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 The mission of the "Your Mark on the World Center" is to solve the world's biggest problems before 2045 by identifying and championing the work of experts who have created credible plans and programs to end them once and for all.
Crowdfunding for Social Good
Devin D. Thorpe
Devin Thorpe

Impact Investing

This category includes articles about people, firms and foundations that invest in social good by investing in social entrepreneurs, social impact or pay-for-success bonds, etc.

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‘Wealth Building Isn’t Just For The Wealthy’

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

Jennifer Williams, a school teacher in Mississippi, has now paid off all nine of her payday loans and hasn’t had one outstanding now for two years. She’s a success story for Southern Bancorp.

Modeled on Shore Bank, which failed during the Great Recession, Southern Bancorp was organized by a collection of Arkansas’s most prominent people, including then Governor Bill Clinton and Rob Walton, a member of the Walton family. Unlike Shore Bank, Southern Bancorp is profitable and growing today.

“Governor Clinton wanted to create economic opportunities and stimulate the economy in Arkansas’s delta region, one of the most persistently poor communities in all of America,” says today’s CEO Darrin Williams. He notes that Hillary Clinton served on the founding board of directors for the bank.

When launched more than 30 years ago, the biggest worry was that what worked for Shore Bank in the urban environs of Chicago and later Detroit and Cleveland might not work in rural Arkansas and Mississippi. The acid test of the past decade suggests the model works just fine in the rural communities it serves.

The bank operates 46 branches in Arkansas and Mississippi, 37% of those branches are in “bank deserts” where the Southern Bancorp branch is either the only bank operating in the zip code or just one of two. What’s more, 28 percent of the population in the bank’s market lives below the federal poverty line.

Darrin Williams, CEO, Southern Bancorp

The CEO Williams explains the market and the bank’s strategy, “Often our competition is not another bank; often our competition is a payday lender or pawn shop or someone who provides alternative forms of capital or credit that really strip wealth. So, we really do a lot of outreach. We don’t wait for people to come to the bank. We take the bank to them.”

The market Southern Bancorp serves is vast, when considered at a global scale. According to the World Bank, about 2 billion people around the world are unbanked or underbanked. In the U.S., an FDIC report in 2015 showed 9 million households were unbanked and another 24.5 million households were underbanked.

Mr. Williams notes, “It’s expensive being poor.” Unbanked customers are forced to routinely pay for services that banked customers receive a low or no charge, from check cashing to check-writing privileges. Check cashing services charge up to 10 percent of the face value of a check and buying a money order costs several dollars.

To be an asset to the communities it serves, the $1.2 billion asset bank operates three related Community Development Finance Institutions or CDFIs. The bank holding company and the bank are the first two; the third is a nonprofit called Southern Bancorp Community Partners.

Mike Myers, vice president, CFO and Treasurer for the nonprofit Winrock International, which partners with Southern Bancorp on some efforts, says, “By providing financial capital in geographic areas too small for the big banks to be profitable, Southern protects the economically disadvantaged from predatory lenders (pawn shops, payday lenders, etc.) Additionally, Southern provides hands on financial counseling teaching people how to use credit rather than credit using them.”

Mr. Williams explains that the bank focuses on measures of net worth as that helps to break inter-generational poverty. For many, the difference is as simple as home ownership. The bank, he says, has three “big hairy audacious goals:”

  1. Help 10,000 people with home ownership
  2. Help create 100,000 jobs
  3. Empower 1 million to save money

He was quick to point out that helping people save money will come primarily as a result of the bank’s advocacy work rather than from providing savings accounts to 1 million people.

Mr. Williams has his work cut out for him. “We know that so many people just distrust banks.”

He explains that a typical overdraft fee of $25 or $30 throws customers for a loop. They don’t always appreciate that the bank provided a short-term credit facility and that the service should come with a fee. The effective interest rate on such overdrafts can, in fact, be every bit as penurious as the payday lenders Ms. Williams, no relation to the CEO, has learned to avoid.

One way that Southern Bancorp is working to address unanticipated fees is to create a checkless checking account. Customers get access to their money via a debit card. If the funds in the account are inadequate for the transaction, it is declined and no fees are charged. In this way, the customer picks up right where she left off after the next deposit. The bank offers several accounts with no minimum balance and no or low monthly fees.

The 380-employee bank makes a point to bank customers who have had trouble with banks in the past to help them get back on better financial footing. Banks customarily use ChexSystems to identify customers who’ve had accounts closed by other banks, typically refusing to open new accounts for them. Southern Bancorp uses the system only to screen for fraud. Everyone else is welcome, Mr. Williams says.

One key to the bank’s success is financial education. That’s how Ms. Williams first connected with Southern Bancorp. “My friend and I were looking through the newspaper one day and saw an advertisement for a credit counseling class offered by Southern Bancorp. We called and enquired about the class and began the class immediately,” she reports.

“By combining traditional banking and lending services with financial development tools ranging from credit counseling to public policy advocacy, Southern Bancorp helps underserved families and communities grow financially stronger – regardless of zip code,” Mr. Williams notes.

Mr. Williams, who was a litigator and also served in the Arkansas House of Representatives before joining Southern Bancorp as CEO, likes to ask, “Do you know where your money spends the night?”

He points out that every deposit in the bank is a simple form of impact investment. Not only does the bank use the money to make traditional loans to people in the communities it serves but also makes investments in school bonds, water bonds and other community infrastructure. “I would submit your bank account really is a primary way that you can live your values.”

The bank takes deposits from all around the country from people who want to support the bank’s mission. Mr. Williams points out that the bank is working on a new platform to make it easier for customers outside of the bank’s service area to make deposits there.

The bank is presently raising additional capital to support its growth and impact.

“We believe that wealth building isn’t just for the wealthy. So, we are wealth builders for everyone,” Mr. Williams says.

Myers praises Southern’s work: “Look at the impact…the number of loans less than $10,000, the EIC amounts recovered through free tax preparation, the jobs created and supported, home ownership leading to wealth generation. No other organization in the region has the mission, the tools, the approach, the passion…or the impact. If Southern does not do it, who will?”

Ms. Williams is a fan, too. “I feel that Southern Bancorp really cares about their customers. I feel that they put so much work into getting the word out about credit counselling and helping people build their credit. They make you feel comfortable and willing to share your information with them. Even after the classes, on many occasions, Mrs. Harris has called to check on my progress, and encouraged me to keep going and working on my credit. I feel that Southern Bancorp goes well beyond the basic duties of the typical services provided by banks.

Over 1 million people have read my books; have you? Check out my free webinar exposing the three myths that impair and two keys for crowdfunding success.


Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

Impact Investor: You Don’t Have To Give Up Returns To Do Good

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

One of the most controversial topics in impact investing is whether it is possible or fair to expect market returns on investments that do good. Gloria Nelund, chairman and CEO of TriLinc Global, says yes.

Nelund says her firm, which manages about $320 million, is designed to prove it. “The whole firm is really dedicated to creating and sponsoring funds that will prove to investors that they don’t have to give up investment returns to do good.”

TriLinc is a private investment fund that lends money to small businesses, including businesses in the developing world. To do business effectively in frontier and emerging markets, the firm partners with local experts.

Nelund explains, “We created a partner model where we went out and found the best private debt fund managers in the world in the countries where we wanted to invest and we developed a partnership with them where they would originate loans for us. We actually co-underwrite and co-structure all of the loans.”

Gloria Nelund, TriLinc Global

TriLinc typically funds the loans directly to the businesses; local partners do not act as intermediaries. Some of the loans are sufficiently large that TriLinc reaches out to other funds to complete the financing.

