Five Takeaways: The G8 and Social Impact Investing

Five Takeaways: The G8 and Social Impact Investing
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The UK government planted the Union Jack squarely at the center of social impact investing at the dedicated G8 meeting June 6 - hosted by Prime Minister David Cameron in concert with Cabinet visionary Nick Hurd, Minister for Civil Society, and Sir Ronald Cohen, who in the space of eight hours was anointed the grandfather, godfather, and architect of social finance.

The fluency of UK policymakers on the societal implications and substance of impact investing was simply breathtaking across all areas and levels of government. The picture of a cohesive and fast-growing social finance field in the UK, anchored in energetic public/private partnership, was a profound lesson on the benefits of pursuing a clear and consistent vision over almost 15 years, through unerring, post-partisan leadership.

The meeting can justifiably claim to have primed the pump for the next few years of work on impact investing. We need only to bottle the collaborative essence of the UK experience - which it must be noted is easier to extract when much of the action is in one city, London. Investing is literally and figuratively more decentralized in the US and other countries, and we like it that way. But it makes mind meld challenging.

Impact investing remains as aspirational as it is tangible, of course. But each convening brings us closer to a consolidated set of challenges and priorities. Here are five takeaways from June 6:

  1. Definitions: Ambiguity about what impact investing is, and what social enterprise encompasses, remains problematic. It appears that simply having the intent to deliver measurable social or environmental benefits through a purpose-built investment strategy or business model is not sufficiently concise. International development, microfinance, access to capital for charities, social impact bonds, and community investment in infrastructure, housing or SMEs are all just too different. And as Nick O'Donohoe, CEO of Big Society Capital, explained: "We must be able to recognize social enterprise". Some delegates suggested that an explicit focus on underserved populations may provide additional clarity. Regardless, the related need for segmentation is urgent, as is the importance of transparency and standardization in impact evaluation.

  • Patience and focus: Impact investing is nothing short of a revolution, transforming the way the world thinks about money, the purpose of our lives, and the relationships between the global north and south, and the public and private sectors, explained Elizabeth Littlefield, President and CEO of the US Overseas Private Investment Corporation. By extension, we must be patient as we build an ecosystem and a track-record of performance that provides insight into financial and social trade-offs, as investors and policymakers are educated on the tools of impact investing, and as we solve difficult market barriers like the hand-off between early-stage grants and then investments in enterprises.
  • The role of commercial capital. Commercial capital brings discipline, but also unrealistic financial expectations in some parts of the market. Segmentation will be critical here also. As Nick O'Donohoe neatly explained through the prism of the three key sectors of the UK market: community finance, which is essentially debt and equity investment in SMEs in underserved areas, which can and should accommodate commercial capital; the funding of charities, where commercial capital is helpful at the lower end of the risk spectrum, where assets can be pledged; and equity for profit-with-purpose enterprises, which is largely not ready for commercial capital. But there is also movement among mainstream investors. A seminal address from Colin Grassie, CEO of Deutsche Bank UK, included the following visionary statement: "Investments with single, mid-digit returns and measurable social outcomes are great products. Every model portfolio should hold such assets."
  • The role of concessionary capital. Private foundations are feeling the heat as prospective providers of early-stage investment. Chris West, Director of the Shell Foundation, argued that the stewards of high-risk capital needed to take well-structured risks and do less "low-risk, project-based giving to existing organizations". Meanwhile, "retailization" through crowdsourcing and other innovations is generating excitement about the entry of small-dollar investors. There are implications here for the local nature of impact investing. The idea of mutually or cooperatively-owned community assets is singularly enticing in the UK - as the example of drinking from a pint of beer in a community-owned pub makes plain.
  • And finally, reflectivity and fallibility; the qualities George Soros said had always anchored his work. Quoting again from Chris West: "there are three certainties in life: death, taxes, and changing business plans". Enough said.
  • The work of the G8 is only just beginning. A new taskforce chaired by Sir Ronald will focus, among other things, on the measurement of social returns and the asset allocation strategies that frame impact investing. A new Global Learning Exchange will be created by the World Economic Forum and supported by the Impact Investing Policy Collaborative (IIPC) and the Global Impact Investing Network among others. The IIPC holds its annual meeting in July in the UK as a follow-up to the G8 and will be developing The London Principles on excellence in policymaking in this area. The US government has created a new National Impact Initiative and numerous new investments have been green-lighted including a new GBP50 million Community Assets Fund from Big Society Capital and the Big Lottery Fund, and an additional commitment of $50 million from the US Small Business Administration to the Small Business Investment Company program targeting early-stage enterprises.

    Not bad for a day's work. But only made possible by the tireless efforts of political, financial, entrepreneurial, and social sector leaders in the UK, over more than a decade.

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