Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
First coined by US President
Franklin Roosevelt, the phrase
“bottom of the pyramid” gained
its modern usage in a 2004 book
by business professor C.K.
Prahalad, who described the
“Fortune at the Bottom of the
Pyramid” available to companies
that created efficient models to
engage poor people as customers
and suppliers. Since then, the
World Resources Institute has
defined the BoP as people earning
less than $3000 per annum per
capita (in 2002 PPP).
Impact investments generally target the (broad) base of the economic pyramid
Impact investments generally aim to improve the lives of poor and vulnerable people
or to provide environmental benefits at large. In this report, we focus primarily on
investments that target the ‘base of the pyramid’ defined by the World Resources
Institute as people earning less than $3000 a year 1 . In addition to this established
definition of BoP, which applies to emerging markets, there are also people living at
the base of economic pyramids in developed countries who may enjoy a higher
income but can still benefit from impact investments that expand their access to
services and opportunities. We refer to this broader population as the “BoP+”. While
many impact investments target BoP+ populations, this report focuses on impact
investments benefiting the BoP sub-segment in emerging countries.
Investments generate impact in a variety of ways
Impact investments can deliver positive social outcomes by expanding access to
basic services for people in need or through production processes that benefit society.
Figure 3 summarizes some of the ways in which business can deliver positive
outcomes for BoP+ populations through their method(s) of production such as by
providing quality jobs, enhancing energy efficiency, facilitating local asset
accumulation and/or purchasing inputs from local or smallholder providers. Other
businesses deliver positive social outcomes by providing customers with access to
needed and cost effective products or services, including agriculture, water, housing,
education, health, energy or financial services.
Figure 3: Ways in which businesses can deliver impact
These means of impact might be part of the impact investment thesis motivating an investor
Means of impact
Means of impact
Process
Products for BoP+
• Job creation
• Energy efficiency
• Facilitating asset accumulation
• Utilizing BoP+ suppliers
• Agriculture
• Water
• Housing
• Education
• Health
• Energy
• Financial Services
Source: The Rockefeller Foundation, J.P. Morgan.
Defining an emerging asset class
Over the last two decades, the definition of an asset class has shifted from one based
solely on the financial characteristics of a given set of assets to one based on how
mainstream institutional investors organize themselves around those assets. The
identifying characteristics of an asset class in today's markets include: the demand
for professionals with a unique set of investment/risk management skills; structures
on the buy side that organize around and allocate capital to these skilled
professionals; industry organizations and networks dedicated to the investment class;
and the adoption by the investment community of metrics, benchmarks and ratings
that standardize performance and risk measurement.
Hedge funds and emerging markets are both relatively recent examples of alternative
assets where underlying investments cut across traditional debt and equity products.
However, the unique characteristics of the people, processes structures and risks
1 The Next 4 Billion, World Resources Institute and International Finance Corporation, 2007.
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