Nelund highlights a loan to Corporacion Prodesa, S.R.L., a manufacturer of affordable disposable diapers in Peru, as an example of the firm’s impact. The company’s founder, a Peruvian American who worked at Kimberly Clark identified hygiene problems associated with cloth diapers being used in Peru and utilized abandoned technology to produce diapers low and moderate-income families there could afford.

The company not only solves a social problem in the developing world but also provides jobs that raise the standard of living for the community.

Nelund says, “When they were really struggling at one point and we were working with them to try to restructure everything, his biggest concern was the people in the community losing their jobs because it was so important to them and their families.”

The loan of about $3 million represented about 2.1% of the funds’ assets, according to the 2015 10K filed with the SEC and has an interest rate of 15.5-15.6%. The firm’s loans have interest rates ranging from more than 8% to just less than 18%. The loans are made in Central and South America and in Africa.

Nelund explains the investment strategy. “We have a private debt strategy that makes loans to growth stage companies that meet certain environmental social and governance standards and who are committed to creating impact and then we provide loans to those companies so that they can grow and they can create more jobs and they can pay higher wages.”

While Nelund admits that some projects require non-investment capital—philanthropic or aid forms of capital—she sees market rate impact investing as the key to attracting sufficient capital to solve big problems. She says, “You should hold companies to the same [return] standard regardless of the impact they create.”

Matthew Weatherley-White, co-founder and managing director of The Caprock Group, who has invested in the funds, highlights two features of the TriLinc funds. First, he notes that retail investors have been invited to participate in the funds via public offerings—most impact investments are limited to accredited or institutional investors. The other point he highlights is the firm’s focus on doing things better. “This isn’t about perfect. It is about steadily raising the bar.”

Jeff Shafer, co-founder of CommonGood Capital, praises Tirlinc’s team and procedures for sourcing deals outside the US with an emphasis on impact. He adds, “Since investing today in the US is dominated by the left brain, market rate returns and proof of positive impact are critical to mobilizing large amounts of capital.”

Dr. Patricia Dinneen, senior advisor, EMPEA and chair of Impact Investing Council, agrees with Shafer’s analysis. Like Weatherley-White, Shafer and Nelund, she concludes that impact investing at market rates is possible. “TriLinc Global provides credible and convincing evidence that you can achieve both financial returns and social benefits.”

Over 1 million people have read my books; have you? Check out my free webinar exposing the three myths that impair and two keys for crowdfunding success.


Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

How To Start Impact Investing With Just $50 And Five Minutes

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

Fifty bucks and five minutes will make you an impact investor. I did it. So can you.

Swell Investing is a new impact investing platform created by social intrapreneur Dave Fanger, 40, of Pacific Life. The idea came, Fanger says, five years ago, thinking about how consumers were increasingly making buying decisions based on social impact and thought there ought to be a way for investors to do the same.

What he came up with incorporated the latest fintech tools for investing, commonly known as robo-advisors paired with impact data to make informed decisions about impact. The technology allows for accounts as small as $50 with annual fees of just 75 basis points or 37.5 cents on a $50 account.

The average account size is just $4,000, suggesting that most investors on the platform are small, some of who are starting with the minimum required investment.

Impact Investing:

Fanger says, “We define impact investing as identifying and investing in companies that are actively deriving revenue from the way that they are solving global and environmental challenges.”

That is distinct from traditional public securities investment strategies known as socially responsible investing, ESG or environmentally, socially and corporate governance investing strategies, that focus on a broader range of companies that are governed well and seek to mitigate their impact on the planet.

Swell Investing presenting puts its customers in their choice of six impact portfolios: green tech, renewable energy, clean water, zero waste, healthy living and disease eradication. The combined funds have about 300 companies, a small subset of the 4,000+ publicly traded companies in the U.S. markets.

The portfolios are intended to line up with one or more of the United Nations 17 Sustainable Development Goals focused on eradicating extreme poverty by 2030.

One key fact about impact investing is that it has traditionally been available only to wealthy investors. Swell Investing is part of a movement to make impact investing available to ordinary investors.

Mike Wynholds, CEO of Carbon Five, helped build out the product. “I think Swell Investing meets in the middle of two separate trends that are important people: low-cost investment advice (robo-advisors, etc) and being responsible stewards of our planet. Swell gives people a way to do something they have to do–saving money–while also doing something they want to do – saving the planet.”

Bryan Walker, partner and managing director at IDEO San Francisco, concurs. “Swell offers a solution for investors who want double impact: financial and social investing. Swell provides a new way for socially conscious consumers to invest without sacrificing the value of their investment.”

Fanger’s focus on impact investing grew out of his superpower: empathy. He says, “I had [type 1 diabetes] since age eight and just living through that and managing this disease has shown me that there’s more going on in life besides what you see on the surface with folks.”

Walker saw that in Fanger early on. “From our very first conversation, I was excited by his true personal passion around the idea.”

Still, Swell Investing is not a philanthropy or merely a corporate social responsibility initiative. Fanger is building this business to make money.

Fanger sees the companies the firm invests in growing and the interest in impact investing among ordinary investors along with it, allowing the firm to scale up assets under management.

IDEO’s Walker says human-centered design will contribute to the firm’s growth. “IDEO brought a human-centered design approach to Swell’s development, which means that design choices were informed by consumer feedback. The team today continues with this approach, engaging with investors to get their feedback on a weekly basis as Swell continues to grow and develop new features.”

Walker boasts that when IDEO’s engagement with Swell ended, he decided to personally invest in Swell because he believes in the company.

The technology is key. It allows for individual investors to hold in separate accounts tiny, fractional interests in companies like Tesla. Fanger also insists the company uses the latest in security to protect those assets.

The company is not yet profitable after launching late in the spring of 2017 and has twenty employees.

Carbon Five’s Wyhholds sees good things in Swell’s future.

“From what I can tell Swell is off to a great start. The key for both the viability of the business and the impact it will have on the world is scale, and while it’s still early on, Swell is growing faster than its competitors did at this stage.”

Over 1 million people have read my books; have you? Check out my free webinar exposing the three myths that impair and two keys for crowdfunding success.


Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

3 Players That Exemplify The Complexity Of The Impact Investing Ecosystem

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

Three impact investment players provide an interesting view of the broader impact investing ecosystem and how all the parts work together. Their approach helps to make capital more available to social entrepreneurs and investment opportunities open to more investors, including some ordinary investors.

The three include Impact Assets, New Media Ventures and Better Ventures. Impact Assets, a nonprofit asset manager holding exclusively philanthropic capital, serves as a hub in this part of the impact investing world. New Media Ventures and Better Ventures use Impact Assets in strategic but almost opposite ways.

Impact Assets and Donor Advised Funds

Impact Assets provides a place for donors to place philanthropic capital in what is known as a donor advised fund or DAF. As the name implies, funds contributed to a DAF are donations where the donor gets to advise on the final disposition of the funds. DAFs work like small foundations with fewer restrictions and generally more flexibility. Most DAFs don’t give the donor much influence over the investments, only the final charitable distribution.

Impact Assets is different. Built from the ground up to facilitate impact investments, donors also have significant flexibility in advising Impact Assets on the investment strategy. The only investment options available through Impact Assets are impact investments.

