolio management, impact at exit, and independent verification. The operating principles are meant to serve as reference points and guidelines for investors in the implementation and design of their impact management process. These principles may be implemented through different types of systems and processes. Assets owners can use the principle to monitor opportunities and make sure that the funds are well managed. Also, the principles can be adopted either at the corporate or business level of the organization using a variety of tools or approaches by the investors.

One major issue that has affected the performance of the industry over the years is transparency. And to address it, GIIN is providing this evaluation process to enable investors make comparisons using set standards and  to overcome various problem facing the sector, by connecting investors to all the tools and knowledge in order to scale or advance.

 

 IMPACT MEASUREMENT & MANAGEMENT (IMM)

There are standards of authenticity when it comes to impact investing, it includes identifying and considering the positive and negative effects one’s business actions have on people and the environment, and then figuring out ways to mitigate the negative and maximize the positive in alignment with one’s goals. IMM is iterative and dynamic by nature and must be implemented as the norm for all organizations seeking to understand and improve their effects on people and planet through impact investing. An organization or investor can get started with any of the following: set goals and expectations, define strategies, set targets and manage impact performance. IMM is an evolving practice, GIIN is committed to advancing practice and collaborating with other market builders to ensure clear, consistent, and harmonized approaches.

 

ALIGNMENT BETWEEN INVESTORS AND INVESTEES

For investors to achieve their aims and objectives of investing on these social and environment projects, there is need for alignment or unification of purpose between the impact investor and the organization receiving such funds or technical knowledge. As earlier noted, one of the attributes of impact investors is the presence of “intent”, which shows the desire to invest in a particular project or funds, as a result, the key to an impact investment lies in the intent of the investor and not the investee.

However, impact investments are generally more likely to achieve their expected or intended outcomes if there is an alignment of purpose or strategic fit between the investor and investee. This is why some impact investors now target organizations that share common goals and objectives. What this implies is that: companies in emerging countries like Nigeria that are looking for impact investors to collaborate with, must study the goals and objectives of their prospective investors, understand the principles and standards guiding the sector and thereby,  strategize to ensure uniformity.

In conclusion, the impact investing field is a fast growing one with so much opportunities to improve. As a result, all stakeholders must be ready to approach it in a transparent and bold manner. More than ever before in the history of mankind, there is urgent need for everyone to come together to make the Earth a better planet that works for everyone irrespective of geographical location or level of economic development.

 

Razak Alli
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