Discover how to invest your capital to achieve a powerful, lasting impact on the world.
The Global Handbook of Impact Investing: Solving Global Problems Via Smarter Capital Markets Towards A More Sustainable Society is an insightful guide to the growing world-wide movement of Impact Investing. Impact investors seek to realize lasting, beneficial improvements in society by allocating capital to sources of impactful and sustainable profit.
This Handbook is a how-to guide for institutional investors, including family offices, foundations, endowments, governments, and international organizations, as well as academics, students, and everyday investors globally. The Handbook´s wide-ranging contributions from around the world make a powerful case for positive impact and profit to fund substantive, lasting solutions that solve critical problems across the world.
Edited by two experienced and distinguished professionals in the sustainable investing arena and authored by two dozen renowned experts from finance, academia, and multilateral organizations from around the world, the Global Handbook of Impact Investing educates, inspires, and spurs action towards more responsible investing across all asset classes, resulting in smarter capital markets, including how to:
· Realize positive impact and profit
· Integrate impact into investment decision-making and portfolio
· Allocate impactful investments across all asset classes
· Apply unique Impact Investing frameworks
· Measure, evaluate and report on impact
· Learn from case examples around the globe
· Pursue Best Practices in Impact Investing and impact reporting
While other resources may take a local or limited approach to the subject, this Handbook gathers global knowledge and results from public and private institutions spanning five continents. The authors also make a powerful case for the ability of Impact Investing to lead to substantive and lasting change that addresses critical problems across the world.
Table of Contents
Foreword by Justin Rockefeller xxxi
Acknowledgments xlv
About the Contributors xlvii
Acronyms and Abbreviations lxi
Introduction 1
Chapter 1 Impact Investing: Innovation or Rebranding? 9
Haifa Ben Abid, MPhil
Introduction 10
Methodology 11
Impact Investing: Clarifying the Concept 13
Types of Impact Investing: Financial-First versus Impact-First 15
Impact Investing: A Response to a Changing Investment Environment 18
Changing Demographics: Investment Practices Among Millennials 18
A Global, Multibillion-Dollar Market 20
Mechanisms for Institutionalization 21
Key Features of Impact Investing 22
Refining the “Good” Return: Financial and Social Considerations 24
Helping Investors “Walk the Walk”: Aligning Mission, Values, and Investments 24
A Prudent Entrepreneurial Spirit: Experimentation and Mitigating Risks 25
Impact Investing: Leverage for Development? 25
Conclusion 28
References 29
Chapter 2 Investing for Impact: Socially Motivated Investors and Externalities 37
Raghavan Narayanan, MBA and Stoyan V. Tenev PhD
Introduction 38
A Conceptual Framework for Socially Motivated Investment Behavior 39
Typology of Socially Motivated Investors 43
Impact Investing 52
Conclusion 56
References 58
Chapter 3 Place-Based Impact Investing: Local and Regional Assets for Local and Regional Impact in Globally Diversified Portfolios 61
Introduction 62
Targeting Impact Through Place-Based Impact Investing 66
Constructing Institutional Place-Based Impact Investing Portfolios 71
The Bay Area Model Equity Strategy 74
The US Community Investing Index, by the F. B. Heron Foundation 77
Creating Investable Opportunities for Sustainable and Resilient Communities Through Inclusive Community Engagement 81
Capital Stacks: Financing Local and Regional Projects 88
Global Examples of Place-Based Impact Investing Success 93
Final Remarks and Key Conclusions 98
References 99
Chapter 4 How to Invest in Human Capital: Measuring and Integrating Human Capital Valuation to Realize Higher-Impact Portfolios 103
R. Paul Herman, BSci and Kirstin Dougall, MFA