Rick Moss, Better Ventures

Rick Moss, founder and managing director of Better Ventures, approached Impact Assets to access some of the capital. Individual donor advisors or clients were given the opportunity to put as little as $25,000 to work in the fund through Impact Assets. Apart from Impact Assets, the minimum investment was $500,000. This works because only Impact Assets is legally an investor in the fund. The individual donors get their information from Impact Assets and are not recorded as investors in the Better Ventures fund. Moss doesn’t have to worry about the number of individual investors participating because he doesn’t have to deal with them.

Tim Freundlich, president of Impact Assets, says you don’t have to be Bill Gates to have sophisticated impact investment options like big foundations see. The nonprofit has about 850 DAFs with an aggregate value of $350 million under management. Hundreds of the accounts are in “the $5,000 range.”

New Media Ventures, led by Julie Menter, its principal, also operates as a 501(c)(3) charity. To create a vehicle for making impact investments and grants, it opened a DAF at Impact Assets. The investors in New Media Ventures get a tax deduction when they make the contribution to the fund and will not have the capital returned to them. New Media Ventures uses the money both to make grants to nonprofits it supports and impact investments in for-profit ventures it decides to back. They can do both via the Impact Assets DAF.

How Impact Assets Supports Both Better Ventures and New Media Ventures

Freundlich explains that Impact Assets does professional due diligence so that its donor advisors don’t have to worry about doing it themselves. For the clients, the risk is mitigated somewhat by the fact that the money is legally a charitable contribution and can’t be withdrawn by the donor for noncharitable purposes.

Impact Assets has a broad range of investments across all asset classes and across all geographies. The company can’t hope to manage all those investments directly. Instead, the firm has brought in 55 funds like Better Ventures to make direct impact investments. The donor advisors can choose whether they want their DAFs to invest and if so how much, subject to the constraints of minimum investment sizes.

Impact Assets also has relationships with about ten firms like New Media Ventures, where they have assets in donor advised funds from which they make impact investments, grants or both.

Tim Freundlich, Impact Assets

Freundlich says not only that Impact Assets was built from the ground up to facilitate impact investing but also that the democratization of impact investing is important. You don’t need to be an accredited investor to establish a DAF and to begin making investments. That said, he acknowledges that to participate in the most sophisticated investment options you may need an account with $200,000 to $2 million. Still, at that level, donors get access to investments that otherwise may be open only to institutions and individual investors with greater than $25 million in net worth.

In addition to the relationships with asset managers like Better Ventures, Freundlich says Impact Assets does make direct investments in social ventures but only on behalf of clients. Last month, he says, the firm made six such investments at the request of donor advisors.

Investment Strategy

Certainly, among the readers of this article will be some who are interested in the investment strategy for both New Media Ventures and Better Ventures.

Menter’s New Media Ventures developed her vision for investing after realizing that business as usual could solve some but not all the world’s problems. She recognized that our beliefs are influenced by the media we consume and so she wanted to invest in and support media companies and nonprofits that support her progressive view of the world. She’s raised $2.6 million to do so and has invested in “nine or ten” media companies.

She describes three buckets into which the firm invests or makes grants. The first is media, companies like Upworthy, Daily Kos and Blavity. The second bucket is what she describes as movements and the technology to support movements. Examples of investments in this arena include Indivisible, Swing Left and Sister District. The third and final bucket she describes as non-partisan civic engagement platforms like Vote.org and Turbo Vote.

“We’re interested in how we essentially bring the levers of power into the hands of more people and we believe that over time that will create a more just, environmentally friendly world,” she says.

She acknowledges that the media space is challenging. “It’s still not clear how you make money in media.” She hastens to add, however, that Young Turks just raised $20 million, suggesting hope for the media industry.

Moss’s Better Ventures begins with this: “Our basic investment thesis is that mission-driven entrepreneurs outperform.” He believes that passionate entrepreneurs will work harder.

He focuses on firms that have impact with every sale so “the bigger they get the more good they do.”

Moss indicates that they look to invest in companies that have at least two founders that are solving an important problem. He notes that the companies don’t need to have a lot of revenue or historical growth. Typically, they have an MVP or minimum viable product in the market before Better Ventures invests.

Message to Those Passed Over

Most people don’t get investments. Moss acknowledges that when he started the fund he expected to be writing checks all day and instead ended up saying “no” all day.

To the companies he likes but doesn’t invest in, he usually says, keep making progress. He finds they come to him too early, before they are ready for his investment. He encourages them to raise money from family and friends and from angel investors first.

Menter reflects on the difficult “power dynamics.” She says, “I have all the power yet the entrepreneur is actually the one who’s actually making the world a better place.” Motivated by this philosophy, she says she’s developed the ability to deliver bad news well.

She tries to give specific feedback, identifies gaps in the team, business model or marketing strategy that need to be closed. She also encourages social entrepreneurs to get creative with funding, recognizing that not everyone has a network that will support them financially. Some, she points out, finance a startup by winning lots of business plan competitions, others keep their day job to support the work until outside financing comes in.

Evolution of Impact Investing

Freundlich has been working in impact investing for 20 years. A lot has changed in that time with a great deal more attention and capital devoted to the space today. Of the momentum in the impact space he says, “I remember 20 years ago thinking that it was like watching icebergs melt.” He reminds himself—and the audience—that others in the sector had been there for 20 years before he got there.

He sees the entrepreneurs as the real heroes, echoing Menter’s remarks. “Every single one of these tenacious, crazy people who are living a dream, eating ramen soup with the extra job while they crowdfund their way into some amazing venture… deserve the most support and admiration.”

He also admires the successful entrepreneurs like Seth Goldman of Honestea who sold his business to Coca-Cola and now gives back by investing much of his capital in startups and by serving actively on boards.

Business Models

The three firms profiled in this piece participate synergistically and differently within the impact investing space. Impact Assets, a 501(c)(3) nonprofit, earns fees from the clients that contribute to donor advised funds, much of which is tied to the size of the portfolio.

Julie Menter, New Media Ventures

New Media Ventures gets donations, earns some revenue from events and service contracts, plus takes a percentage of the donations to the NMV Innovation Fund. The nonprofit operates with just three full-time employees with the help of some contractors and volunteers. Menter describes the firm as an impact first investor.

Better Ventures relies on venture capital returns for its operating revenue. The seed fund has $21 million under management. He notes that the operates are profitable today. Moss says the firm seeks to back those who can achieve impact on a massive scale using technology. He says, he like to give founders a safe place to admit they care more about doing good in the world than they do about making money.

These three impact investing players don’t encompass and represent the entire spectrum of activity within the impact investing arena but they do help to demonstrate the breadth of approaches, business models and the necessary collaboration that make it work.

Over 1 million people have read my books; have you? Check out my free webinar exposing the three myths that impair and two keys for crowdfunding success.


Never miss another interview! Join Devin here!

Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

 

The Role Of Entrepreneurship In Ending Poverty And Homelessness

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

“Social entrepreneurship has proven to provide impactful innovations for poverty alleviation ,” says Abby Maxman, President of OxFam America. Maxman was among a diverse group of people working on poverty eradication who contributed to a recent roundtable discussion on ending extreme poverty and homelessness.

The idea of ending poverty seemed absurd a generation ago. Today, the idea has been enshrined officially in the United Nations Sustainable Development Goals or SDGs as something the world should achieve by 2030. The roundtable participants addressed a range of topics, including a focus on how social entrepreneurs would help achieve the SDGs. Watch the 80-minute discussion in the video player above.

Judith Walker, the chief operating officer for African Clean Energy, which sells clean cookstoves that generate electricity, explains the need for social entrepreneurs to see problems as opportunities. “Energy costs are very high compared to income in the markets we deal with, meaning its either not realistically accessible or almost certainly not reliable. This should be seen as an opportunity to improve the goods and services available in order to relieve burden and create other options for those struggling with any or consistent income.”

