Where impact investing meets sustainable development
This article is one in a series of opinion pieces written by prominent authors on issues covered in "Development Co-operation Report 2016: The Sustainable Development Goals as Business Opportunities."
In many developing and emerging markets, private sector actors and business models are achieving significant measurable and sustainable impact.
Social impact investment offers the opportunity to catalyze and improve private sector investment designed to solve social challenges, to collect and analyze data on what works, to scale up effective programs and businesses, and to create more robust enabling environments for innovation and entrepreneurship.
When the United Kingdom’s Prime Minister set up the G8 Social Impact Investment Taskforce in 2013, I was charged with leading an International Development Working Group to produce recommendations on how governments can catalyze impact investment as a tool for international development.
Based on an understanding of the complexity of development and the critical need to leverage private capital (debt, equity and blended instruments), expertise and in-kind investment, the International Development Working Group offered three recommendations:
- Create an impact finance facility that can help cultivate and develop new and innovative companies and business models so as to develop a pipeline of investment-ready proposals.
- Create a development impact bond outcomes fund to facilitate the roll out of pilots worldwide.
- Improve metrics, increase transparency and provide the additional resources needed to build the broader enabling environment or ecosystem for impact investment.
As the importance of social impact investment grows, there is a need for new business models, financing vehicles, standards and policies to build and bolster ongoing investments, and to bring them to scale.
In my view, meeting the real challenges of scale will require some flexibility or risk taking by local and global investors. This calls for a collective effort to learn from what works and to test new models.
The evolution of the micro-finance industry is an important reminder of the “thousands of cycles of trial and error” needed to create a successful product. This means early investors will need to take on some risk and maybe even forego financial returns to find the best business models and structures to achieve success at scale — thus encouraging larger investors to follow.
There is a need to ensure that effective metrics and standards allow investors to continually assess risks.
The capacity of social impact investors to positively affect the lives of the poor and under-resourced people they intend to serve will depend on their ability to innovate, taking existing frameworks forward through dynamic processes that reach large numbers of the poor with products or interventions capable of transforming their lives.