Local Perspectives, Global Application: Global Lessons from Impact Investing in Central America
The Latin American Impact Investing Forum for Central America and the Caribbean (FLII CA&C) was hosted in Antigua, Guatemala by Alterna Impact and New Ventures on November 16-17th. The conference focused on leveling the playing field to bring all relevant actors on same page to advance impact investing in the region.
In one of the final panels, Perspectivas Globales y la Relevancia Local (Global Perspectives and Local Relevance), speakers from ANDE, Miller Center for Social Entrepreneurship, I-DEV International, DAI and CeroUno shared their social entrepreneurship experiences in Africa, Asia, and other parts of the world, as well as how these lessons can be applied to Central America. Important advice and lessons for the region were addressed. Market lessons learned in Africa can help Central America. But the concerns addressed are not specific to the region but to the whole sector.
After reflecting on the conference, I realised issues facing Central America are not solely isolated to the region. For example, greenwashing, lack of education, lack of consistency in language and terminology, and ensuring that we are not merely implementing venture capital tools into emerging markets are all pressing issues in the global impact investing sector. So yes, Central America can learn from global perspectives but in the same sense that it engages in the same learning process as the rest of the developing world.
So what is the future for Central America and how can these lessons be expanded globally? The actors, the ideas energy, and collaboration were all present at FLII CA&C. The playing field has started to be “leveled,” so how can we continue this theme into action in the region? Beyond the immediate success of an event, the true success of FLII CA&C will come from action, future investments, and growth in the region.
Next steps:
Education is key
Education is a broad concept when applied to social entrepreneurship, but it is one of the most powerful tools to activate change. Raul Pomares, Founder of Sonen Capital, in his opening keynote speech stressed that education is key to expand impact opportunities and knowledge about impact investing. To integrate traditional investors into the sector education is needed and people need to be informed of the growing resources about impact investing. For instance, companies like Acumen are creating free databases of information to expand knowledge on impact investing. Also from successes and failures, the sector can learn how to maximise impact and capital within their portfolios. Additionally, teachers, parents, advisers need to educate the rising generation of entrepreneurs to create knowledgeable global citizens. The sector needs to provide the right tools and knowledge for enterprises to raise capital and to be financially stable. To expand the ecosystem, we need education.
Avoid Greenwashing, keep impact as the focal point
A common theme addressed during the conference was the fear of greenwashing. As Corporate Social Responsibility continues to grow, so does the concern of greenwashing. A company may be investing in an enterprise, but is the impact or the returns that motivates new actors such as banks and corporations to enter the sector? If impact is not a focal point, the social change will not happen. To avoid greenwashing we must truly understand the impact of the company and have supporting data. Therefore, data measurement is extremely important to ensure that the social impact remains at the centre. As Sasha Dichter, Chief Innovation Officer of Acumen, mentioned, we need see people behind the numbers to gauge if the change is truly benefitting the customers. Beyond all the due diligence, we still need to ask if it is creating a better livelihood for a person or is striving to eliminate poverty. Capital returns should not be compromised, but we need to ensure that investments categorised as impact, truly have a sustainable impact. Sticking the title ‘impact’ on a deal to write off CSR or to be perceived, as a ‘green’ or ‘social’ company does not benefit the two billion people in poverty. Although greenwashing is a general concern, actors in the impact sector are cautious and trying to take the preliminary steps to ensure that mission of impact investing is not lost. This initiative was clearly shown during FLII CA&C. Brigit Helms, IDB, in her keynote speech, voiced that investors need to ensure they do not solely apply venture capital tools to emerging markets and call it impact investing. Instead, they need to take the power of investments and create innovative tools to help social businesses scale and become financially stable.
Innovate tools
One of the biggest issues Central America faces is that a majority of its enterprises are seeking early stage seed funding, but most investors are looking for a higher ticket size due to the high risk associated with early stage investments. This is the typical issue of the Pioneer Gap, which other regions have faced over the years. Collaboration, co-investments and partnerships will allow the region to successfully grow and hopefully provide solutions to close the “the Gap”. The partnership between Enclude, Agora, and the Bank of Nicaragua is a prime example of collaboration between commercial banks, impact investors, and capacity developers. All resources need to be pooled together to help generate more regional investments. Partnerships expand the network, provide more access for entrepreneurs, and strengthen the ecosystem. Additionally, innovative tools and collaborations also provide a different approach to investing to assure we tailor traditional investment tools to the specific markets and truly listen to the needs of the market.
Impact Investing in Central America may not be as established as other regions; however it continues to grow with great potential using lessons can be applied globally.