Why Impact Investors Should Care About Human Capital Valuation 104
Methodology 105
Measuring the Contribution of Human Capital to Returns 106
Human Capital Valuation Methods 107
Investor Methods for Capturing Monetary HCV 109
The Heritage of Monetary Human Capital Valuation Methods 109
Investment Strategies Using Monetary HCV 110
Non-Monetary Human Capital Valuation for Impact Investors 111
Exemplary Ratings Systems That Feature Human Capital Valuation 111
Non-Monetary Human Capital Metrics That Impact Investors Can Use in Custom Analyses 112
Employee Participation 114
Incorporating Data from Human Resources Management Systems 115
Standards for Human Capital Valuation 115
Integrating Human Capital into the Investment Process 118
Examples of Human Capital Valuation Applied in Impact Investing 118
Examples: Monetary Human Capital Valuation in Action 119
Monetary HCV Example: Asian Company “BroadTek” Uses Human Capital Financial Statements to Calculate Returns on Workforce Investments 119
Monetary HCV Example: Global Technology Company Infosys Uses Present Value of Compensation Method to Calculate Returns on Workforce Investments 119
Example: Being a Global “Great Place to Work®” Creates Higher Growth 122
Non-Monetary HCV Example: Indian Company HCL Technologies’ “Employees First, Customers Second”
Initiative Leads to Higher Growth and Economic Resilience 123
Examples: Using Standards to Assess Whether Companies Value Human Capital 123
HCV Standards Example: How Novartis Used the “Social and Human Capital Protocol” to Calculate the Economic Value of Improving Health Across Africa 125
HCV Standards Example: French Automaker Groupe PSA Demonstrates How Human Capital Contributes to Their Value Chain Using the International Integrated Reporting Framework 125
HCV Standards Example: Managers of Australian Retirement Fund Assess and Adjust Holdings Using GRI Human Capital Guidelines 126
Stock Indexes and Funds Built on Human Capital Metrics 128
Looking Forward: New Human Capital Valuation Reporting Will Make Impact Investing Easier 130
An Investor’s Action Plan for Human Capital Valuation 131
Conclusion 133
Further Reading for Impact Investors 134
References 135
Appendix 4.1: Experts Interviewed 141
Appendix 4.2: Human Capital Management Institute Monetary Human Capital Valuation Formulas 142
Appendix 4.3: Human Capital Valuation Ratings Systems 143
Appendix 4.4: Human Resource Metrics and Where to Find Them 146
Chapter 5 Leadership by Results for Impact Investors and Investees 147
Rajen Makhijani, MBA
Introduction 148
The Impact Sector Underinvests in Leaders 151
The “Leadership by Results” Approach 154
Three Practical Frameworks and an Example 168
Translation of Goal Achievements into Returns on Investment 181
Conclusion 190
References 192
Chapter 6 Gender Lens Investing: Co-Creating Critical Knowledge to Build a Credible, Durable Field 195
Edward T. Jackson, OMC, EdD and Elsa de Morais Sarmento, MA
Introduction 196
Gender Lens Investing: Evolving Definitions 198
A Professional Field with Visibility, Force, and Momentum 201
Building a Larger, More Robust Field: Five Scaling Strategies 202
Deepening the Empirical Knowledge Base: Four Themes 207
Constructing a GLI Research Agenda Through 2030 216
Impact Investing Community-University Research Partnerships 220
Final Remarks 223
References 225
Chapter 7 Investing with a Gender Lens: Uncovering Alpha Previously Overlooked 233
Kristin Hull, PhD
Introduction 234
Gender Lens Investing: Definitions, History, and Potential for a Growing Movement 236
Factors Driving Investors to Adopt a Gender Lens 243
Female Asset Managers Outperforming 244
Women at the Top 246
Board Representation 247
Women Founders and Women-Led Startups 248
How Impact Investors Can Pursue Gender Investing 250
Gender Lens Cash Equivalents and Short-Term Notes 254
Gender Lens Public Fixed Income 254
Gender Lens Fixed Income 255
Gender Lens Private Debt 255
Gender Lens Public Equities 256
Gender Lens Global Equities 257
Gender Lens Private Equity 258
Startup Ventures with a Gender Lens 258
Private Equity and Venture Capital Funds 258
