For an inclusive global recovery, invest in social enterprises

During the first wave of Covid-19 last year, tens of thousands of desperate migrant workers deserted Indian cities to make the long journey back home on foot. They walked thousands of kilometres and exposed the deep fault line between industrial and rural India.

At the Aavishkaar Group, we felt helpless. As a pioneer of impact investing – an approach that taps into market forces to drive positive change – we could not think of a business model to feed the hungry in the shortest possible time that would also meet our capital allocation criteria. We had come face-to-face with the limitations of impact investing.

Our response was to launch the Aavishkaar Foundation to mobilise grant capital from the Aavishkar Group and provide immediate support to those in need. Working with a network of trusted community-focused organisations across the country, within three months of launch we had distributed a million food kits and supported frontline workers in seven government hospitals by providing them with protective equipment.

We were not alone. Across India, we witnessed an immense and inspiring response to the COVID-19 crisis, mounted by social entrepreneurs, local businesses, and philanthropic organisations alike.

This outpouring of humanitarianism reminded us that capital has a variety of important roles to play in meeting global development challenges. What could we change by channelling more global capital – both philanthropic and investment – to create sustainable local impact?

The term ‘impact investing’ was coined in the mid-2000s when the Rockefeller Foundation hosted multi-stakeholder conversations on how to use capital differently. It aims to challenge traditional capital allocation strategies by positioning impact investment alongside philanthropy to achieve sustainable outcomes.

Such a mission has never been more important. The world will need an estimated $2.5trn every year until 2030 to meet the UN’s Sustainable Development Goals (SDGs). This amount is huge compared to the total donor capital available, which we estimate at close to $250bn annually.

However, it is also less than 1 per cent of the nearly $400trn global capital pool held by banks, institutional investors and asset managers. If we are to have any chance of meeting the SDGs, impact investors must step up to inspire global mainstream investors to both ‘do good’ and ‘do well’.

"If we are to have any chance of meeting the SDGs, impact investors must step up to inspire global mainstream investors to both ‘do good’ and ‘do well’."

image title — During the first wave of Covid-19 in 2020, tens of thousands of migrant workers poured out of Indian cities, often travelling by foot to reach rural areas. Photo: Getty Images.

This is already starting to happen. Dedicated impact investing funds jumped from $502bn in assets under management in 2019 to $715bn in 2020, according to the Global Impact Investing Network.

Increasingly these investments are recognised as benefiting both society and investors’ bottom lines. They are delivering above-market returns precisely because of their focus on environmental, social and governance (ESG) factors.

Delivering a financial return while doing good is no longer considered far-fetched, but impact investing cannot do the work of philanthropy or vice versa. As Eric Kessler of Arabella Advisors has noted, solving many problems will always depend on generosity.

This is particularly true in times of crisis when there is a need for the kind of agile, rapid response and relief work that foundations and nonprofits are best placed to provide.

By contrast, one of the strengths of impact investing is that it can drive long-term innovation and systems change by funding the development of market-based solutions to complex human problems. It is the nature of impact capital to invest in high-risk, early-stage social enterprises that mainstream investors tend to neglect – including those that are based in rural and semi-urban regions where they are delivering essential services in the last mile.

The pandemic has highlighted many great examples of such enterprises. Take for instance social business Haqdarshak, an agent-based model that uses technology to help citizens and small businesses in India to apply for government welfare. It has helped more than a million individuals, connecting over 600,000 people to benefits.

During the COVID-19 crisis, Haqdarshak used its 200-plus field operations team and 2,000-plus active field agents to provide support for welfare programmes, vaccine registration, and even insurance coverage. Its services are free and it emphasises communicating with vulnerable communities, including migrants and the rural and urban poor, in their own languages. As such, its work during the crisis has been invaluable.

Another social organisation, Sustainable Environment and Ecological Development Society (SEEDS), uses an ecosystem approach to partner with vulnerable communities to build their resilience to disasters. It uses innovative methods and technologies tailored to specific communities.

In a recent partnership with Microsoft, SEEDS provided local communities with specific, localised and clear disaster alerts and warnings. This was designed to change how they use disaster-related information to make decisions and avoid loss of lives and assets.

We saw a momentous response from social entrepreneurs and community organisations during the COVID-19 crisis: what would the world look like if more investors joined philanthropists in backing organisations like these?

To build a more resilient world, we need a global investment system that values and supports such on-the-ground projects. By working together, philanthropy and impact investing could create a powerful engine to help drive an inclusive recovery. - PA

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