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How making money is good for the planet
Where the goal of receiving financial returns by investing in companies and funds meets that of giving back to society and doing something good for the environment, that’s where you’ll find impact investments.
Impact investing is becoming a mainstream investment strategy around the world. It is increasingly considered one of the instruments with the potential to help achieve the Sustainable Development Goals.
A panel of experts representing the financial sector, companies and development agencies discussed strategies and recent trends in the impact investing landscape at the EBRD 2018 Annual Meeting and Business Forum in Jordan.
Development financial institutions, including the EBRD, are working together to identify issues that are preventing greater collaboration between investors, on the supply side, and the impact enterprises, the demand side.
An example of the demand side comes from Jordan, with Microfund for Women (MFW), a non-profit microfinance institution dedicated to providing financial and non-financial services to women to empower them both socially and economically.
In 2017, the EBRD provided a loan of up to US$ 2 million in local currency to the MFW for on-lending. Technical cooperation funds by the EBRD Southern and eastern Mediterranean (SEMED) Multi-Donor Account* and the Shareholder Special Fund strengthen institutional and skill development in lending to refugees.
According to MFW’s Managing Director, Muna Sukhtian, development financial institutions (DFIs) like the EBRD help to crowd in more investors as they often take the initial risk.
On the supply side, Jay Collins, Citi’s Vice Chairman, Corporate and Investment Banking, raised the issue of mobilising capital. It is estimated that to achieve the SDGs by the 2030 target, US$ 2-3 trillions are needed annually.
According to Mr Collins, the private sector has to take the lead in working to bridge the gap and technology can have a dramatic impact.
But quantity of capital is not going to be enough in itself: diversification in distribution is an important factor too. Hashim Shawa, Bank of Palestine’s Chairman and General Manager, noticed an insufficient focus on investments for social impacts.
For example, in realities such as West Bank and Gaza job creation is crucial for sustainable economic development. But social issues including access to health, education and economic inclusion need more risk taking and this is where the DFIs can make a difference.
On environmental issues, some noted the incredible success of green bonds, for which the market is now booming. However, Daniel Calderon, Co-founder and CEO of Alcazar, which focuses on solar photovoltaic and onshore wind technologies and targets emerging economies, thinks pricing is still too high.
His company, Alcazar owns the majority of Shobak Wind Energy PSC, an EBRD client that is building a 45 MW wind farm in Jordan. “We could have not done it without the EBRD, as we were at the early stage of our enterprise. DFIs that are prepared to enter early and participate can make a huge difference”, he said.
Among the investors, Jacco Minnaar, Managing Director of Triodos, offered the perspective of a global leader in impact investment with a track record of €150 billion invested in inclusive finance and sustainable sector development.
According to him, DFIs fundamentally help to mitigate the risks and attract commercial partners into investments. In other words, DFIs should be pioneers in new areas for impact investments.
"Volume is not all: starting new markets is crucial,” he stressed.
*The donors of the SEMED MDA are: Australia, Finland, France, Germany, Italy, the Netherlands, Norway, Sweden, Taipei China and the United Kingdom.