Judith Walker

She adds, “Where we see the most potential for impact is actually by catalyzing this potential by having access to the most desperately needed energy.” What customers are able to do to improve their own lives with the tools inspires her to continue working.

Why Entrepreneurs Should Care About Ending Poverty

Entrepreneurs solve problems. Social entrepreneurs solve problems that matter. Eradicating poverty pegs the mattering meter.

Haiti’s former Prime Minister, Laurent Lamothe, is now an active impact investor, supporting social entrepreneurs in Haiti. Everyone benefits from helping the poor. “Poverty is not solely the problem of the poor, the same way as climate change is not solely the problem of one country. It has consequences and implications for all of us because we live in an increasingly open and interdependent world. Improving the prospects of the most disadvantaged will improve prospects for all. ”

Anne Kjaer Riechert, a recipient of a Rotary Peace Fellowship and social entrepreneur in Germany, founded the ReDI School of Digital Integration to teach refugees, mostly from Syria, how to code. She says our focus shouldn’t be on helping people living below an arbitrary income threshold but on the income gap itself. “Poverty is relative. It is not a question of income, but the gap between the ‘haves’ and the ‘have-nots. ’”

Anne Riechert

OxFam’s Maxman agrees. “Our research has shown that since 2000, the poorest half of the world has received just 1% of the total increase in global wealth, while the top 1% received 50% of the increase. Inequality is bad for us all – socially, morally, ethically, economically and politically.”

Why Social Entrepreneurship is a Key Part of the Solution to Poverty

Entrepreneurship—especially social entrepreneurship—brings value to the fight against poverty that other players—governments, corporations and non-governmental organizations (NGOs) don’t.

Alicia Wallace, president of All Across Africa, which sources handicrafts in Rwanda for sale in the United States, points out the speed of entrepreneurship. “Entrepreneurship can be harnessed to fuel positive, sustainable global impact much faster than any other form of social good .”

“I definitely see competition as creating an urgency for solving poverty and homelessness,” she adds, helping to explain why entrepreneurs can have faster impact.

Social entrepreneurs have a unique mindset, according to Arlene Samen, founder of One Heart World-Wide, a nonprofit that uses a grassroots approach to improving maternal and child health in Nepal and Tibet. “Social entrepreneurs never give up, they think outside the box and are willing to empower ‘others’ to help solve their own challenges.”

Carla Javits is the CEO of REDF, a nonprofit that invests in social enterprises that serve people who are often considered unemployable, including those who have completed jail and prison sentences, recovering addicts and people who have experienced homelessness.

Javits says social entrepreneurs are flexible. “By developing new models that cut across and blend the assets of various sectors without being stuck in orthodoxies about what each sector can or should do, social entrepreneurship opens up new possibilities to solve stubborn, seemingly insurmountable challenges.”

She also points out that social entrepreneurs think outside the box of either operating as a nonprofit surviving on donations and grants or being fully supported by revenues. Operating in that middle space creates opportunities for social entrepreneurs to leverage donor dollars with revenue generating services.

Effective social entrepreneurs relieve burdens by selling products that customers need to improve their lives. The profits from the sales create sustainable impact and provide returns to investors.

Mari Kuraishi, CEO and founder of Global Giving, a crowdfunding site for nonprofits serving communities in the developing world, points out that social entrepreneurs can experiment and then scale up. “Social entrepreneurship can play a big role in experimenting within smaller jurisdictions and communities to demonstrate how to overcome issues like poverty and homelessness.”

Mari Kuraishi

She also notes that such innovators may be able to attract resources even when government grants are not available. “When political will is missing, it’s possible–but by no means a sure thing–for social enterprises to get access to the kind of resource flow that might begin to make a dent.”

Javits agrees, noting that the use of hybrid solutions can reduce public costs with other benefits to the community and the beneficiaries. “Social entrepreneurs identify hybrid solutions that can reduce but not eliminate public costs, increase individual initiative, and generate much greater value for all of us.”

Haiti’s Lamothe cautions, however, that social entrepreneurship got its start decades ago and we’re still dealing with some of the same challenges. “Poverty is a complex issue and, since the advent of social entrepreneurship in the 70s, no social enterprise has been capable of solving poverty all by itself. After decades of social entrepreneurship, it becomes obvious to me, as to many others, that reducing poverty takes a concerted, cross-sector effort that focuses holistically and long-term on the problem.”

Social entrepreneurship is becoming a primary weapon in the war on poverty but it isn’t a magic bullet.

What Social Entrepreneurs Can Do to Help

Having established that social entrepreneurs have the ability and flexibility to contribute meaningfully to the end of poverty and homelessness, let’s look at some specific things that they can do that can help to end poverty.

All Across Africa’s Alicia Wallace says one key is to equitably divide the gains and benefits. In her model, the US corporate customers are not the beneficiaries—the artisans in Africa are. She expects the corporate customers to pay fair prices for the products that will in turn allow her to pay fair wages to the largely female workforce producing mostly baskets.

African Clean Energy’s Walker agrees, though her lens is slightly different. Her customers in Africa are her beneficiaries. She explains, “We need to consider the beneficiaries as customers, and treat them with the respect they deserve, rather than just as victims or poor. ”

The division of value among entrepreneurs, customers and investors “only needs to be a little more balanced,” she says.

James Mayfield, the founder of CHOICE Humanitarian, highlights the power of income opportunities for the extreme poor. “The key to the eradication of poverty is the creation of income and employment enhancement programs. Such programs are best stimulated by the poor themselves supported by organizations that facilitate social-oriented enterprises.”

Dr. James Mayfield

After more than 30 years in the field, Mayfield highlights the importance of empowering women with income. “The missing ingredient in many unsuccessful poverty eradication programs is the importance of women participating in village decision-making , especially their role in ensuring village leaders are willing to adhere to the villager-determined core values that emphasize behaviors showing among other things integrity, generosity, service, tolerance.”

John Hewko, the general secretary—the professional head—of Rotary International, who has built his career almost entirely in international development, says that the way people think about their entrepreneurial prospects is as important as their structural access. He cites a report that women in Latin America have lower confidence in their own abilities and have a higher fear of failure. Providing training and encouragement is as important as providing access to financing.

Mark Horvath, an advocate for the homeless and producer of the popular YouTube show Invisible People, points out one limitation that impairs the work of nonprofits. Well-funded Silicon Valley companies provide lavish coffee stations with fresh fruit while nonprofits provide access to a coffee station with an honor jar for people to contribute money to keep it supplied.

Mark Horvath

He sees the problem as limiting the effectiveness of nonprofit social enterprises because foundations are risk adverse not funding new ideas or allowing autonomy for a nonprofit to do what they do best.

Government’s Role in Supporting Social Entrepreneurs

One surprising theme that developed in the discussion among these advocates for ending poverty was the need for governments to structurally support social enterprises.

Riechert, the young entrepreneur who founded the coding school for refugees in Germany, says, “I would love that there would be more collaboration between the government learning from the social entrepreneurs and entrepreneurs getting more capital from the government to continue growing and scaling their solutions.”

Relatively small amounts of capital infused in a revenue-generating business can have the impact of allowing the enterprise to scale. The closer the business is to complete self-funding, the higher the impact of grants or patient investments.

She notes, too, after her recent visit to the Zaatari refugee camp in Jordan that government policies in the camps inhibit the ability of the people there to care and provide for themselves. The government doesn’t allow refugees there to engage in any entrepreneurship.