Fund of Funds 260
The Importance of an Investment Policy Statement for Gender Lens Investing 260
Conclusion 263
References 265
Appendix 7.1: Resources 271
Chapter 8 Gender Lens Investing in the African Context 273
Michael Z. Ngoasong, PhD and Richmond O. Lamptey, PhD
Introduction 274
Methodology 276
Why Gender Lens Investing in Africa Matters 279
Adopting Gender Lens Investing 281
The Practice of Gender Lens Investing in Africa 283
Discussion 295
Conclusion 296
Recommendations 297
References 299
Chapter 9 The Evolution from Gender-Focused Microfinance to Gender Lens Investing in Latin America: The Case of Pro Mujer 303
Angélica Rotondaro, PhD, Maria Cavalcanti, MBA, MS and Carmen Correa, BS
Introduction: Building the Business Case for Gender Lens Investing in Latin America 304
Gender Lens Investing in Latin America and Beyond: Backstage Highlights 306
Pro Mujer’s Gender Lens Investing Process 310
Pro Mujer’s Gender Lens Investing and Scorecard 314
Ilu Women’s Empowerment Fund GLI Scorecard 316
Unite to Conquer: The Crucial Role of Partnerships for Leveraging Catalytic Capital for Gender Lens Investing in Latin America 319
Key Learnings and Recommendations 323
The Way Ahead 329
References 330
Chapter 10 Inclusive Investing: Impact Meets Diversity, Equity, and Inclusion 333
Julianne Zimmerman, MSci, Edward Dugger III, MPA-UP, and Shijiro Ochirbat, MBA, MPA
Introduction: “DEI” Is Not an Asset Class 334
Aligning Purpose with Evidence and Practice 336
Inclusive Investing Methodology: Adapting the Scope 1, 2, 3 Approach to Assess Who Are the People in Your Portfolio? 343
Inclusive Investing in Practice: UNC Ventures 350
How to Begin: Determine What Is Material and Relevant 354
Conclusion 359
References 360
Appendix 10.1: Starting Examples of Communities of Practice and Knowledge-Sharing Platforms 366
Appendix 10.2: Additional Resources for Further Exploration 368
Chapter 11 Investing for Impact in Employee Retirement Plans 371
Megan E. Morrice, MBA
Introduction 372
Retirement Plans Demand and Types 374
Regulation in the United States, United Kingdom, and European Union 380
Creating Successful Retirement Savings Plans 392
Benefits of Successful Sustainable Retirement Savings Plan 398
How a Retirement Plan Can Become More Sustainable 399
Get Educated on Sustainable Investing 400
Engage Employees Through Their Retirement Plans 400
Prepare for Inspired Incremental Change 401
Educate Participants with Managerial Support 402
Research and Prepare 402
Talk to Colleagues and Build Consensus 403
Identify Who to Approach 403
Approach with Potential Solutions 403
Conclusion 404
References 405
Appendix 11.1: Experts Interviewed 411
Chapter 12 Fossil-Fuel-Free Investing: Weaving a New Investment Paradigm 413
Umachander Balakumar, MSci
Introduction 414
China: Lessons from the Biggest Polluter and Biggest Green Energy Market Maker 417
Metrics 419
Building a Fossil-Fuel-Free Portfolio 428
Private Equity (PE) 441
Hedge Funds 444
Commodities 446
Real Estate 448
Public Debt 449
Green Bonds 449
Cryptocurrency 451
Final Remarks 452
References 455
Appendix 12.1: Experts Interviewed 459
Appendix 12.2: Fossil-Fuel-Free Topics and Information 459
Chapter 13 The Role of Transition Finance Instruments in Bridging the Climate Finance Gap 461
Pauline Deschryver, MSci, MPA and Frederic de Mariz, PhD
Introduction 462
An Overview of Green Finance 465
Green Bond Certification: Growing Diversity Toward Transparency and Integrity 469
Green Bond Issuances Are Not Large Enough for Most Investors 470
Lack of Standardization in the Green Bond Market Threatens Integrity of Label 471
Reputational Risks Scare off Issuers and Investors Alike 472
The Sustainable Finance Market Stands to Benefit from the Development of Transition Finance 473
Existing Frameworks for Transition Bonds 475
Issuance of Transition Bonds 482
Conclusion 490
References 491
Chapter 14 Social Impact Bonds: Promises and Results 499
Maria Basílio, PhD
Introduction 500
Social Impact Bonds: Key Concepts 501
Expected Benefits and Reasons for Concern 505
The Theory Behind 506
