Financing Impact

In our 11th episode, Patrick Nussbaumer and Winnie Odhiambo discuss impact investing in frontier markets. Patrick works for UNIDO’s innovative finance division, and Winnie is an impact investing professional whose career spans working with pension funds, VCs, in private equity and in private debt. We explore the role of development finance institutions (DFIs) in impact investing and how to mitigate country risk in emerging markets. We also discuss the need for more investments into climate adaptation, and the specific challenges of impact measurement in this field.   Links: ·       The definition of impact investing by GIIN, the Global Impact Investing Network ·       The Catalyst Fund’s report on Investing in Climate Tech Innovation in Africa ·       PFAN, the Private Financing Advisory Network, is connecting investors to high-potential climate and clean energy projects in emerging markets ·       UNIDO’s Catalyst Fund for Fintech-Enabled Climate Adaptation is accelerating and de-risking innovation in frontier markers ·       Development finance institutions (DFIs) active in emerging economies include IFC, the Dutch Entrepreneurial Development Bank (FMO), the African Development Bank and Norfund. ·       Patrick’s analysis on Key trends in domestic finance for energy access and transition in frontier markets ·       The Benchmark analysis of frameworks for measuring climate resilience and adaptation produced with input from the Working Group in which Patrick is active ·       The research on Impact Linked Compensation mentioned by Patrick   Time stamps On some podcast players, you should be able to jump to the section by clicking: (01:47) – Winnie and Patrick introduce themselves (05:45) – Winnie’s and Patrick’s approach to impact investing (08:59) – Winnie’s role in facilitating transactions (10:53) – Impact measurement in climate adaptation vs climate mitigation (16:28) – The role of development finance institutions (DFIs) in mobilizing investment in emerging markets (18:26) – Investing in SMEs in emerging markets (23:40) – Mitigating country risk (25:42) – The role of local financial institutions (28:42) – UNIDO’s role in facilitating transactions. (31:37) – The need for more investment into climate adaptation (34:39) – The difference between adaptation and resilience (37:15) – The need for investment in post-conflict economies (39:06) – Geographic concentration of impact investing and wealth concentration (40:27) – Incentivizing impact at fund manager level (43:51) – Winnie predicts increasing regulatory scrutiny towards impact investors, especially those raising funding from public sources   Contact For feedback on the show or to suggest guests for future episodes, contact us at scifi@esmt.org          