“I would love to see a big change because if refugee was actually seen as an asset and it’s an opportunity for the Jordanian people to make money and to have more cash flow into the country by having these entrepreneurs coming from outside. I think everyone would stand to benefit from it,” she says.

Eytan Stibbe, the founder of Vital Capital, an impact investor actively serving in Sub-Saharan Africa, has achieved remarkable scale, building tens of thousands of moderate-income housing units. He says, “What we found is that the most important issue is sharing in order to reach scale in working with the government. And we try to cooperate with the government so that the interests are aligned. That’s the only way we can reach scale.”

Katie Meyler, the founder of More Than Me, a social enterprise that partners with the government in Liberia to operate primary schools. “We can only reach the masses of people who live without [education] through a public-private partnership.

Haiti’s Lamothe, sees a different but still complementary role for government. Noting that governments in the developing world are often as resource constrained as their people, the government can be a sort of GPS guide to where the problems and opportunities for social entrepreneurs are.

Laurent S. Lamothe, former Prime Minister of HaitiWorld Initiative

The Examples of Social Entrepreneurship Reducing Poverty

To emphasize the point that the members of the roundtable are not approaching this topic from ivory towers but instead they come from the field, bringing on the ground perspectives, let’s look at some of the projects and enterprises they are running.

Riechert founded her coding school for refugees after 800,000 arrived in Germany in 2015, overwhelming government resources. She noted that even after they arrived, Germany had 51,000 open jobs in the I.T. field. The economy was constrained by a lack of available talent. So, she launched her school training refugees to fill those vacant positions. Her students quickly coded an app called Bureaucrazy to help other refugees navigate the German bureaucracy.

Samen, whose grassroots efforts in Nepal and Tibet have made dramatic improvements in maternal and child health, says her One Heart World-Wide is a beneficiary of a social enterprise in Australia called Thankyou that donates 100 percent of its profits to charities. The company sells water, body care, food and baby care products.

Samen says, “They set it up that, so when you buy the product it has a code bar and you can actually see where your money is going to be invested.” She would like to see this model grow and replicate.

Javits, whose entire business model focuses on funding social enterprises serving people who are at risk of homelessness, offers an example.

“Nonprofits that provide services to people experiencing homelessness have started new businesses in property management that employ their clients, paying them wages, and preparing them for long-term employment. By selling their services like a business, while hiring people who most companies would not give a chance, offering a more supportive work environment, and investing 100% of their ‘profits’ in their employees’ success and well-being, the social entrepreneurs who start these enterprises offer a more sustainable approach that gets to the root of the problem.”

Carla Javits

Rotary’s Hewko points to a microlending program supported by Rotary in the Esmeraldas Province of Ecuador. “Borrowers are organized into credit groups, and cross-guarantee each other’s loans. With credit officers working locally, the people who benefit – primarily poor women and youth – gain more confidence to start businesses, and are more likely to repay the loans. They also receive vocational, business and personal development training from NGOs including Rotary, FUDECE and the Grameen Cooperative, and SECAP, a government training organization.”

Haiti’s Lamothe highlights the work in a small fishing village in Haiti destroyed by Hurricane Matthew in 2016. Working with a group of nonprofits, including the Carlos Slim Foundation, Happy Hearts and Sean Penn’s foundation, have been replacing tools of the trade—fishing lines and boats—lost in the hurricane. They’ve also been helping the villagers get access to buyers, connecting them to restaurants and supermarkets. “Their revenues have gone from about you know $1000 US per month for the whole village to right now it’s ten times more.”

Impact investor Morgan Simon, author of Real Impact, offers up her favorite example. “One of the projects I’m a big fan of is the Working World, which provides finance for worker-owned cooperatives and they do so through a non-extractive model.”

She credits Brendan Martin, the founder of Working World, with coining the term “non-extractive financing.” He defines this concept as being loans that can be serviced entirely by the projects they fund with surplus left over. None of the existing resources of the borrower need be devoted to debt service.

“They’ve funded over a thousand loans with the 99 percent repayment,” Simon concludes.

Expanding Social Enterprise Concepts to the Broader Economy

As the group discussed the challenges of eradicating poverty, another theme developed: the need to get the broader economy to apply more of the guiding principles of social entrepreneurship.

Rotary’s Hewko put it this way, “I think the big question here is: How do we channel the private sector? That’s really where the money is—in the private sector—and the long term sustainable solution is vibrant economic systems and economies that work.”

Not only is it important to put people to work but there needs to be a greater social awareness employed by more companies.

John Hewko

He continues, “How do you inculcate into core business models the idea of social good, so social good becomes part of the core business model of a corporation, for example, as opposed to just for corporate social responsibility which we’re doing today?”

He then goes a step further and suggests that we need a mechanism to reflect positive social impact in share prices in the stock market. “That’s not easy but that’s the holy–that’s the Holy Grail.”

Hewko highlights the leadership of Paul Polman at Unilever and others who are “beginning to think very seriously about how we work to change core business models where social good becomes not just something good we do on the side but part of our everyday business.”

Speaking of poverty and homelessness, Hewko concludes, “These problems all need to be addressed in a cohesive fashion with private sector, civil society and government working hand in glove.”

Walker, of African Clean Energy, agrees. “I do believe that the business models of nonprofits and of for-profits and everything should actually become more similar more like each other.”

Concerns and Opportunities

Still, there are some concerns about the challenges ahead in eradicating poverty and homelessness.

Horvath, the homeless advocate who was himself homeless for a time, worries that nonprofits are often forced to follow money over mission and aptitude. “What I’m seeing in the homeless services sector is and I like to say it like this maybe I’m a farmer and I grow apples. I’m really good at it but all of the money is over in oranges. I’m not so good at oranges but I’m going to start growing oranges even though I can’t do it really well because I’ve got staff to pay and I’ve got an electric bill and everything else. So you have all these people just going after the money instead of really addressing fighting poverty and homelessness.”

The United Nations Resident Coordinator and UNDP Resident Representative in Kenya, Siddharth Chatterjee, explains the challenge and opportunity ahead for Africa.

“Africa, for example, will see its population double from the current 1.1 billion to around 2.3 billion by 2050. Over 70% of its population is less than 30 and its median age is 19. One hundred million new jobs per year need to be created in Africa to cater to this looming ‘youth bulge.’ It could prove to be a demographic dividend or a disaster.”

Chatterjee is an optimist, however. He says, “Africa is going to be the new market of the future and if we invest now, not only will we overcome poverty and homelessness but contribute to reduced fragility and instability, advance peace and economic growth and reduce the burden of economic migrants to the West and the US.”

We’ve Got This

Generally speaking, the group was optimistic about prospects for eliminating poverty and homelessness.

REDF’s Javits says, “ Something we can do in our lifetime is to end homelessness for the vast majority of the hundreds of thousands who have no stable home each night. ”

Arlene Samen

Samen, who has spent her career among the poor in Nepal and Tibet, says simply, “ It can be done. ”

This article, which is published originally for Forbes, will become part of a book with the working title Thirty Years to Peace.

#30YTP

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It Shouldn’t Be Easier To Find Your Mate Than To Find A Co-Investor Online

This post was originally produced for Forbes.

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Last summer, at a meeting of Seattle impact investors, one of the members said she didn’t have need for additional deal flow–investment opportunities–what she needed, she said, according to Nancy Reid, director of the Seattle Impact Investing Group, is a way to build an investor syndicate. “What we need is investor flow.”

