For the first time in two decades, global extreme poverty is expected to rise. According to The World Bank, the COVID-19 pandemic will contribute to an additional 150 million people living below the $1.90 a day poverty line by 2021. More than 80% of those who will fall into extreme poverty this year are in middle-income countries, with South Asia the worst-hit region, followed by sub-Saharan Africa.
Against this background, the IMPACT Programme held its first annual learning event – a convening of its portfolio partners – designed to encourage collaboration and knowledge-sharing among our partners. With market needs greater than ever, the opportunity for impact investors to ‘step up’ their support to developing economies is clear. However, an underdeveloped ecosystem for impact capital in emerging markets is a challenge for investors seeking to ‘do well by doing good’. Where and how best to invest is not easy to assess. Developing that ecosystem is the main focus of the Palladium-managed UK Aid IMPACT Programme, which aims to increase the volume and improve the distribution of impact investment into sub-Saharan Africa and South Asia.
Participants in the annual learning event surfaced valuable market insights for UN Sustainable Development-led impact investing in sub-Saharan Africa and South Asia. Here are our three main takeaways from the learning event, which presented an opportunity – in the words of the programme’s Team Leader, Tom Adlam – to “make the programme more than the sum of its parts” by connecting and encouraging collaboration among ecosystem builders and innovators.
1. Maximising the potential of impact investing requires collaboration. Building the right environment for impact investing requires creating the necessary services and shaping the rules and regulations governing the market. As a grant-maker, the Programme aims to create the right conditions for innovative solutions to emerge. In discussing the need for a supply of investment products that better match regional demand, for example, the task is not to support product development by individual actors – but to collaborate to build capacities (e.g. through training and awareness) and to shape incentives for product developers across the market to construct offers that address social and environmental needs. “It’s important to address market realities as much as market failures,” said As Gerrit Heyns from 17 Africa.
Our partners work across a range of areas, from driving common approaches to impact management, measurement, and reporting to developing the knowledge and awareness of impact investing among financial institutions and policy leaders in Sub-Saharan Africa and South Asia. In the same way that a value chain is only as strong as its weakest link, it is only by strengthening all these components and linking them together that we can move the needle on increased volume and improved distribution of impact capital into the regions, sectors and businesses which need it most.
2. Lasting change is rooted in local knowledge and local solutions. There is no better time than now for the impact investing community to examine the sector and local market specific needs, investment opportunities and institutional capacity. Solutions need to be rooted in regional and national issues and to avoid a ‘one size fits all’ thinking. That is why the IMPACT Programme is supporting the Global Steering Group for Impact Investment to establish National Advisory Boards (NABs) for impact investment in Sub Saharan Africa and South Asia. The NABs convene the right actors at country level to help strengthen the market for impact investing in alignment with national developmental priorities. Hamdiya Ismaila from Ghana’s NAB highlighted the need for local solutions. “Local leaders must lead the design and execution of solutions driven by local needs, opportunities and development priorities,” she said. “There is a need to support local fund managers and investment intermediaries to raise funds from local or regional investors.”
This requires a conducive regulatory environment – from respect for the rule of law to investment promotion policies – for impact capital both to flow effectively and to address national priorities. Impact investors need to ask not just what national policies can do for them; but what they can do to drive national policy priorities. The end game is greater awareness, interest and practice of impact investing from local institutional investors – where private sector contributions to SDG achievement are not just reliant on foreign capital flows.
3. To do this – we need to mainstream impact investing to drive scale. In Sub-Saharan Africa, in particular, financial markets are relatively underdeveloped and there is often a blurred line between impact investing as an investment style and wider capital market development. In general, existing impact investing products remain niche, relatively small-scale, and rely on internationally-provided development finance or concessional capital. In order to scale, the mainstream financial sector needs to be mobilised, specifically through the development of stronger intermediation models which drive increased volume of investment into high-impact businesses.
Doing this requires “moving past the label of impact investing and look at what it means in practice,” said Giselle Leung of the Global Impact Investing Network. This will entail a concerted effort to connect the work of global leaders like the GIIN and the Global Steering Group for Impact Investment with organisations developing innovative solutions targeted at specific SDGs, and organisational types, backed not only by international capital, but also by local or regional financial institutions.
Currently, the world faces a multitude of challenges: climate change; racial and economic inequality; extreme poverty; and of course, the ongoing pandemic. These challenges need new solutions; while the growth in responsible environmental, social and governance, or ESG, investing is welcome, it is unlikely to be enough. The goal of the IMPACT Programme and its partners is to get more investors and financial institutions not to just avoid being ‘do-badders’ but to be ‘do-gooders’. By acting on these three insights: the need for collaboration, the need for local participation, and the need to break down impact investing silos, the impact investing community can help drive a new “impact capitalism” model, designed to address the root causes of these challenges.
As the great American anthropologist, Margaret Mead, famously said “Never underestimate the power of a small group of committed people to change the world. In fact, it is the only thing that ever has.” And that is an encouraging thought.
Shruti Goel is a portfolio lead at FCDO IMPACT Programme. Tom Adlam is a team leader at Palladium. Matt Ripley is head of impact services at The Good Economy.