Global Handbook of Impact Investing

ELSA DE MORAIS SARMENTO is an Associate Researcher at NOVAFRICA at Nova Business School of Management and Economics. She co-edited The Emerald Handbook of Public Private Partnerships in Developing and Emerging Economies. R. PAUL HERMAN is CEO of HIP (Human Impact + Profit) Investor Ratings and Portfolios and has served as faculty at business schools around the world. He is author of The HIP Investor: Make Bigger Profits by Building a Better World.

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