Michael ‘Luni’ Libes, 47, and Matt Eldridge, 48, who heard that need and set out to create a nonprofit, online platform called Investorflow.org to address the concern.

Matt Eldridge, co-founder and COO of Investorflow.org

“Impact investors are spread around the world, investing all around the globe. This makes it incredibly difficult for those seeking funding to find these investors. It also means that investors tend not to know each other,” Libes said, framing the discussion.

Watch the full interview with Libes and Eldridge at the top of this article.

He points out the investors typically have specific areas of focus, so even if you have dozens of impact investors in a room, chances are there still isn’t a critical mass of interest for any particular deal.

There is a wide range of possible interests for impact investing, he notes. “The UN has organized 17 distinct sustainability goals, but number 1, No Poverty, includes everything from the poorest billion people to affordable housing in New York City.”

“Meanwhile, in reality, most impact investments come from investors talking to other investors, not from companies pitching investors. The problem isn’t a lack of dealflow, nor a lack of crowd. The problem is efficiently matching the right deal to the right investor, one investor to another. Or more simply… the problem isn’t dealflow but investorflow,” Libes says.

Michael ‘Luni’ Libes, Investorflow.org

The investing community is ready for a new solution, Reid suggests. “Fundraising is still awkward.” That is true even for investors. “It can be an uncomfortable dynamic,” she adds.

“Fundraising is also still unbelievably slow and difficult! It’s way easier to find the right babysitter or landscaper or date than it is to find the right co-investors, which is bizarre,” Reid concludes.

Janine Firpo, the impact investor Reid mentioned who coined the phrase investor flow, emphasizes that impact investing is best done in teams. “What I believed we needed was an ‘investor flow’ solution that could put trusted investors together to share deals. Aside from a few very wealthy and committed individuals, this type of investing is not a solo activity. It takes a community. Luni made the idea of an investor flow a reality.”

“The solution is investorflow.org, an online network where impact investors can hear about deals that fit their particular interests, vetted by fellow investors. All the deals are posted by investors seeking co-investors, not by entrepreneurs or fund managers,” Libes explains.

Libes says the site already has 157 investors signed up with 14 deals in the review pipeline. As yet, no deals have closed. Deals are coming in at a rate of about one per week. Still, there aren’t enough investors. “We think at somewhere between here and 1,000 we’ll have a critical mass where when there’s deal posted there will always be someone interested,” Libes says.

This idea represents some fresh thinking in the impact investing world. It will be interesting to see if the site reaches the “critical mass” needed to start funding deals regularly.


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How To Be Successful With Affordable Housing Without Being Evil

This post was originally produced for Forbes.

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“Our nation is in the midst of a true affordability crisis.” Daryl Carter, founder, chairman and CEO of Avanath Capital Management, sees that as both a problem and an opportunity. He’s found a way to deliver returns to investors while serving working families at the same time, that is, without being evil.

Let’s start by looking at the problem. “The median income of a renter in the United States is $36,000. To be considered affordable, renters should be spending no more than a third of their income toward rent. However,” Carter says, “in many coastal markets such as Los Angeles and New York, over half of all renter households are allocating more than 50% of their income toward rent.”

That threshold matters, because if you are paying more than half of your income in rent, it is difficult to also provide food, healthcare and education for the people living under that roof. “Historically, the reason that many neighborhoods have declined, whether it’s Detroit or Oakland, is not because of who lives there, but rather because there is a lack of investment in those areas,” Carter says.

Watch my entire interview with Carter in the video at the top of this article.

Carter points to an estimate from the Joint Center for Housing Studies that indicates that two million rent-controlled units will expire over the next decade. Most of these are supported by Low Income Housing Tax Credits. He says, “These units are at-risk for redevelopment into market-rate apartments.”

The problem gets worse. Every year, about 100,000 rental units are lost to obsolescence or failure to meet building codes. Most of those units are—or were—affordable.

Carter sums up the situation this way: “The bottom line is: people need quality, affordable places to live – now.”

“Targeting this asset pool is an additional source of investment opportunity for Avanath,” Carter says.

Carter says he is a beneficiary of affordable housing. “My journey as a social entrepreneur began on Detroit’s West Side, in a working class, African American neighborhood. My father, an autoworker, and my mother, a nanny, moved to Detroit to pursue the economic dream tied to the auto industry. With a combined income of $10,000 per year, they purchased a small two-bedroom bungalow in the 60s for $15,000. Their monthly mortgage payment was $130 per month or 16% of their monthly income of $833 per month.”

“While not picture perfect, this home provided a stable setting for my family to pursue the American Dream. My home incubated my dreams of the University of Michigan, MIT, and Avanath long before I had any thought about them. Today, this same dream is simply implausible for much of the population, based on a rampant rise in the price of housing in our nation,” he continued.

That foundation helped to motivate and inspire Avanath’s strategy of bringing institutional capital into areas where affordable housing is most needed.

Daryl J. Carter, Avanath Capital Management

One of the lessons Carter has learned is that keeping good residents helps to foster a successful community. This is a stark contrast to other investors, whom he says often seek to create a “new resident profile.”

Avanath, like other developers, will invest in upgrading the projects they buy. “When we renovate, we raise the rents but we raise the rents to a level that is affordable for the residents that are there. And we try to do what I call ‘smart renovations’ where we put in things like washers and dryers that benefit that family.”

He admits that they don’t do everything they might so they can keep rental rates lower. He says that when he shows his investors the projects, they’ll ask why the popcorn ceilings from the 60s or 70s haven’t been replaced. “They’ll say, ‘It would be great if you can get rid of it.’ And we say, ‘Yeah, it would be great but I’d have to charge $40 more rent.’”

The Avanath strategy for getting good investor returns include buying the properties on good terms. “We buy it on a very favorable basis because in many respects it’s been abandoned by the previous owner.”

Once purchased, Avanath works with the residents and the community, including elected officials to take what Carter calls a “holistic approach.” Not only does the company invest in the buildings but also in things like afterschool programs that will add value.

Carter explains the strategy, “Our investment strategy is to preserve the existing supply of affordable housing and add value to our communities by investing in capital improvements that enhance asset quality without sacrificing affordability.”

“Safe, clean, and affordable housing is the foundation for economically viable neighborhoods,” Carter says, speaking from experience.

“By acquiring affordable and workforce housing, making strategic improvements that increase quality of life without sacrificing affordability, and then investing in social programming such as on-site tutoring, sports programs and financial literacy courses, we are giving residents more than just a place to stay – we are giving them lifestyles, aspirations, and a path toward success.”

“Through this work, we have been successful in advancing positive social change, while also generating attractive, risk-adjusted returns to our investors. It is important to our mission to deliver returns that rival other commercial real estate investments.”


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Impact Measurement: How Much Is Too Much? How Much Is Not Enough?

This post was originally produced for Forbes.

This is a third and final piece in my series on impact measurement.

First Part Link: How Social Entrepreneurs Begin To Measure Impact

Second Part Link: Impact Measurement: Finding Your Way Through The Maze

One of the great challenges of impact investing is knowing how much impact reporting to require from the ventures you invest in, remembering that startups face plenty of challenges without layering on needless reporting. On the other hand, impact investors want to know about the good that comes from their investments.

To find answers to these questions, I reached out to nearly two dozen impact investing experts to learn how they think about this dilemma.