Successes and Failures of SIBs 509
The Role of Impact Bonds in Sustainable Development Goals 511
Development Impact Bonds 512
Environmental Impact Bonds 514
Conclusion 518
References 520
Chapter 15 Climate and Money: Dealing with “Impact Washing” and a Case for Climate Impact Bonds 525
Jyotsna Puri, PhD, Aemal Khan, MA, and Solomon Asfaw, PhD
Introduction 526
Impact Investing: Definition and Measurement Challenges 529
Social Impact Bonds 533
The Case for Climate Impact Bonds: A Hypothetical Example 534
Conclusions and Implications 547
References 550
Appendix 15.1: Definitions of Terms Used in the Impact Investing Industry 553
Chapter 16 Measuring and Evaluating Social Impact in Impact Investing: An Overview of the Main Available Standards and Methods 555
Ana Pimenta, MEcon and Elsa de Morais Sarmento, MA
Introduction 556
The Importance of Measurement in Impact Investing 559
A Brief Overview of the Evolution and Current Status of Impact Measurement in Impact Investing 569
Frameworks for Measuring and Reporting on Impact 575
Standards 595
A Selection of Methods for Impact Measurement 613
An Integrated Approach for Impact Measurement 634
Conclusion 642
References 644
Appendix 16.1: Definitions and Terminology 655
Appendix 16.2: Global, National, and Company Level Initiatives,
Frameworks, and Toolkits 661
Chapter 17 Impact Measurement and Management Techniques to Achieve Powerful Results 667
Jane Reisman, PhD and Veronica Olazabal, MCRS
Introduction 668
Methodology 670
Conclusion 691
References 694
Chapter 18 Transformative Evaluation and Impact Investing: A Fruitful Marriage 697
Courtney Bolinson, MS and Donna M. Mertens, PhD
Introduction 698
Methodology 702
The Transformative Methodological Framework 703
Application to Impact Investing 714
Village Capital and Peer-Selected Investment 721
Global Agri-Development Company and the Absence of a
Transformative Framework 725
Conclusion 729
References 732
Chapter 19 Geospatial Analysis of Targeting of World Bank’s Development Assistance in Mexico 735
Mario Negre, PhD, Dr. Hannes Öhler, PhD, and eljko Bogetic´, PhD
Introduction 736
Background and Context 739
Data and Methodology 741
Empirical Results 744
Regression Results 751
Conclusion 754
References 757
Chapter 20 Evaluating the Impact of Portfolio Allocations to Large Firms Along the Value Chain to Develop Small and Medium-Sized Enterprises 761
Maximilian Foedinger, MBA, MPA and Elsa de Morais Sarmento, MA
Introduction 762
Value Chains and Small and Medium Enterprises 765
Best Practices for Impact Investors 782
Approach and Principles Underlying the Development of the EBRD
Methodology 786
Development of the Methodology 787
Assessment of Results 797
Final Remarks 801
References 804
Appendix 20.1: Details on Indicators Used 808
Appendix 20.2: Impact Assessment Draft Questionnaire for Large Firms 817
Appendix 20.3: Impact Assessment Draft Questionnaire for SMEs 822
Chapter 21 Two Decades of Front-Line Impact Investing 827
Jean-Philippe de Schrevel, MBA
Introduction 828
Five Pillars of Impact Investing Best Practice 830
Conclusion 840
References 840
Chapter 22 China’s Rapidly Evolving Practice of Impact Investing: A Critical Perspective 843
Zhao Jianbo, PhD
Introduction 844
Literature Review: Defining the Spectrum of Impact Investing 846
The Practice of Impact Investing in China: An Overview 850
Targeted Poverty Alleviation Needs Social Capital 855
The Maturing Market for Impact Investing in China 857
Challenges to Impact Investment in China 859
Discussion 860
Conclusion 863
References 864
Appendix 22.1: List of Interviewees 867
Chapter 23 Impact Investing Through Corporate Social Responsibility: The Indian Experience 869
Tanvi Kiran, PhD and Shivam Dhawan, MA
Introduction 870
Data and Methods 872
Overview of the Corporate Social Responsibility Model in India 872
Focal Areas of Impact Investment Under CSR 872
Findings 878
Parameter 1: Magnitude of Impact Investment: Total CSR Spent on Developmental Activities 878
Parameter 2: Nature of Impact Investment: Sectoral Breakup of CSR Expenditure in India 878
