Designing your social investments (II): Trends and market activities

“More than $23 trillion assets globally are subject to a non-traditional environmental, social, and governance impact screen, including over 25% of all professionally managed assets”– Harvard Business School.

In the last edition, we touched on the concepts of social and impact investments, and how emerging businesses are harnessing the inherent opportunities they present; not just in promoting social value to the company, but also the financial benefits as well. This week, we would explore some of the trends and market activities around social and impact investments. We would also study another case / business model from a different economic sector, find out the processes that made the model a success, and learn how they can be successfully applied to get the desired results for businesses in our clime.

We stated that for impact projects to succeed, they should be able to deliver on clearly mapped out goals represented in their mission and vision statements. Individuals, companies and even governments around the world would rather make investments that are in line with the values they stand for and in different parts of the world, businesses are answering the call to become social enterprises with the potential to provide the basic needs of the population; lifting them out of poverty.

Trends and Market Activities in Impact Investing.

In 2015, JP Morgan conducted an annual survey which suggested that globally, impact investors managed an average of USD 60 billion with an additional expected commitment of USD 12 billion. The reason for this growth spurt is accredited to the fact that foundations, development finance institutions, impact investment funds, governments and even high net-worth individuals (HNIs) are increasing their capital commitments, and using their capital to reach combined social and financial returns. Leading financial institutions around the world are either involved in impact investments in different ways using their own capital or working with clients to advice and direct them on ways to invest their capital towards more impact driven projects.

To take advantage of the opportunities that abound in impact investing, financial institutions operating in the mainstream can offer customised strategies for HNIs in their client base by providing them with Socially Responsible Investment (SRI) products thereby broadening their product offerings to include integrated impact investment options.

“Retail investing is much more directly participatory and meaningful than any other form of investing and ultimately recognises a greater degree of humanity within investment relationships. For that reason, impact investments should evolve inclusively – ensuring that almost everyone has the possibility of interacting with entrepreneurial ideas and activities that benefit society and becomes a co-creator and participant in the most practical, direct way.”

– Triodos Report: Impact Investing for Everyone.

 

Global  Impact  Investment  Trends

To this end, organisations need to be aware of notable trends in impact investing that can guide some of the processes in mapping out or developing impact projects. Some of these trends include:

 

  • Housing accounts for a largest proportion of impact investments, followed by microfinance, financial services (excluding microfinance), and energy.

 

  • Just over half of total capital is invested through debt instruments, and a third is invested through private equity.

 

  • Over 90% of currently-managed capital is invested in companies in the post-venture stage, with 28% allocated towards companies at the Growth stage, 52% in mature, private companies, 11% in Mature publicly-traded companies, and only 9% committed to seed/start-up companies or venture stage businesses.

Source:  JP Morgan and The Global Impact Investment Network (GIIN): Eyes on the Horizon.

Roshan Telecommunications, Afghanistan.

Telecoms operator, Roshan is a for-profit subsidiary of the foundation, Aga Khan Development Network in Afghanistan. It obtained the license for the second telecommunications company in the country in 2003 when only 100,000 (about 1% of the population of 25 million people) had access to a phone, and the per capita GDP was $200.

The company started at a time in the country where different regions existed led by different tribes, where the road networks were undeveloped, public safety was questionable, and literacy rates stood at less than 30%. These factors made it a complex background for Roshan as the company attempted to build a nation-wide telecommunications network.

Currently, Afghanistan has a few more telecom operators among which are MTN, Etisalat, Afghan Wireless, Roshan and a few others with about 18 million mobile phone users out of the total population of over 36 million, making the telecoms market in the country  worth approximately $1 billion. In 2013, just 10 years after, the company had invested $600 million building the telecomm infrastructure in Afghanistan. They boasted of a 30% market share in the country, generating over $300 million a year in revenue. Roshan’s taxes accounted for 5% of the national budget, and were seen as the country’s largest taxpayer at the time. Roshan boasted of being the country’s largest employer of labour accounting for 1,100 employees, 97% of whom were Afghanis, and 20% being women who were more often than not the breadwinners in their families.

Roshan has accredited its success to the fact that the company was guided by a clear vision statement which expressly stated that Roshan would be a benchmark emerging telecom company whose focus would be on its customers and employees (social impact). Their values would be centered on ensuring quality service provision and ethical work conditions. True to its word, the company executed a social responsibility program to provide food for children, built playgrounds, and created e-learning centers.

As an offshoot of these activities, the company enjoyed huge adoption of its services with its customers and it went on to launch information services for farmers, as well as a telemedicine project to connect all of the hospitals in Afghanistan.

Over the years, Roshan has been consistent in trying to change the narrative for telecom operators by impressing impact investment in the DNA of the company. According to Altaf Ladak, COO of Roshan “In the telecom industry, everyone says they have a CSR program – but it’s a byproduct. This is what we do.”

Innovative business models usually start with an idea or a grand plan of what the company would be down the line. One of the key to success for organisations is when they can embed these values in their operations and processes right from the start and ensure that at every point in the life of the organisation they are working towards actualising the values, not forget to deliver on social impact even in the face of difficulties.

EDITOR’S NOTE: In the next series, we would highlight some of the challenges enterprises face in the bid to deliver on social impact and how they can be overcome.

*References are available on: www.sustainableconvos.com

*Article written by ThistlePraxis Consulting

*References are available on: www.sustainableconvos.com

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