Bake in the Impact

There were several themes that developed in the answers. One consistent message was voiced by Morgan Simon, Managing Director of Pi Investments, who suggested entrepreneurs and investors should “structure fairness into the business from day one, such that counting specifics become less critical . For instance, Pi investee Uncommon Cacao set a 49% margin cap to ensure cacao farmers always retain the majority of the value in a transaction.”

Morgan Simon

Matthew Davis, CEO of Renew, which makes investments in Africa, made the same point, but added the caveat that it “depends on the type of business and how it and its shareholders define impact.” He adds, that for his portfolio, just seeing an ethical business in Africa prosper is sufficient.

Laurie Lane-Zucker, founder and CEO of Impact Entrepreneur Center for Social and Environmental Innovation, agreed. “Another reason why it is important to bake impact values into a company’s DNA at the earliest stage possible is because impact measurement becomes engrained in daily activities and is less of an ‘add-on’ to what each person already has on his or her plate.”

Right Size the Reporting to the Company

The need to match the reporting obligations to the size and stage of development of the company was another theme that came from the experts.

Daniel Jean-Louis, CEO of Bridge Capital, which invests exclusively in his native Haiti, argues that while avoiding bureaucracy is important, a certain amount of administration is required in all businesses. “So, it’s important not to confuse red tape with administration. “

Uma Sekar, impact and ESG Manager for Capria Ventures, agrees. ” Impact metrics that tie directly with business operations are most useful. Right-sizing the framework with a lean and adaptive set of metrics that take the stage of the company into consideration, reduces the burden of measurement. Early stage companies do not create deeper levels of impact as yet, therefore shouldn’t build a system requiring such data collection.”

Daniel Jean-Louis, courtesy of Bridge Capital

Nell Derick-Debevoise, founder and CEO of Inspiring Capital, encourages investors to “Be realistic.” She notes, “I’ve never heard from a fellow B Corp (from Susty Party to Ben & Jerry’s) that they gained a customer because of B Corp status.” She notes that institutional investment could be years in the future for startups. She concludes, “Be smart about getting prepared for GIIRS or IRIS, but don’t worry about getting it exactly right in the first three years.”

“Impact measures should be carefully considered upfront, fundamental to founding the business, and bite-size as well as dream goals should be established,” says Carrie Endries, senior portfolio manager for Reynders, McVeigh Capital Management, LLC. “In this way, collecting impact data can be as natural as collecting financial data metrics. They can be expanded and broadened along the way as a company grows, but just as you don’t have extensive financial reporting as a very small company, neither should you expect expansive impact reporting.”

Stephanie Gripne, founder and director of the Impact Finance Center and CO Impact Days and Initiative, cautions against trying to do too much. “The entrepreneur needs to be strategic in measuring the few key indicators that will demonstrate success and capture that information, not gathering every piece of info imaginable and then seeing what shows results.”

Stephanie Gripne, courtesy of the Impact Finance Center

“I think it’s important to tell your investors when it simply isn’t possible to get a firm number,” says entrepreneur Lisa Curtis, founder and CEO of Kuli Kuli. “At the beginning, we had quite a few impact investors asking us for more quantitative data about how many people in the communities where we source were eating moringa as a result of our work. We got a lot of qualitative data from our suppliers but found that without the resources to do a full-fledged survey in far-away countries it was impossible to collect hard data.”

She adds, “We’re now at a point where we have the resources to embark on those types of surveys.”

Find Alignment Between Investors and Entrepreneurs

When investors and entrepreneurs are well aligned in goals and objectives, it is easier to settle on appropriate measurement metrics, the experts say.

Matthew Weatherley-White, co-founder and managing director of the Caprock Group, cautions, “Too often, grantors and investors want to see metrics that reflect their values rather than the operations of the entity.”

“Social entrepreneurs, particularly in those critical start-up years, should foreswear the kind of broad, catch-all ‘values based’ expectations that our community tends to place on an enterprise,” Weatherley-White continues. “An example might be a retail-focused franchise-model water purification business in highly urbanized areas of Africa. Their metrics could be simple: liters of water purified, liters sold, number of unique customers, perhaps something about gender diversification in their franchisee base, etc.”

Matthew Weatherley-White

This alignment should be an ongoing process, says Lisa Hagerman, director of programs at DBL Partners. “The fund manager and the social entrepreneur’s interests must continually be aligned. As such, the metrics should be applicable to the entrepreneur’s business, with the option of omitting information requested if not applicable. Metrics and social impact efforts should have a positive, and strategic, impact potential for the company as a way of keeping all interests aligned and metrics valuable, and relevant, to all stakeholders.”

Lauryn Agnew, president, Seal Cove Financial and founder, Bay Area Impact Investing Initiative, says entrepreneurs should seek that alignment when finding investors by “communicating appropriate and reasonable expectations for impact, outputs and long-term outcomes over the life of the investment” and then matching those to an investor with consistent risk, return and impact targets.

Lauryn Agnew

Topher Wilkins, CEO of Opportunity Collaboration, says the responsibility for preventing burdensome reporting rests with the investors. He suggests the entrepreneurs build trust with the investors or funders so “everyone involved knows impact is being achieved.”

“The social entrepreneur is running a business first and foremost,” says Laura Callanan, founding partner of Upstart Co-Lab. “All measurement — customer feedback, employee turnover, net revenue, social impact — needs to be useful for running the business. Investors who care about impact need to back entrepreneurs who care about impact and then let those entrepreneurs do their job. “

Remember Impact Reporting Is a Cost of Doing Business

The experts also noted that impact reporting is a reality that entrepreneurs need to keep in mind; this may require them to strike a balance between reporting too much and too little.

“It’s a cost of doing business in modern times like getting organic certification if you are a food product,” says Joel Solomon, chair of Renewal Funds. “The substitute is having a clear mission and purpose articulation, with products or services that take sustainability and fair, safe work conditions, as well as environmental and community practices into account.”

Gary White, CEO of Water.org, says, “This is always a balance that social entrepreneurs must strike. I think it is helpful to look at existing frameworks like IRIS. We have been very rigorous in our process to adopt what we feel are important impact parameters to measure. We engaged a firm, IOD Parc, to advise us on this process. While this has required some upfront investment of time, it is paying off in terms of only measuring what is most important.”

Gary White, courtesy of Water.org

Tune Your Reporting According to Your Theory of Change

The experts also agreed that reporting requirements are, at least in part, a function of the theory of change driving the investment.

“Measuring impact should be the result of an impact plan,” says Cecile Blilious, founder and managing partner at Impact First Investments. “This frames the impact that the company is trying to achieve, and can then be measured. It should not be regarded as a burden, but rather as a working tool very similar to a business plan.”

Cecile Blilious

Gripne, from Colorado, explains, “A social entrepreneur needs to first be clear about his or her own hypothesis for impact, the research and reasoning behind it and the methods for continually testing and re-adjusting the hypothesis and measures. Those basics go a long way in gaining and maintaining investors’ trust, and in buying time (and their patience) for developing and refining more sophisticated measures.”

Cathy Clark, director at CASE i3 at Duke University, says, “If your theory has to do with employees, you can survey them at almost no cost. If it has to do with customer incomes after they’ve used your product, again, you can survey them but it will cost you something. Services like Acumen’s Lean Data program can help entrepreneurs learn a great deal about their customers in a very short time for very little money.”

“We think of data as a conversation, not an endpoint,” she adds. “What can you ask that you or others can act on? What choices do you face that information from a stakeholder can help you answer? How do you start to find data to compare yourself to that is relevant? These are where impact makes progress.”