In our 10th episode, we take a deep-dive into Malengo, an organization that facilitates international educational migration. Malengo helps students from low-income countries with admissions and financing for a bachelor’s degree in a high-income country. We discuss why migration is an important lever for development, and how income-share agreements can make supporting it a worthwhile impact investment. Our guests bring in 3 different perspectives. Johannes Haushofer is a development economist who founded Malengo based on findings from his research. Richard Nerland is an economist with a passion for academic economics and international development. Convinced by Malengo’s potential for impact, he invested USD 3.5 M into the organization. Along the way, he helped develop a tax-efficient financial model to make Malengo attractive for other investors to follow suit. Gladys Amule is a student from the first cohort of Malengo scholars. She shares her experience with the program and her motivation to pay it forward through Malengo’s income-share agreement. Links ·       Malengo’s website ·       Johannes’ Twitter thread explaining the academic path that led him to found Malengo ·       Richard’s Twitter thread explaining why the decided to become Malengo’s inaugural investor, including his take-aways from academic literature   Academic papers recommended by our guests ·       Johannes ‘ paper on general equilibrium effects for cash transfers  Egger, D., J. Haushofer, E. Miguel, P. Niehaus, and M.Walker. 2022. “General Equilibrium Effects of Cash Transfers: Experimental Evidence From Kenya” Econometrica. https://doi.org/10.3982/ECTA17945 ·       Michael Clemens economic argument that friction from migration restriction is enormous Clemens, Michael, A. 2011."Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?" Journal of Economic Perspectives, 25 (3): 83-106. DOI: 10.1257/jep.25.3.83 ·       Chris Blattman’s paper on cash transfers wearing off: Blattman, C.,N. Fiala, N. and S. Martinez, 2019. “The Long Term Impacts of Grants on Poverty: 9-Year Evidence from Uganda's Youth Opportunities Program”. http://dx.doi.org/10.2139/ssrn.3223028  ·       On brain gain, evidence from nursing programs in the US: Abarcar, P., and C. Theoharides; C. 2021. “Medical Worker Migration and Origin-Country Human Capital: Evidence from U.S. Visa Policy”. The Review of Economics and Statistics. https://doi.org/10.1162/rest_a_01131 ·       On brain gain and spill-over effects Khanna, G., E. Murathanoglu, C.B. Theoharides and D. Yang, 2022, “Abundance from Abroad: Migrant Income and Long-Run Economic Development”, National Bureau of Economic Research, Working paper 29862, DOI 10.3386/w29862 ·       Lant Pritchett on labor migration Migrants, Ancestors, and Foreign Investments Burchardi, K. Chaney, T. and Hassan, T. 2018, Migrants, Ancestors, and Foreign Investments, The Review of Economic Studies, Volume 86, Issue 4, , Pages 1448–1486, https://doi.org/10.1093/restud/rdy044 Time stamps In some podcast players, you should be able to jump to the section by clicking: (00:01:56) – Johannes, Gladys and Richard introduce themselves (00:03:19) – Johannes explains what Malengo does and how his academic research inspired him to found an organization facilitating international educational migration (00:10:27) – Gladys shares why she applied to study with Malengo (00:14:19) – Richard shares why he decided to fund work related to international educational migration, inspired by reading academic papers on development economics (00:17:07) – Richard elaborates on how Johannes’ academic credentials and track record as high agency person convinced him to support Malengo’s work (00:19:47) Richard on giving vs impact investing – the investor’s perspective (00:22:10) Richard on the process of jointly setting up a legal structure for impact investing with Johannes (00:25:36) Johannes on seeking donations vs seeking investments – the founder’s perspective (00:27:23) Johannes on Richard providing more than just money: expertise and patience (00:28:31) A structure that can now be deployed at scale (00:30:37) Gladys on what she would have done if she hadn’t studied with Malengo (00:31:20) Johannes on the expected impact on student’s income and the independent research accompanying Malengo’s work (00:34:08) Gladys on sending money back home (00:35:46) Johannes on the income-share agreements (00:39:15) Gladys on her motivation to pay it forward (00:40:22) Johannes on why he isn’t worried about brain drain (00:43:28) Gladys on inspiring other students (00:44:43) Richard on the academic papers that influenced his thinking on what works and what doesn’t in development economics (00:48:27) Richard on how “this one little thing that he’s very good at”, “this little finance thing”, can empower others (00:50:27) Gladys on her role as a mentor for the next Malengo cohorts (00:52:19) Richard’s deep dive into how he thinks about his investments into Malengo from a financial perspective (protection from inflation, assumptions for alpha outperformance, diversification from the rest of his portfolio from a market risk perspective) (00:59:36) Johannes on the impact evaluations embedded in Malengo’s work and the endeavor to also uncover whether there are negative effects (01:03:06) Gladys on how leaving home felt for her (01:07:08) Johannes on the role of philanthropy, impact investing and effective altruism for Malengo (01:09:03) Richard on hoping to inspire other impact investors to follow suit (01:14:20) Johannes on how the political climate affects his plans to grow an organization facilitating migration (01:15:50) Gladys on interest from her peers to follow in her footsteps (01:16:45) Johannes on a mindset of cooperation towards other organizations in the same space (01:19:31) Johannes, Richard and Gladys on the best ways to support Malengo’s mission

In our ninth episode, Brunno Maradei and Wiebke Merbeth discuss the role of institutional investors in achieving net zero. Institutional investors such as pension funds or insurers invest on behalf of others. Wiebke is member of the Sustainable Finance Advisory Committee to the German Government and a partner at Deloitte, and Brunno is Global Head of Responsible Investment at Aegon Asset Management. Both point out that the sheer trillions of € that institutional investors manage make them key stakeholders for a transformation agenda involving financial markets. We discuss the toolbox institutional investors have at their disposal, but also that their strategies don't work in isolation. They have to be seen the context of alliances, technological progress on ESG data collection, and of course: regulation.   Links: ·       Statista numbers on the asset management industry in Europe and the market share of institutional clients ·       The Institutional Investors Group on Climate Change (IIGCC) ·       UN PRI introduction to stewardship ·       The Corporate Sustainability Reporting Directive (CSRD) ·       The Sustainable Finance Advisory Committee to the German government   Time stamps On some podcast players, you should be able to jump to the section by clicking:   (01:35) – Wiebke and Brunno introduce themselves (03:43) – The importance of institutional investors for net zero (05:51) - The role of regulatory developments in achieving net zero (08:14) - The importance of the Paris Agreement (08:49) - Analogy with divestment in the tobacco industry (10:57) - The role of public opinion for sustainable finance (14:53) - The cost of the climate crisis and of sovereign debt for future generations (17:41) - Investing in climate change mitigation is a type of insurance – and insurance is difficult to sell (19:32) - Stewardship vs divestment (22:24) - Sustainability is an alliance issue (25:08) - The evolution of ESG data quality (28:09) - Get rid of the formulation “non-financial reporting” (29:47) - Beyond carbon – the other aspects of ESG (33:30) - Minimum standards and the sources of reporting (38:41) - Combative engagement vs soft engagement (40:52) - Blended finance (45:21) - Outlook on regulatory developments   Contact For feedback on the show or to suggest guests for future episodes, contact us at scifi@esmt.org

