I have a new favourite noise: the sweet sound of planes overhead. After 12 memorable days in the UK, it was delectable to finally touch down in TO, flying safely by the falling ash from Eyjafjallajökull.
While my journey involved meetings with several social finance organizations and attending the Skoll World Forum on social entrepreneurship, many unexpected events reaped great rewards. Where else but in the shadow of the ash cloud could you partake in Tedx Volcano and ad hoc meetings across London organized by stranded social innovators? In all cases, fascinating people and rich learning was threaded throughout.
One of the hottest topics at Skoll was social finance.
Much of the content fell under the banner of impact investing (also referred to as social investment or sustainable investment). Impact investing is defined as “actively placing capital in businesses and funds that generate social and/or environmental good and a range of returns, from principal to above market, to the investor.” (As per the Monitor Institute.) The primary goal of this investment approach is that by leveraging the private sector, these investments can provide solutions at a scale that pure philanthropic interventions cannot.
While there were numerous examples of impact investing presented at Skoll, I will highlight four particularly compelling ones here that offer a range of approaches.
Laurie Spengler, CEO of ShoreBank International, profiled a deal that they structured for BRAC (Bangladesh Rural Action Committee), a large NGO focused on using microfinance to transition people out of poverty. For context, Shorebank is the first and largest community development bank (CDB) in the US with $2.1 billion in assets. The BRAC deal included a group of investors with a spectrum of return expectations. What made it innovative was Shorebank’s ability to fairly quickly raise $63 million through 13 investors with varying risk profiles–65% was sold on a commercial coupon basis (8% coupon) and 35% in the second tranche (5% return with a possible kicker at the end). Many of the investors were willing to invest in both groups, taking a bigger discount on the financial side because they believed in the strong social impact of the opportunity.
John McCall MacBain Foundation
John McCall MacBain started a foundation in his name after selling his classified ad company. He feels strongly that too many foundations separate their granting side from their investing side. Uniquely, the granting work of his foundation often leads to clear investment opportunities and vice versa. One example involved grant-making in Liberia where the foundation was focused on reducing infant mortality in hospitals. While investigating hospital spending, MacBain discovered that 50% of expenses were electricity costs. The foundation then considered how they could offer electricity more cheaply and reliably. Buchanan Renewables was born.
Using foundation capital, they bought a company that was chipping end-of-life rubber trees for export and created a plant that could produce power from these chips. In addition to employment growth, the energy produced was then provided domestically at a cheaper rate and far cleaner than previously generated.
Bridges Social Entrepreneurs Fund
Ilse Treurnicht and I met with Bridges Ventures’ Executive Director, Michele Giddens while in London to explore models for social venture-type funds for Canada. One of Bridges’ newest funds is definitely worth highlighting.
UK-based Bridges Social Entrepreneurs Fund describes itself as addressing the funding gap often faced by fast-growing social enterprises looking to scale. Since launching in November 2008, the fund has raised £9 million for investment in scalable social enterprises. This is the third Bridges fund (the first raised £40 million and the second raised £75 million) but is distinct in a couple ways. The first two funds sought market rate returns and invested in entrepreneurial businesses that were either located in deprived neighbourhoods or had a social or environmental impact. In addition, the investors in those funds included banks, pension funds and wealthy individuals. The Social Entrepreneurship Fund is targeting returns in the 3-5% range and has attracted more foundations, government dollars as well as individuals (funds have been raised through a mixture of donations and investments).
This fund is being viewed as a model for other countries (including Canada) so it will be interesting to watch this space.
Social Impact Bond, presented by Social Finance
A new vehicle, referred to as the Social Impact Bond is currently being piloted by a social investment bank in the UK called Social Finance .
The bond is a contract with the public sector in which it commits to pay for improved social outcomes that result in public sector savings. The expected savings are used as a basis for raising investment for prevention and early intervention services that improve social outcomes. To give a concrete example, Social Finance has just launched a pilot focused on reducing re-offending rates in the UK. They have brokered a deal between the Ministry of Justice and St. Giles Trust which has a strong track record of reducing recidivism in short-sentence male prisoners. Essentially, if the planned outcomes are achieved (the initiative reduces re-offending by 7.5% or more), investors will receive a share of the consequent savings to government.
This innovative financing tool has been discussed in Canada to improve outcomes around issues that have historically lacked funding for prevention or early intervention. Members of Social Innovation Generation (SiG) have met with the team at Social Finance UK and are closely watching this pilot and others as they are being launched. It’s definitely an exciting idea with potentially broad reaching implications.
While impact investing is still an emerging area, these examples illustrate that investors are emerging across asset classes and are combining creativity in financing with the desire to achieve social impact. In fact, an excellent report was just published called Investing For Impact which captures 20 case studies of impact investors globally doing some extraordinary work. None of the examples are Canadian, but at SiG we are working on supplementing these cases with local examples and will be sure to post them here.