Reporting is Important to the Movement

Bobby Turner, the CEO of Turner Impact Capital, noted that reporting is important for the impact investing movement. “Measuring impact will not always have the effect of improving impact as many impact models are untested and therefore there is no guarantee that the measurements will be positive. Notwithstanding, measuring impact (social or environmental) is critical to the social impact movement as without a proven correlation between profits and purpose, the movement will not be able to raise meaningful amounts of market rate capital.”

In contrast, Peter Fusaro, Chairman of Global Change Associates, cautions, “If they go deep in the weeds, they will be buried with reporting and not focusing on impact. I feel the most important measurement is actually being successful in an ethical way.”

#impmeas


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Report Asks Investors To Respect Human Rights On Clean Energy Projects

This post was originally produced for Forbes

You can download an audio podcast here or subscribe via iTunes.

Renewable energy projects are the primary weapon in the war on climate change, but that shouldn’t exempt these projects in the developing world from United Nations’ standards on human rights, argues a new briefing report.

As I explored the briefing, “Renewable Energy: Managing Investors’ Risks and Responsibilities,” with two of the co-authors, Andrea Armeni of Transform Finance and Meredith Benton (see my interview with them at the top of this article), I began to see clean energy projects through a new lens.

Armeni points out that when a wind or solar project is built to provide power to an aluminum smelter there is no question that powering the smelter with clean energy is better than powering it with fossil fuels, but there may still be a negative impact on a local community–which may or may not benefit much from the project.

He says that to ensure that the local community benefits from its participation in the project, the investors need to insist that the community be represented at the table from start to finish.

Andrea Armeni, Executive Director of Transform Finance

Benton adds that oftentimes communities being engaged in clean energy projects today, have been isolated in the past, perhaps because of what makes their land appealing today–lots of sun or wind. Without a history of making deals in the past, the community may not have the capacity to negotiate a fair and equitable arrangement. Investors should help ensure that this capacity is developed for the sake of the renewable energy project.

Mary Robinson, President, Mary Robinson Foundation, is quoted in the executive summary of the briefing saying, “It is not acceptable for any business to ignore their impacts on peoples’ land rights, security or livelihoods – the renewable energy sector is no different.”

Benton notes, however, that it is a wise strategy to engage with the community to create a fair transaction. Disenfranchised communities who may come to feel that a project in the community is a bad deal, could create a volatile situation that could be expensive to resolve. That is a risk that can be managed by engaging constructively with the affected community.

Meredith Benton

The briefing notes that the extractives industry has had to write off $379 million in assets due to “company-community conflicts.”

With global renewable energy projects totaling $$287 billion in 2016, there are a lot of projects happening. Falling prices for renewable energy technology and increasing demand for energy are likely to continue the trend of increasing investments in clean energy in the coming years.

Eventually, the report notes, the world will need to shift entirely to clean, renewable energy. To avoid having adverse impacts on the communities where the projects are built, the report recommends three specific steps for investors:

  1. Prior to investment, ensure human rights due diligence is undertaken according to the UN Guiding Principles on Business and Human Rights.
  2. During the investment, monitor human rights performance and engage with companies to encourage them to comply with the UN standards. If companies fail to comply, the briefing suggests the investors divest.
  3. Both prior to and during investment, engage not only with the companies but also with community representatives such as local governments, trade unions, nonprofits and others in the community to ensure that human rights are respected.

While there is little argument that renewable energy projects provide a meaningful social benefit that accrues disproportionately to low-wealth communities being adversely impacted by climate change, the briefing makes a compelling argument that the communities impacted directly by them should be considered and consulted actively throughout their development and operation.

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How Impact Investors Are ‘Starting In The Wrong Place’

This post was originally produced for Forbes.

You can download an audio podcast here or subscribe via iTunes.

“We’re starting in the wrong place,” Mara Bolis, 45, senior advisor for market systems at Oxfam America, says of the approach most impact investors are using today.

The problem she highlights is that investors are starting with an analysis of their own requirements, which are primarily financial rather than with a deep understanding of a problem they wish to solve.

“Impact is a pretty diluted term at this point,” she adds. “We’re not doing the important upfront work to diagnose the problem.”

Watch my interview with Bolis at the top of this article.

Bolis says that Oxfam has used a different approach, beginning with a clear diagnosis leading to a specific prescription for a particular financial treatment.

Oxfam, a 70-year-old NGO that works internationally to alleviate poverty, diagnosed a problem for female entrepreneurs in Guatemala. They were being asked to put up almost twice as much collateral as men, she says. So, Oxfam and its partners developed a financial product to provide capital to female small business owners in Guatemala on appropriate terms. The loans average $17,000 and have maturities up to four years. The investment was designed for the diagnosis.

Mara Bolis, Oxfam America

Bolis authored a discussion paper for Oxfam and Sumerian Partners on impact investing. In a blog post summarizing the findings of the paper, she wrote, ” We have no problem with financial returns, but let’s not pretend that investors seeking a pure market return can tackle the most complex global challenges in high-risk markets. They cannot. Not in education. Not in health. Not in reducing child labor and forced marriage. Not in water and sanitation. “

Andrea Armeni, executive director of Transform Finance, agrees with the sentiment. “It’s fundamental in the impact space to put the primacy on the needs of whoever will be affected by the investments. If that’s not the case – if we are focusing primarily on the needs of the investors – it’s a bit disingenuous to say that we are investing in order to achieve a certain social impact.”

Bolis, who has worked in international development for 20 years, says, “Poverty alleviation should be a guiding principle” for impact investors.

It wasn’t long ago, she points out, that the only sort of philanthropic capital was a grant. As the market has evolved in recent years, a variety of forms of impact capital have been developed along with a diverse range of approaches to solving social problems, including for-profit social entrepreneurship.

Bolis worries that as impact investing goes mainstream investors who have traditionally accepted lower returns on their investments in order to achieve desired social outcomes will follow the herd toward investments with market returns offering weak social benefits. The irony of seeing the field of impact investing grow while the impact actually shrinks concerns her.

Armeni agrees that a focus on return on investment or ROI can allow for problems to flourish that impact investors seek to eliminate. “If we want a teachers’ pension fund to invest for impact, we must be mindful of its return requirements so that the pension liabilities are met. But if in order to achieve a certain ROI, other stakeholders suffer–especially those who have historically not benefited from finance–then we are not moving toward real impact, and may, in fact, be contributing to the growing wealth and opportunity gap.”

Armeni sees three “transformative finance principles” that investors should observe:

  1. deep engagement with the communities, an idea that parallels Bolis’s suggestion for a real diagnosis,
  2. “non-extractiveness,” that is, being thoughtful about “for whom value is being created”, and
  3. fair allocation of risks and returns.

Bolis has made six recommendations to correct what worries her about impact investing:

  1. Shift from focusing on the needs of investors to the needs of those combatting poverty
  2. Increase transparency of reporting both for impact and financial returns
  3. Philanthropists should continue to deploy patient capital that seeks only to achieve a return of capital rather than a return on it
  4. The industry needs more independent research to identify the investment structures that best maintain impact intentions
  5. Investors should adopt a “voluntary code of practice that enshrines” intentionality
  6. “Impact investors should adopt incentives for optimizing, measure and reporting impact”

Bolis sees these ideas critical to focusing the impact investing sector on what she sees as its core mission of helping people lift themselves out of poverty. In other words, this is how you start in the right place.

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Devin is a journalist, author and corporate social responsibility speaker who calls himself a champion of social good. With a goal to help solve some of the world’s biggest problems by 2045, he focuses on telling the stories of those who are leading the way! Learn more at DevinThorpe.com!

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