In our eight episode, we discuss impact investing in EdTech. Our guests bring a complementary perspective: Marie-Christine Levet is founding partner at Educapital, a European EdTech VC that closed its second fund with a €150 million closing. John Soleanicov works for the Jacobs Foundation, which committed CHF 30 million to impact investments into EdTech, and CHF 10 million funding for accompanying research. We discuss the rationale for promoting EdTech and the complementary roles of grants and impact investments. We hear about Educapital’s and the Jacobs Foundation’s approach to impact measurement, and how Marie-Christine incentives her team to strive for more impact. Our conversation also touches upon what business models based on advertising mean for inclusion and educational sovereignty.  Links ·       This two-pager explains the Jacobs Foundation’s CHF 40 million commitment to global EdTech research and investment ·       Educapital’s website includes annual impact and ESG reports ·       John cited the “Every Student Succeeds Act” (ESSA) tiers of evidence as a framework that helps assess qualitative differences in impact measurement.   Timestamps On some podcast players, you should be able to jump to the section by clicking: (01:57) - Marie-Christine and John introduce themselves (09:17) - Why the Jacobs Foundation does impact investing through grant making and not via an endowment (12:21) - The impact indicators used by Educapital (16:32) - How the Jacobs Foundation promotes uptake of evidence on what works in EdTech through investor demand (19:45) – Reconciling education as a public good with the role of private sector incentives to accelerate change  (21:00) – Research and investing are different, yet both need data (24:41) - How Educapital incentivizes impact through the carry of the fund (26:39) - Certification for different levels of evidence related to education products (31:18) - The need for a European EdTech industry to maintain educational sovereignty (40:29): - Why impact-linked compensation is a stronger signal than SFDR article 9 (41:50) - On sourcing impact investments (44:14) - Outlook for the Edtech sector   Contact For feedback on the show or to suggest guests for future episodes, contact us at scifi@esmt.org

In our seventh episode, we discuss impact investing in public markets with Krisztina Tora and Eric Rice. Krisztina is Chief Market Development Officer at GSG, the Global Steering Group for Impact Investment. Eric is head of Active Equities Impact Investing at Blackrock, the world’s largest asset manager. In our conversation, we discuss what makes impact investing through the stock market different from investing in private equity or other asset classes. We talk about what it takes to democratize impact investing and the role of shareholder engagement to achieve impact. Eric shares Blackrock’s strategy to build a universe of potential impact companies and explains how his team selects investees out of this universe. Krisztina walks us through the different standards for impact measurement. Our conversation also touches upon the role of the 17 UN Sustainable Development Goals (SDGs) to mobilize capital. We discuss that investments geared toward SDGs can achieve returns.   Links The Global Steering Group for Impact Investment (GSG) The Impact Management Platform offers numerous tools for setting strategies around impact measurement Harvard’s Impact-Weighted Account Project seeks to drive the creation of financial accounts that reflect a company’s financial, social and environmental performance Krisztina recommends the DEI report by Rights CoLAB to understand market signals of diversity, equity and inclusion Blackrock showcases it’s approach to impact investing in the Summary Global Impact Annual Report 2021   Timestamps On some podcast players, you should be able to jump to the section by clicking: (01:51) – Krisztina and Eric introduce themselves (07:44) - The continuum of capital (10:55) – Market rate returns or concessionary returns? (11:58) – Distinguishing impact investing from ESG (12:55) - Democratizing impact investing through public markets (16:45) - Added value of the investor to achieve impact (additionality) (24:21) - Blackrock’s approach to build an universe of investible of impact companies (28:03) - GSG’S SDG Investor Opportunity maps in cooperation with the UN (33:38) - Shareholder engagement (38:50) - Best in progress vs. best in class (46:02) - The harmonization of standards related to impact investing (51:05) - The move towards auditing in impact measurement (52:31) - The rationale for long-term investing (01:00:48) - Social justice, diversity and inclusion   Contact For feedback on the show, or to suggest guests for future episodes, contact us at scifi@esmt.org

