Based on Brian Trelstads 5 P's of Impact in 'Making sense of many kinds of Impact' in Harvard Business Review of January 2016, I have defined the 5 characteristics of an ideal inclusive impact investment product.
VLOG https://youtu.be/ZmWxoGa9MMM
What are your thoughts and suggestions?
https://hbr.org/2016/01/making-sense-of-the-many-kinds-of-impact-investing
1. Drs Alcanne J Houtzaager MA, public Speaker on Inclusive Impact Investing
2. Inclusive Impact Investment products
Last January Brian Trelstad, partner at the British social / impact investor Bridges Ventures* wrote Making-sense-of-
the-many-kinds-of-impact-investing in Harvards Business Review. He described the 5 P's of Impact and the
importance of Impact Fidelity. The later being the impact twin of fiduciary duty. Trelstad appealed to investors to
decide on the kind of impact they want to have, how deep or broad their intended impact is, and the level of impact
risk they are willing to accept. And not just evaluate their present portfolio on impact investments, allocate a minor
share for impact investing or wait for the impact investing market to evolve further.
Trelstad suggests 5 P's of impact: Place, Planet, Process, Product and Paradigm.
Place is the geographical location of the investee/investment; a poor country, region or an underserved community;
Process: investing in a company based on it's business practices such as 'fair trade', the supply chain policy,
sustainable production or buy-one-give-one (away) models;
Planet: Investments with clear measurable environmental impact such as conservation, protection or Carbon Dioxide
emission reduction through energy saving products & processes.
Product: Investments in products or services with positive social impact such as work & income, available & affordable
housing, education, health care and other basic needs.
Paradigm: Investments aiming for a systemic change such as drastic quantitative or qualitative improvement of basic
needs or impact katalysts.
Trelstad also adds choices for intensity and immediacy to be refined by adding depth, width and timeframes for
impact.
I love the simplicity of the 5 P's: they are clear and combinable to win-win-win-win-win-win strategies and
propositions**. I've been brooding on the 5 P's ever since and have come up with the PRIPC for impact investment
products to accelerate the market by adding inclusiveness, impact incentives and upscaling focus. It is a pity I didn't
come up with a cool term, though the resemblance to the UN Principles for Responsible Investing is sort of a bonus.
I propose Public, Return, Impact, Price and Catalyst for inclusive Impact Investment products
Drs Alcanne J Houtzaager MA, public Speaker on Inclusive Impact Investing
3. Public as in publicly listed equity or regulated crowdfunding for impact. The first offers value transparency,
varying degrees of liquidity and diversity and the latter protects the interests of small investors through legal
requirements for crowdfundingplatforms. It can open up an investment universe that was exclusively targeting large
investors. Such as renewable energy projects offered at www.duurzaaminvesteren.nl, a Dutch crowdfundingplatform
with approval of the Financial Markets Authority (AFM). The Dutch super sustainable Triodos Bank invests in it as part of
it's promoting inclusive impact investing strategy.
Return should only be risk related. To often impact is suggested to come at an extra price as costs for ethical,
responsible or sustainable investments screening. Also due diligence and impact measurement are often mentioned.
Blame the persistent discourse on the fee for exclusion (less spread) and selection (ESG research) and it's effect on
overall return.
Impact investment has evolved to balancing impact & return. Return is primarily related to risk which is related to
business development stage investing, regions such as emerging markets and to sectors. Only a few selected impact
first investors, such as development banks and charitable trusts take on high(er) risk at lower rewards. But it is their
mission to achieve impact and thus support a project, region, sector or the impact investment market.
theGIIN/CatalyticFirstLossCapital (pdf, 36 pag. 2013). Impact investors that want to achieve scale will go for balanced
impact & return or even finance first to grow their available investment capital (and preferably put it in revolving funds
if they are not yet aiming at 100% impact portfolio's.
Impact should be measured, preferably with a standard data & system so it can be reported, benchmarked &
rated. Rating gives investors impact value for money and can steer allocation to more effective impact investments.
A product in which the impact is incentivised is absolutely an ideal investment. This characteristic comes from the
concept of Social Impact Bonds or Pay-for-Success bonds. A British invention taking over the world with private
investments in the social sector and development. Repayment comes when the proposed impact is achieved with return
and a bonus for high(er) impact. Repayment comes from public funds, governmental, municipal, pooled (SIB or impact)
funds. Pay out for investors is based on societal savings on for instance juvenile recidivism (the 1st SIB, for
Peterborough prison), unemployment (benefits) educational success, homelessness, health costs etc. At present
globally there are over 40 Social and Development Bonds implemented and another 100 or so in the pipeline. The
market is estimated at 200million US$ (the Brookings Institute).
Drs Alcanne J Houtzaager MA, public Speaker on Inclusive Impact Investing
4. (some) Dutch Social Impact Bonds have a unique characteristic and that is that the social entrepreneur running the
project, ie the investee, is also an investor. An incentive for high(er) impact levels as pay out will be higher as well.
And it encourages (hands on) investors to keep the costs low.
Growing impact
I have suggested the incentive aspect of Social Impact Bonds to Sean Kidney CEO of the Climate (green) Bonds
Initiative. Globally over 600billion US$ is invested in Green and Climate Bonds that traditionally were issued by
development banks. The market is accelerating as municipalities and corporations are issuing green bonds to finance
their sustainable activities at attractive capital costs. Real time data on issues on: ClimateBonds.net
Green bonds generally aim at reducing carbon dioxide emissions and other environmental goals. Standards have been
defined by experts for various sectors and the Climate Bonds Initiative has set up an external assessment process
through verification. According to Sean the growing interest for green bonds is part of the ESG risk integration
process in the capital markets. An impact incentive would be a new and uncertain factor, a disincentive for investors.
For sustainable investors this is probably an acceptable risk. But an important achievement of the introduction of green
bonds as an investment instrument is that they have attracted traditional investors who might shy away from them
once an impact incentive is introduced.
How unfortunate..... But what if sustainable investors are willing to accept impact incentives at a price? And
governments could introduce fiscal regulation to stimulate impact incentives in (verfied) green bonds?
The Price of impact investments should be affordable, making impact investing inclusive and not limited to
institutional investors, charities and High Net Worth Individuals. Thus minimum investments from penny stock to a
couple of hundred Euro and not thousands or even hundred thousands of Euro's. Also low nominals for (green) bonds
and not the usual 100.000US$ or Euro are important to make that market truly inclusive.
Affordable also means that the costs of investments have to be reasonable. No excessive buy or sell fees or minimum
percentages and reasonable fund fees or portfolio costs. Otherwise return will melt away for small investors, especially
in the long term. As on-line brokers have slashed dealing prices and ETPs have done the same for investment funds
fees, private investors have seen the costs of investing melt away. But when newly developed impact investments are
only available at high costs it will take decades to accelerate the market as it remains dominated by institutional
investors who need large deals to afford their operational costs. As we have seen happen to sustainable investing....
Drs Alcanne J Houtzaager MA, public Speaker on Inclusive Impact Investing