Social Impact Investing
Social Impact Investing
Social Impact Investing
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
<strong>Impact</strong> Investments:<br />
An emerging asset class<br />
Global Research<br />
29 November 2010<br />
Technology<br />
Many experts focus on the potential to spur development through the adoption of<br />
technology, especially technology that promotes information and communication<br />
(“ICT”). This interest has accelerated recently with the explosive spread of mobile<br />
phones across the developing world. Entrepreneurs are developing business models<br />
that use this new mobile phone infrastructure to deliver basic services such as<br />
healthcare, education, agricultural information and, most successfully, the basic<br />
banking service of money transfer. For the purposes of our analysis, we do not<br />
consider technology as a basic service that constitutes a discrete sub-sector of impact<br />
investing. Instead, technology will play an increasingly important role as an input to<br />
business models that seek to reduce costs in serving dispersed populations of poor<br />
customers (and will therefore be incorporated in comprehensive analyses of these<br />
sub-sectors). Future research could determine what components of technology<br />
investment are most socially beneficial and suitable for impact investment capital.<br />
Investments in infrastructure<br />
According to the World Bank, emerging countries need 7 to 9 percent of their GDP<br />
per annum, or approximately US$400bn, to address their core needs in building<br />
infrastructure. Historically, though, less than half of this amount has been invested in<br />
infrastructure development and maintenance, leaving a financing gap of 3.5 to 4.5<br />
percent. 97 Further, according to the World Economic Forum, this underestimates the<br />
true need as it excludes electricity transmission, waste-water treatment, urban<br />
transport, ports, airports, and oil and gas. Including these sectors would bring the<br />
annual investment need to more than US$900bn or close to 20 percent of the GDP of<br />
emerging countries. In total then, the investment need could be as high as US$3<br />
trillion per annum globally (or close to 5 percent of current global GDP), of which<br />
approximately US$1 trillion per annum needs to be spent in emerging countries. 98 .<br />
We presented the opportunity for investment into water service for the BoP above,<br />
but broader opportunities exist within infrastructure. Ports, roads, on-grid power<br />
generation, and large-scale water delivery are all examples of products or services<br />
that could greatly improve the lives of BoP+ populations. Poor roads for example<br />
contribute to post-harvest food losses that can range from 15% to as high as 50% of<br />
what is produced.<br />
Demographic changes over time<br />
are also ignored in our analysis.<br />
Economic growth in emerging<br />
markets can propel some of the<br />
BoP populations into higher income<br />
categories, outside of our target<br />
markets. On the other hand, fiscal<br />
crises and financial shocks can<br />
have the reverse effect. Rather<br />
than take a view on how these<br />
demographic changes will<br />
materialize, we assume current<br />
dynamics will remain as they are.<br />
“Plus populations” (those that make up the BoP+ category but are not BoP)<br />
As we have explained earlier, impact investments do include businesses that serve or<br />
employ poor people that earn more than the strict WRI definition of $3,000 per<br />
annum. However, we have not endeavored in this report to define which segment of<br />
the more developed countries’ populations would be considered in the BoP+<br />
classification and leave that for future research.<br />
Investments that generate impact through their business processes<br />
Our market sizing work has focused on business models that deliver affordable<br />
products or services to BoP populations, which is one segment of the “means of<br />
impact” characterization we presented in Figure 7. The other segment includes<br />
businesses that employ BoP (or BoP+) people. Root Capital, for example, engages<br />
97 Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World<br />
Economic Forum, August 2010.<br />
98 Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World<br />
Economic Forum, August 2010.<br />
64