In our sixth episode, Charly Kleissner shares his investment philosophy, which he calls “deep impact investing”. Charly came into wealth as a technologist building several very successful companies in Silicon Valley. He developed the basis for what later became Apple’s OS with Steve Jobs at Next, but considers the B2B eCommerce company Ariba his masterpiece. Since selling his Ariba stock, Charly has devoted himself to impact investing to give meaning to his wealth. He co-founded Toniic, a network for likeminded impact investors, to share knowledge and deal flow. Under the umbrella of Toniic, he also launched the 100% Network, a group of more than 160 asset owners committed to investing all their wealth towards positive impact. With portfolio sizes ranging from more than 1 million to more than 500 million, they have jointly committed 6 billion USD, with more than half currently deployed. Some of these portfolios are the basis for the T100 project, a longitudinal study of investments fully oriented towards impact. We discuss the role of research to analyze risk-return-impact profiles. Charly reflects on his role shaping the impact investing ecosystem and shares his thinking around systemic change as opposed to incremental progress. He also shares why he is opposed to cryptocurrency speculation but believes blockchain technology and tokenization hold promise for the future of impact investing. Links Charly co-founded the Toniic network, a global community of asset owners seeking deeper positive net impact through their investments. The 100% Network is a subgroup of members committed to direct all their investable wealth towards impact. Otto Scharmer’s book Theory U influenced Charly’s approach to building trust in networks. Toniic has initiated the T100 Project, a longitudinal study of investment portfolios 100% activated towards deeper positive net impact in every asset class. In addition to producing practitioner reports, it works with the Center for Sustainable Finance and Private Wealth (CSP) under the leadership of Dr. Falko Paetzold to publish academic research. Arne Naess’ work around deep ecology (a term coined in a 1973 article) led Charly to come up with the concept of “deep impact”. To analyze whether investments are systemic in nature, Charly points to John Fullerton’s principles of a regenerative economy and Kate Raworth’s Doughnut of social and planetary boundaries. Charly recently wrote his personal reflections and call to action on Humanity and Impact Investing at the Crossroad.   Timestamps On some podcast players, you should be able to jump to the section by clicking: (01:57) – Charly’s background and motivation for impact investing (07:12) – The process for sourcing an impact investment (07:26) – The Toniic network (09:01) – The investors aligning 100 % of their portfolio towards impact (11:28) – How to establish trust in networks (15:48) – Research on the impact-risk-return correlation and the aspiration to develop a post modern portfolio theory (19:41) The value of data vs. the value of insights (22:32) The ESG movement (27:25) System change (28:45) Social impact bonds (32:34) The need for public-private collaboration to make progress on the SDGs (37:30) Blended capital to finance social entrepreneurship (42:49) On market rate returns as a benchmark (48:51) Tokenization (01:00:17) Consciousness and deep impact   Contact For feedback on the show, or to suggest guests for future episodes, contact us at scifi@esmt.org

In our fifth episode, Gorgi Krlev and Dominik Domnik discuss what it takes to foster innovation that benefits society. We delve into what social innovation is, and what role public policy and specific funding instruments play for the growth of the sector. Gorgi is an assistant professor of sustainability at ESCP Paris. He has conducted a study comparing and assessing approaches from 10 different countries to support social innovation. Dominik works for LMU’s Innovation and Entrepreneurship Center. He has previously worked for a foundation and a family office and set-up his own social business. They discuss the rationale for factoring in the long-term benefits for society when investing into innovative solutions to societal problems, whether you are a policy maker or an investor. We also address jargon and how to bridge cultural differences between the private sector, the public sector, and civil society to jointly promote social innovation. Links Gorgi conducted the study “Financing Social Innovation” on behalf of SEND, the German Social Entrepreneurship Network. Examples mentioned by Gorgi and Dominik: Portugal Social Innovation is a government initiative aimed at stimulating the social investment market in Portugal. It mobilizes around EUR 150 million from the European Social Fund through 4 financing instruments: capacity building for social investment, partnerships for impact, social impact bonds, and the social innovation fund. Power Up Scotland develops early stage social businesses through investment, business support and cross-sector partnerships. It has been launched by Big Issue Invest in partnership with the Scottish Government and the University of Edinburgh. The Finnish Innovation Fund Sitra received an endowment capital fund of approximately 84 million euros from the Bank of Finland and the Finnish Parliament. Sitra’s work is funded by the returns from its capital. Investments up and running and underway include Social Impact Bonds (SIB), e.g. with a focus on Type 2 diabetes prevention. For feedback on the show or to suggest guests for future episodes, contact us at scifi@esmt.org

