However, this term is known in the world and its usage is increasing also regarding venture philanthropy. We discussed impact investing and reasons why it is important to measure the impact of the activities with Bjoern Struewer, the main speaker of May Venture Philanthropy Forum. Register for an event here.

What is impact investing? What are common features and different features in comparison to traditional philanthropy?

I will try to make it as simple as possible. We talk about the impact investing when investment practice meets philanthropic motivation. It resembles philanthropy in providing financial resources to resolve social issues. The difference is in financial return which is important here- at least the capital has to be returned. One of the key characteristics of the impact investing is the investor’s commitment to measure and report on social and environmental performance and investment development. It is important to maintain transparency and accountability.

In which areas do you see the greatest potential for investing with social impact?

Impact investing has the potential especially in the sectors where we can effectively combine social issues with market needs. In other words, when a sustainable business can create positive social and environmental change.

For example?

For example, 1.2 billion people in the world lack access to electricity. Searching for energy sources in areas that are not connected to the electricity is essential to the way out of poverty. Private companies doing business in this sector are typical examples of the impact investing.

Access to education is important for economic development, thanks to which the overall living conditions are improved. Technologies designed for learning can solve the shortage of qualified teachers and poor student results. Therefore, providers can get investments from impact investors.

Or here is another example. Most of the population in developing countries are small farmers. Small and medium-sized agricultural holdings have a direct impact on their livelihood as they increase their income. Specialized impact investment funds have been created to invest in such companies.

What additional tools apart from grant or endowment fund are available for me as a philanthropist to increase my impact?

Many philanthropists are looking for ways to make the most effective use of finance to get the greatest impact possible. They can play a key role in detecting the potential of social investment and resolving social problems because they can do so by means unavailable to traditional investors. Instead of imitating restrictive investment models, they can use a wide range of financial instruments that do not require full returns.

And how to apply it into practice? Currently, the most common strategy is to use risk mitigation tools, such as guarantees. As a result, private equity providers do not have to worry about losing their capital.

There are, of course, other, more innovative models. The new instruments represent a combination of philanthropic and investment capital. The aim is to reduce the cost of a social enterprise through philanthropic funds or even pay for the positive impact it generates.

What should investors or companies remember before they start impact investing? How do they know whether they have actually managed to achieve the desired impact?

Most importantly, monitoring and impact assessment should be approached as strictly as the investment itself. Philanthropists may need to build internal or external investment expertise, and the impact investors can be taught by philanthropists how to manage the social impact because good intentions are not enough.

The fact that impact measuring is always complicated, expensive and protracted is a myth. New tools for monitoring and management of impact are already being created: “lean” methodologies are a promising solution for social enterprises that want simplified and commercially usable data. In addition, innovative platforms offer social enterprise solutions for in-house impact management. New companies also enable impact tracking in the most difficult environments. In spite of all these tools, however, social change leaders need at least basic competence: a deep understanding of how the positive influence is actually being created and how it can be optimized.

What potential and what limitations are there in the further development of impact investing?

It should be noted that impact investing is limited to interventions of “commercial character”. It often happens that the markets do not work perfectly and do not transform the whole value into the returns for investors. To fill these gaps and to improve the financial performance of the private investment, philanthropists and public finances will be always needed.

Most of the impact investors seek to achieve financial returns in executive social enterprises or funds while creating a significant social or environmental impact. This can be done in two ways – a highly selective approach, focusing on a number of sectors, regions or enterprises with “double” impact and finance performance. The second one is a collaborative approach, such as creating partnerships with philanthropists or public funders, which are promising attractive financial returns and significant impact. A collaborative approach, also called combined funding, has a great potential for savings. It is the use of philanthropic and public financial resources to increase the inflow of private capital in order to create a positive social and environmental impact. It can be implemented, for example, through guarantees from public funding providers or philanthropic grants. Grants paid as rewards for proven social impact can improve the profitability of the business in the future, and thus attract investors. This is an opportunity to raise capital in high-impact sectors while investing in private sector expertise.

O Björnovi Strüwerovi

Björn Strüwer je zakladateľ a CEO poradenskej spoločnosti Roots Of Impact, ktorá sa zameriava na efektívny impact investing a financovanie rozvoja. Po tom, čo opustil „tradičný“ finančný sektor, zasvätil svoju kariéru financovaniu sociálnych inovácií. Prostredníctvom svojej spoločnosti Roots of Impact sa snaží formovať a ovplyvňovať trh investovania so sociálnym dopadom tak, aby bol kapitál použitý čo najefektívnejšie a s čo najväčšou pridanou hodnotou.

Strüwer tiež pôsobí ako hlavný poradca organizácie Ashoka v oblasti financovania projektov so sociálnym dopadom.  Je spoluzakladateľom Financing Agency for Social Entrepreneurship  (FASE) a iniciátor siete Ashoka Angels. Má viac ako 20-ročné skúseností v oblasti financií – naposledy ako výkonný riaditeľ Credit Suisse. Aktívne sa podieľa na vývoji riešení pre zodpovedné investície, impact investing a financovanie projektov so sociálnym dopadom. Pôsobí v niekoľkých predstavenstvách. Na medzinárodnej úrovni pravidelne prednáša a vedie školenia týkajúce financovania projektov so sociálnym dopadom.