Impact investing aims to generate financial returns while solving social or environmental challenges by investing in small- and medium-sized enterprises that offer innovative but high-risk solutions, providing them with flexible, patient funding and support beyond what traditional sources offer; examples include the Low Carbon Enterprise Fund which invests in global businesses reducing carbon emissions. However, impact funds also face limitations in their ability to support entrepreneurs and achieve scale due to constraints of their market-based approach, focus on commercial returns alongside impact, and limited capital and expertise.

1. Delivering sustainable solutions in a more competitive world
Fostering Entrepreneurship: Impact Investing

2. Delivering sustainable solutions in a more competitive world
What is Impact Investing and Impact Capital?
• Impact investments aim to solve social or environmental challenges while
generating financial returns
• Different from: Commercial investors who avoid doing harm; grant
agencies don’t invest in businesses
• Capital is invested on sub-commercial terms, but designed to at minimum,
return money and optimally, generate profits
• Over 10 years $10.6 USD Bn impact $ has been invested by:
• Impact funds – such as Acumen, Bamboo Finance
• High Net Worths and Investor Circles
• Foundations and NGOs like Rockefeller and CARE
• Development aid agencies like DFID, Norad, USAID
• Traditional commercial investors like Blackrock, AXA

3. Delivering sustainable solutions in a more competitive world

4. Delivering sustainable solutions in a more competitive world
Characteristics of the SMEs impact funds support
• They are private businesses – not NGOs, not government, but
usually owner-entrepreneur led
• They suffer first mover disadvantages and need subsidised
capital – anywhere from $50,000-$1,000,000 USD+ - to scale
• They are often innovative and too high risk for commercial capital
• The goods or services they sell offer healthy, affordable
appropriate options for overlooked, lower income consumers.

5. Delivering sustainable solutions in a more competitive world
Low Carbon Enterprise Fund (LCEF)
• Is an impact fund under the ERM Foundation. ERM – global
consultancy with 4000 staff, 120 offices, almost $1bn turnover
• The LCEF invests in SMEs worldwide whose products or services
offer reduced carbon emissions to conventional products
• Provides early stage financing ($50-250,000 USD) and pro bono
support from ERM consultants to investee companies.

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Portfolio of global investments

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8. Delivering sustainable solutions in a more competitive world
Why Might Entrepreneurs Want
Impact Finance? Alternatives:
• Bank financing – audited 3 year financials, professional
business plans, collateral – sometimes100% match financing
required - high interest rates
• SACCOs – lower interest rates, but provide only micro financing
– more for consumers than enterprise level lending
• Multilateral banks, development finance or aid institutions–
large scale – market wide – not enterprise focused
• NGOs – can be uncomfortable with investing in for-profit ventures
• Traditional private equity – businesses usually too small scale

9. Delivering sustainable solutions in a more competitive world
How impact investors can help entrepreneurs
• Flexible, often patient funding
• Diversified investment structures
• Sub-commercial financing terms
• Prepared to take higher risks
• Bring in financing partners
• Increase investee’s marketability and
brand

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When investment partnerships are challenged
• Market and products evolve – can entrepreneurs keep up?
Product may be king but distribution is God
• Entrepreneur preparedness – can the fund provide support?
• Entrepreneur focus and investor stretch – inconsistent
communication can take deal astray
• Misaligned expectations – of funds, boards, fund investors
• Unsupportive regulatory environment
• Inadequate technological know-how

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Limitations to Impact Funds’ support
• Market approach… where market doesn’t exist
• Want a return…. but also impact
• Commercial focus… but not too commercial
• Invest in small businesses… but seek scale
• Sector investing… without sector expertise
• Know businesses need support… but have no time or money to
give it
• Want to change the world … with limited capital and bandwidth
• Seek impact.. with reduced risk appetites while prioritizing returns

12. Delivering sustainable solutions in a more competitive world
Impact capital can help energy entrepreneurs…
but not in isolation