In our fourth episode, Kirsten Dunlop and Dominic Hofstetter discuss why adopting a systems thinking perspective is key to tackling the climate crisis. They explain that it’s necessary to overcome a project-by-project mentality to achieve structural change. We hear why achieving a net-zero economy calls for an approach as ambitious as the Marshall plan. Both guests argue for the need to build portfolios of investments that are connected and create synergies to achieve sustainable transformation. Kirsten and Dominic also discuss how such an investment logic is at odds with traditional finance portfolios, which are built for diversification to reduce financial risk. Last but not least, the conversation addresses what needs to be done to foster a new logic to finance transformation.   Links Climate-KIC is the EU’s main climate innovation initiative, of which Kirsten is the CEO. The Transformation Capital Whitepaper authored by Dominic elaborates on many of the ideas touched upon in this episode. The TransCap Initiative sets out to put to practice the ideas articulated in the Whitepaper. For feedback on the show or to suggest guests for future episodes, contact us at scifi@esmt.org

In our third episode, Marta Zaccagnini and Ben Wrobel discuss power dynamics in funding within the impact investing space and in philanthropy. They explain why shifting decision-making power to those with lived experience of the problem at hand is both timely and leads to better outcomes. For impact investing, we look into the peer selected investment approach of Village Capital, where Marta is a manager. Ben, who co-wrote a book on participatory approaches in philanthropy and impact investing, analyzes what decision making processes in foundations and investment funds have in common. We hear examples of organizations that have introduced participatory approaches around funding decisions, and address reservations funders may have towards ceding decision-making power. In an outlook beyond the world of impact investing and philanthropy, we hear about the potential for participatory budgeting to restore trust in democracy.  Links Village Capital’s “Flipping the Power Dynamics” report presents findings on the outcomes of the peer selected investment approach regarding both diversity and commercial success. Letting Go, the book Ben co-authored with Meg Massey, explores how philanthropists and impact investors can do more good by giving up control. Additional resources mentioned by Ben: The Grantcraft Guide to participatory grantmaking Shari Davis' TED talk on participatory budgeting The People Powered Hub for Participatory Democracy For feedback on the show or to suggest guests for future episodes, contact us at scifi@esmt.org

In our second episode, Aunnie Patton Power and Julia Winkler discuss the challenges associated with funding purpose-driven organizations and how to overcome them. Aunnie is an angel investor, an academic, an adviser to funders and founders, and an author. Her book “Adventure Finance” presents innovative funding options for startups and businesses that are not a fit for the venture capital world. Julia is the co-founder of Volunteer Vision, a digital mentoring platform promoting a diverse and inclusive workforce. Her social business is funded by impact investors, and she shares the lessons learned from her fundraising journey. We discuss innovative funding models such as redeemable equity, invoice factoring and supply change financing. We also talk about how investors can source impact investments, why organizations need different types of funding at different stages of their life cycle, and what skills are essential for fundraising. Links: Aunnie’s book “Adventure Finance” showcases innovative funding options available for social businesses and non-profits through storytelling and tested frameworks. https://www.adventure.finance/ Volunteer Vision, the social business co-founded by Julia, promotes a diverse and inclusive workforce through online mentoring. https://www.volunteer-vision.com/   About Financing Impact: Financing Impact is an interview podcast about funding and scaling societal impact. This podcast is brought to you by SciFi, the Societal Impact Financing Initiative at ESMT Berlin.

In our first episode, Stephen Muers and Antonis Schwarz discuss how dormant assets can be leveraged to finance impact. Dormant assets are, for example, bank accounts which haven't been touched for many years and for which the owner cannot be found. In the UK, dormant assets have been used for over a decade to fund social impact investment. Stephen is the CEO of Big Society Capital, the financial institution through which these funds are channeled to investments that generate both a financial and a social return (e.g. social housing). Antonis is a philanthropist and impact investor who has long advocated to use dormant assets to finance impact in Germany. We discuss, amongst others, what political momentum there is for this in Germany in the aftermath of the elections. Links: Big Society Capital https://bigsocietycapital.com/ Proposal of the German Social Entrepreneurship Network (SEND) on dormant assets (in German) https://www.send-ev.de/wp-content/uploads/2021/03/2_Auflage_Nachrichtenlose_Assets.pdf   About Financing Impact: Financing Impact is a podcast about funding and scaling societal impact. To bring you fresh ideas, we conduct interviews with thought leaders from different backgrounds. This podcast is brought to you by SciFi, the Societal Impact Financing Initiative at ESMT Berlin.   For feedback on the show or to suggest guests for future episodes, contact us at scifi@esmt.org