Stanford social innovation review impact investing conference
We will explore questions on how are different actors — movement builders, platforms, elected officials — working to improve upon or leverage these tools and processes to be better applied for the benefit of all? What steps are being taken to address crucial issues of equity and justice that are part of our social fabric?
How can we build alternative approaches that recognize that people are more than analytics and metrics in service to the latest automated solution? September , Stanford University, Frances C. The days of planning for our digital future are past. Today we operate in the digital now. In our impact investments were again on track to reach millions of additional people in underserved communities around the world.
We are excited to carry forward this momentum to make an even greater impact with our investments over the next decade. Enabling factors and constraints There are various factors that we can describe as enablers to our impact investment strategy and these include our executive board support, the overall sustainability of the business model as well as the expertise of our partners. The core of this approach is inventing responsibly— this includes being intentional in identifying shared value opportunities that link strongly with our mission and make sense for our business, rather than relying on chance.
We use three key criteria to evaluate impact investing prospects: 1. Social impact: How will this investment help to meaningfully improve the health of individuals and communities? Financial return: What is the revenue and profit opportunity? Commercial opportunities: Does this investment have the potential to open new avenues for our business? Most funds have life spans of 10 years, enabling them to be strategic and sustainably increase their impact. Over time, our aim is to generate low double-digit returns on our investments, and we are on track to achieve that goal.
We view impact investing as an important facet of our overall corporate responsibility commitment and have a public pledge to re-deploy our impact investing proceeds into other corporate responsibility efforts. This allows us to extend the impact and sustainability of our work: the proceeds we receive from impact investing can offset costs of our corporate responsibility efforts and enables us to continue contributing to the SDGs.
Our impact investing initiatives are also resonating with external stakeholders such as investors, who are increasingly interested in this sustainable approach to social impact; and academic institutions, who are eager to engage on the topic as students in public health and business seek to learn more about this growing field.
In terms of innovations and new ideas that our impact investments have brought to light; although not our primary objective, impact investing has also enabled new commercial opportunities. The growth of our business hinges on making our medicines and vaccines available in new markets— and our ability to operate in new markets often requires new partners and new ways of working.
Sustainability and replicability We are one of only a few pharmaceutical companies to have formally implemented an impact investing program. Our role as a pioneer in this space has prompted peers across the pharmaceutical industry and other sectors to reach out to our team for guidance, and several fund managers have remarked that our structure and governance model are among the most advanced they have seen.
We expect that interest and activity in impact investing as a tool to advance the SDGs will continue to grow, for healthcare and other sectors, as the model proves itself to be sustainable and delivering impact. The case is compelling, as the very success of impact investing is based on its ability to deliver ongoing progress on the SDGs through mutually reinforcing social impact and financial return. We are strong believers in the power of impact investing to transform communities and businesses, so we proactively seek opportunities to engage, network and share our expertise.
By taking on advisory committee non-voting roles within certain funds, our leaders, including Gustavsen; Roger Perlmutter, former head of Merck Research Laboratories; and Rehan Khan, managing director of our India affiliate, play an important role in sharing business and scientific expertise.
In the near term, for example, our LeapFrog investment for companies engaged in financial inclusion enables underserved populations to use financial mechanisms that traditionally might be out of reach — things like payment systems and health insurance — that provide them with the type of resilience they need when they need it. In addition, our investment in Evercare helps build the physical infrastructure of hospitals and clinics, ensuring patients get the healthcare services they need with quality they can rely on.
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ONLINE INVESTING COMPANIES COMPARISON
The Indian Ministry of New and Renewable Energy provided a capital subsidy on each new plant, enabling the business model to cover costs and provide enough profit to begin expanding. Slowly at first, because the profit levels were razor thin, but now they are increasingly looking at more market-oriented capital.
Husk has now brought electricity to , low-income villagers in rural Bihar. Mair: Most foundations focus on providing grants, but they do have alternative ways of providing financial support to organizations creating social change. What are some of those alternatives? The difference is, if the foundation provided that investment as equity instead of a grant, and if the initiative becomes commercially viable, the foundation has a piece of that equity and will enjoy the upside.
They were willing to make this investment because they were willing to bear the risk, a risk that no one else was willing to bear. The objective is to make an investment in an innovation. Milligan: What other types of risk are involved in impact investing, and how do these risks differ from the risks that investors take in traditional capital markets?
Mahmood: What distinguishes social finance from regular finance is two additional risks. One is the risk of failing to innovate—failing to push the envelope to meet the needs of the client and integrating the social impact into the business. By labeling that a social business, we create a risk to the fundamentals of how this industry needs to develop. If our focus becomes making money and giving it away afterward, then we are not achieving the potential.
