Impact investors today have the tools to tie financial value to impact in ways that would have been unimaginable a decade ago.
From impact-linked financing to the range of emerging credit markets, we have an arsenal of instruments ready to reward firms that are generating positive change. Philanthropy and early-stage investing provide the critical funding needed to prove out business models, clarify product-market fit, and scale potential.
We have seen the power of solutions that can take on increasingly complex threats, including unreliable energy access, rising temperatures, and uncertain supply chains for farmers. But to fully realize the impact and to scale the potential of these models, public funders and corporations need to accelerate that progress with the right funding and incentives.
At this year’s Marmalade Festival in partnership with the Skoll World Forum, Acumen hosted the session, “Monetizing Impact: How economic systems can incentivize impact value creation.” I, along with Acumen’s Chief of Development and Partnerships, Yasmina Zaidman, had the honor of hosting a conversation with David Auerbach (Co-Founder of Sanergy, a social enterprise that collects and converts waste into agricultural products), Jean Shia (Managing Director of Autodesk Foundation) and Abrar Chaudhury (Senior Research Fellow of Skoll Center).
The panel discussion was followed by group breakouts, where participants were invited to brainstorm how to build more demand for a specific type of impact, such as improved health outcomes, reduced carbon emissions, or reduced deforestation. Through the panel and group conversations, panelists and participants highlighted key challenges, opportunities, and insights to build financial markets that reward positive social and environmental impact. Here are our key takeaways:
Regulation must provide the guardrails without restricting innovation.
Policies and regulations provide critical structure to otherwise vague and arbitrary markets, but they must do so without suffocating innovation or repelling corporate engagement. For example, the European Union’s Corporate Sustainability Reporting Directive requires companies to file annual sustainability reports in addition to their financial statements. As Jean Shia stated, “Some corporations are walking back on social, environmental, and sustainability targets. In the absence of voluntary actions and commitments, governmental regulations can compel the private sector to act with accountability towards impact.” Both sticks (e.g., taxes) and carrots (e.g., incentives) are needed, but funders and investors can do more to make the carrots attractive to corporations.
Corporations need to see and think beyond the immediate boundaries of their business.
Corporations are critical, yet untapped, buyers of impact. Currently, many corporations do not even realize that they need to invest in long-term impact for their business sustainability. Abrar Chaudhury shared, “We can look at the cocoa market over the past few years. Cocoa prices shot up from $2,000 to over $10,000. If I’m a chocolate manufacturer, my factory might be efficient, but what about my supply chain? How do I work with communities to make them more resilient?” Corporations need to consider and integrate the long-term implications of challenges, including climate change, health outcomes, and dignified livelihoods beyond their immediate organizational boundaries.
Social enterprises need clear, measurable impact to tap into capital markets.
On the supply side of impact, participation in these markets requires significant time and resources for social enterprises. They need a determined product-market fit, have demonstrated business viability, and have reached scale to attract buyers. Sanergy’s business model, for example, has reduced methane emissions since the company’s inception, but it took time for the company to issue carbon credits. According to David Auerbach, “It took us 10 years of operating before we were able to monetize that impact. It took articulating, measuring, and proving our impact to internalize the environmental and social benefits of our business. After a two-year process, I’m proud to say that we are the first company in East Africa to issue Verra-certified circular economy-based carbon credits.” The barrier to entry is extremely high for companies. But funders and investors can help entrepreneurs to clear the high bar.
Funders and investors can help ease the burden of impact verification.
Companies need to be able to measure and prove their impact, so that funders can be sure that impact-linked capital is reaching its intended target communities. But impact measurement and management can be expensive, time-consuming, and unactionable. As Kate Kuper, Director of Social Impact Advisors, shared, “Funders and investors can focus on simple outcomes. We should explore ways to avoid imposing the burden of verification on service or impact providers.”
It’s easier to mobilize action together.
When funders, investors, or entrepreneurs work alone, we may reach a few individual goals, but not the systems change we desperately need. There’s massive potential if we all exchanged insights, collaborated on long-term projects and investments, and built on each other’s work. It could attract attention from multinational corporations and governments alike. As stated by another session participant, “Once you get the numbers, it’s easier to mobilize action together.”
Continuing the conversation
In addition to continuing to invest patient capital in innovative companies, there are three key areas where we, at Acumen, believe we can build on, and we invite funders and investors to do the same:
- Provide capacity building with targeted technical assistance support and connections to key players in the capital markets ecosystem to help them iterate on their product or service, scale their solutions, and attract critical funding. We have provided introductions to carbon developers that have led to significant opportunities and also provided development support to our investees, building their carbon methodology.
- Explore innovative instruments, whether outcomes-based financing, biodiversity credits, or other tools supporting companies and the communities they serve. Instruments that pay for positive impact enable good companies to do better.
- Build partnerships and bring others along. Rather than reinventing the wheel, let us build with and on each other’s work.
We hope this is the first conversation of many. We plan to explore opportunities and forums for discussion, so that we can both share more case studies and learn from others. We look forward to continuing the discussion and building out the financial systems that value healthy people and a healthy planet.
Amrita Bhandari is Chief of Insights and Strategy at Acumen.