Parameter 3: Extent of Impact Investment in Terms of Geographical Distribution of CSR Expenditure in India 889
Parameter 4: Type of Impact Investment in Terms of CSR Spending by Public Sector and Non-Public Sector Undertakings 890
Discussion 892
Key Recommendations 896
References 897
Chapter 24 What Drives Impact Investors? Benchmarking Developed and Developing Countries 901
Robin Kipfer, MSci
Introduction 902
Methodology 904
Literature Review 906
Extrinsic Drivers for Impact Investments 909
Intrinsic Drivers for Impact Investments 911
Findings 913
India 913
Finland 914
Public Policy 916
The Importance of Capital Providers 917
Discussion 921
Conclusion 923
References 924
Appendix 24.1: Experts Interviewed 927
Chapter 25 Understanding the Demand for Impact Investments: Insights from the Italian Market 929
Alessandro Rizzello, PhD, Elisabetta Scognamiglio, PhD, Ludovica Testa, LM, and Lorenzo Liotta, LLM
Introduction 930
Methodology 933
Startup Venture Financing and Impact Investing: An Overview 934
Findings 937
Impact Investment Readiness Scoring 946
Conclusion 948
References 951
Appendix 25.1: Questionnaires 954
Appendix 25.2: Scoring Results 961
Appendix 25.3: Detailed Scoring Frameworks 963
Chapter 26 The Importance of Scale in Social Enterprises: The Indian Case 965
Vikram Raman, CA, MBA
Introduction 966
Social Enterprises and Requirements for Achieving Scale 968
Social Enterprises: Characteristics and Social and Economic Contributions 969
Factors That Influence a Social Enterprises Ability to Scale 970
Internal Factors That Influence Scaling 971
External Factors That Influence Scaling 978
Partnering with the Ideal Investor for Financing 988
Scaling Responsibly 996
Case Studies 1002
Scaling Metrics 1011
Checklist for Social Enterprises Looking for Scale 1015
Conclusion 1022
References 1024
Appendix 26.1: Experts Interviewed 1030
Chapter 27 The Role of the Entrepreneurial University and Engaged Scholarship in Impact Investing Capacity Building 1031
Richard T Harrison, PhD and Suwen Chen MBA, MSci
Introduction 1032
The Entrepreneurial University 1034
The Role of an Entrepreneurial University 1037
Three Missions of an Entrepreneurial University in Impact Investing 1040
From Top-Down to Bottom-Up 1050
Recognition of the Boundary of a University’s Intervention 1052
Conclusion 1052
References 1053
Chapter 28 A Road Map for Implementing Impact Investing: The Case of Multinational Companies 1061
Filipa Pires de Almeida, MSc and Marta Bicho, PhD
Introduction 1062
Methodology 1063
Impact Investing 1065
Company Profiles 1067
Findings on Impact Investing Strategies 1074
A Road Map for Impact Investing 1083
Conclusion 1087
References 1088
Appendix 28.1: Impact Investment Profiles 1093
Underlying Conditions 1094
Underlying Resources 1099
Impact Investing 1102
Appendix 28.2: Impact Investing Instruments 1107
Chapter 29 Impact Investing and European Wealth Managers: Why Impact Investing Will Go Mainstream and Evolve to Suit European Investors 1123
Trang Fernandez-Leenknecht, CAIA, LLM
Introduction 1124
MiFID II: A Growth-Driver for Impact Investing 1128
Assessing “Complex” Suitable Products 1130
Integrating Impact Investing into Investment Funds 1132
Developing Impact Investing to Suit the Retail Market 1135
Generalizing Impact Investing to a Mainstream Scale 1137
The Impact Report: A Protection Tool for the Investor 1139
Overview in Selected Countries 1140
France: Innovative “90/10 Solidarity” Products 1142
Switzerland: From Institutional to Individual Pension Investors 1144
Considerations for the Future 1147
Conclusion and Next Steps 1151
References 1153
Chapter 30 Fintech for Impact: How Can Financial Innovation Advance Inclusion? 1159
Frederic de Mariz, PhD
Introduction 1160
The Promise of Fintech: Innovation with a Purpose 1161
What Are the Benefits and Limits of Financial Inclusion? 1167
Within Fintech, Electronic Payments Are an Entry Point for Financial Inclusion 1172
The Drivers of Financial Inclusion: The Quality Dimension 1178
Can Fintech Enable More Impact Investing and Support SDGs? 1183
Conclusion 1185
References 1186
Index 1193