The social and financial aspects have to be intertwined, like DNA. They are far more exaggerated for social enterprises because we have positioned this sector as being beneficial to the poor and beneficial to society. To me, one of the greatest risks in the sector is that it pumps up all its potentiality and then fails to focus on the customer, thereby creating no loyalty to the business and none of the social outcomes that were promised. How do we define the social finance industry? How do we avoid making it so commercial that the customer and the social service become secondary?
That to me is a primary risk. The second type of risk is political risk. The social sector is a temple of the politicians because poor people represent a large share of the voter base, especially in developing countries. So it is very easy for politicians to attack social businesses, to attack microfinance, which is clearly a risk that happened in India and in numerous other places.
When you talk about social business you are talking about changing the ways we look at society and empowering huge numbers of poor people, which can lead to deep political changes from an economic and social perspective. On the positive side, one can say that social finance will create political change.
This is certainly the desire among people who want to see greater transparency and democracy in the world. So we have to be very careful in how we position social finance and how it is perceived by society. Mair: As a social entrepreneur you have firsthand experience with many of these very issues, Iftekhar.
Could you talk a bit about your experiences raising money for your venture, and what lessons you have learned? Enayetullah: In , Maqsood Sinha, I, and another businessman established Waste Concern [a Bangladeshi hybrid organization engaged in waste recycling, renewable energy, and poverty reduction]. I want to fund you, but in order to do so you have to become a not-for-profit.
We cannot give funds to a for-profit company. It was just a project initiated by two fresh university graduates. So they contributed grant money to undertake additional pilots in 19 neighborhoods. They said that their funds were only for pilots, and if the project is successful, you have to look for other funding sources.
You are registered as an NGO. If you do not make a profit, how on earth will you pay us back? We had to convert to a nonprofit to receive initial funding, and now that we want to scale up, they say they cannot finance us because we do not make a profit. But none of this was easy, and we had many problems. One of the issues we faced is that the transaction costs become high when you involve conventional banks. When we received investments from FMO, the Dutch development bank, and the Triodos Innovation Fund, they wanted top-notch lawyers from Clifford Chance [a global law firm based in London] to draft the financing agreement.
We had to pay a large amount of money as part of our project cost. They also wanted a 0. These are the kinds of things that social entrepreneurs and investors need to come to a common understanding about, for example, that commercial financing fees cannot apply to social investments. Milligan: Your experience in Bangladesh brings up an interesting issue—the importance of local knowledge.
How important is it for impact investors to have in-depth knowledge of the country where they are investing or to have people living in those countries with local contacts? But raising money is just a discrete moment in time. Where you are really going to create value is during the many years you make investments and work with entrepreneurs, and for that you need to be local.
The developing world is a difficult environment. There are a lot of friction points and thus greater risk. The mortality rate for projects is much higher. So the question is how you, as the investor, reduce the mortality rate. How do you enable the entrepreneur to operate on a more level playing field?
The answer is by helping the entrepreneur get through hurdles, by unlocking bottlenecks and opening doors. There are hundreds of stories I could tell you about how we have helped the organizations we invest in. Sometimes it is simple things. One entrepreneur obtained a piece of land to set up a health clinic, but there was an electricity pole in the middle of the property that prevented him from starting construction. After six months of trying to get the power company to remove it, I called the CEO of the company and it was removed the next day.
Having said all this, I realize there is one tension, and that is size. There are only a few markets large enough to give investors the economics to be able to play just locally. In South America it is Brazil and maybe Argentina. Being local is also an advantage because it allows you to build local networks that you can use to help the entrepreneurs.
This becomes particularly important as companies attempt to grow in a difficult business environment. Last, it is important to be based locally when something goes wrong, as inevitably it does. Having teams on the ground enables the relationship managers to work quickly and effectively to resolve those problems. Mair: One of the complaints social entrepreneurs make is that it is very difficult to raise small amounts of seed capital to get their organization off the ground.
Is this true, and if so, why? With that money I can pay an analyst and part of the overhead costs to monitor that investment. Nobody is doing it because it makes no economic sense. We will explore questions on how are different actors — movement builders, platforms, elected officials — working to improve upon or leverage these tools and processes to be better applied for the benefit of all?
What steps are being taken to address crucial issues of equity and justice that are part of our social fabric? How can we build alternative approaches that recognize that people are more than analytics and metrics in service to the latest automated solution? September , Stanford University, Frances C. The days of planning for our digital future are past. Today we operate in the digital now.
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