Caroline Ashley

Caroline focuses on how innovative economic models can deliver more inclusive and resilient development.

Caroline has worked on markets, business models and investment approaches that deliver social impact for many years in roles with challenge funds, impact investors, entrepreneurs, corporates, NGOs and policy makers. As Results Director of the DFID Business Innovation Facility, and Sida Innovations Against Poverty programme, she founded the Practitioner Hub for Inclusive Business in 2010, then took on hosting it, and acted as Editor of the Hub for 7 years before it transitioned into managed by IBAN.

Most recently Caroline led economic justice programmes at Oxfam GB, before moving to Forum for the Future, to lead global systems change programmes to accelerate our transition to a sustainable future.

What do inclusive businesses need to know about impact investment?

4. Oct 2011

Take-aways from dialogue at an Impact Investment conference last week:

1. What is impact investing?

Investment in business that seeks both commercial return and social impact. (although the precise boundaries of “impact investment” vs other investment are probably more debated than the boundaries of ‘inclusive business’).

2. What kind of investment?

Equity investment is the most common form of impact investment, though not the only kind. Angel investment and venture capital are available. Loans are rarer, and public share offerings are not happening yet.

3. Do impact investors seek a market return, comparable with any other investment?

It varies, a lot. Indeed the advice was given that anyone engaging with part of the impact investment community will do better if they understand the perspective of the different investors.

Some donors and foundations have adopted impact investment as an alternative to grants (where the return is minus 100%). They may be seeking just a return of money (0% in nominal or real return, to revolve into the next venture), or a low single digit return. Others are more used to commercial returns and see the opportunity to be more strategic by focusing on high-opportunity sectors, such as technology. They expect market returns, though in addition to social impact.

Evidence illustrates this wide variety: see February Editor’s Choice, Impact Investment; an Emerging Asset Class, which shows average returns by instrument and region.

4. How can entrepreneurs in Africa and Asia tap into Impact Investment?

Knowing where to go is a challenge. Entrepreneurs don’t have to know all the Foundations and individuals that are putting up impact investment funds. They do have to know the Funds that operate in their area. The well established range from Ashoka, Aureos and Actis, through to Ignia, the Grassroots Business Fund, GroFin, and Triodos Investment. Change is constant: the conference heard that Jicana is a new fund launching in Africa. The list of members of the Global Impact Investing Network (GIIN) is a good place to start.

Tools that help entrepreneurs and investors find each other are evolving too: Clearly So is a speed-dating service for impact investment in the UK, soon to launch in East Africa.

A business plan will be needed too. That may sound obvious, but one speaker revealed how many great ideas she has received, that simply lacked a business plan that an investor could appraise. An obvious area for the Business Innovation Facility to help!

5. How are the social returns measured?

The Impact Investment community recognised that hard evidence and track record are essential for this to be anything more than a fad amongst investors. So a major collaborative step has led to a set of IRIS Indicators that can be used to track social impact. IRIS stands for Impact Reporting and Investment Standards. They contain a host of sector-specific indicators (eg for housing or energy) so work across sectors. Thousands of micro-finance organisations and hundreds of other businesses have already used them and pooled their data - reported in October’s Editor’s Choice, The 2011 Iris Data Report. This has created the first benchmarks, on which a Ratings system (known as GIIRS) is now being developed.

6. Should companies interested in Impact Investment adopt IRIS indicators?

If you are setting up your own Key Performance Indicators or reporting of metrics, and are likely to seek Impact Investment, then it makes sense to look at the IRIS library of indicators up-front. They will probably fit – whether it is value of payments to local suppliers or number of toilets constructed during the reporting period. There is no need to be too ambitious and overload a start-up with heavy reporting costs. But if you adopt 3 or 4 IRIS indicators you demonstrate commitment to tracking social impact, and lay the foundations for social investment.

For more information on impact investment, see the GIIN website. The issues above were discussed at an impact investment conference last Friday.