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Friday, March 29, 2024

Rise of impact investing

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The biggest news in the venture capital world recently is that Grab, the ride-sharing app in Southeast Asia, has raised $750 million in fresh capital. On the other hand, its rival Uber late last year raised a staggering $2.1 billion in Series G funding.

Addressing social ills and needs

Venture capital funding activities continue to point to an upward trend—fueling ventures from cybersecurity to entertainment apps. But why can’t we address social needs and ills with similar resources and much gusto?

Abject poverty, crime, lack of security, and homelessness continue to beset not only poor countries, but also affluent nations. Imagine the impact of a raft of resources if it was invested in addressing such social inadequacies on the lives of scores of people?

Generating social and environmental impact

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We should be glad that we don’t need to envisage such backdrop. It’s already happening and is on the rise—it’s called impact investing.

According to Global Impact Investing Network (GIIN), impact investing is investing made into companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return.

A celebrated example of impact investing is how LeapFrog Investments, a private equity investment company and a founding member of the GIIN Investors’ Council, is investing in emerging markets financial services, focusing on investments for emerging consumers in Africa and Asia. It has attracted over $1 billion from global investors since its inception in 2007.

Providing insurance to the rejected

Recently in January this year, in collaboration with Prudential Financial, LeapFrog Investments launched a $350-million investment partnership to provide life insurance to the underinsured in leading economies in Africa, including Ghana, Kenya and Nigeria.

LeapFrog invested in companies like BIMA, which has swiftly grown to deliver insurance and medical services through mobile networks across Asia and Africa, reaching 20 million underinsured people. It has supported the ten-fold growth of AllLife, a leading provider of life insurance to people who are HIV positive, profitably and in large numbers, who are otherwise rejected by conventional insurance companies.

Today, LeapFrog invested companies reach over 51 million people across 21 markets, who are previously shunned by traditional insurers. More than 36 million of those people earn less than $10 a day, most are accessing insurance, savings, pensions or credit for the first time.

These couldn’t have been achieved without impact investing.  

Investing in socially responsible firms

How it works is that it requires investors to consider a company’s commitment to corporate social responsibility, or the sense of duty to positively impact society as a whole, before investing with that company. It includes many different forms of capital and investment vehicles, the bulk of which is done by institutional investors.

But increasingly a range of socially responsible financial services firms, investor networks, and web-based investment platforms offer individuals an opportunity to participate in it. One a is in micro-financing, which can provide small business owners in emerging nations with start-up or expansion capital.

Impact investing doesn’t need to be always profitable—investors often factor in social impact or gains. Notwithstanding, a 2013 study by GIIN and JP Morgan found that over 90 percent of impact investors reported that their investments were meeting or surpassing their projections.

Investing in social enterprises

In the Philippines, Impact Investment Exchange Asia (“IIX”) launched its Impact Accelerator program in November 2014, an intensive in-country program designed to accelerate early-stage social enterprises (Ses) that have high potentials to create positive social and environmental impact at scale.

It has received 55 applications from enterprises spanning geographically diverse locations and across a broad sector scope, including agriculture, energy, water, livelihoods, education and healthcare. Last year, it awarded support to four SEs engaged in employing indigenous communities and underprivileged women, reduction of waste water and production of housing infrastructure using environmentally friendly materials.

Putting their money in social responsibility

The future of impact investing has never been brighter, especially among the younger generations, such as millennials, who want to give back to society; hence, this trend is likely to expand as these investors gain more influence in the market. In fact, analysts such as the Monitor Institute and JP Morgan predict that impact investing could reach up to an astounding US$500 billion per year by 2020.

The growing prominence of these types of investments has accelerated a powerful change in the business community since investors engage specifically in philanthropy are now able to get more involved. As more people realize the social and financial benefits of impact investing, more companies and individuals will put their money in social responsibility.

The author is a senior executive in the information and communications technology sector. He is the Vice Chairman of the ICT Committee of the Management Association of the Philippines. He teaches strategic management in the MBA Program of the Ramon V. del Rosario College of Business, De La Salle University. He may be emailed at reylugtu@reylugtu.com or visit his website at www.reylugtu.com.

The views expressed in this article are the author’s, and do not necessarily reflect the viewpoints of the DLSU administration and faculty.

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