Global Handbook of Impact Investing Solving Global Problems Via Smarter Capital Markets Towards A More Sustainable Society

Discover how to invest your capital to achieve a powerful, lasting impact on the world.
The Global Handbook of Impact Investing: Solving Global Problems Via Smarter Capital Markets Towards A More Sustainable Society is an insightful guide to the growing world-wide movement of Impact Investing. Impact investors seek to realize lasting, beneficial improvements in society by allocating capital to sources of impactful and sustainable profit.

This Handbook is a how-to guide for institutional investors, including family offices, foundations, endowments, governments, and international organizations, as well as academics, students, and everyday investors globally. The Handbook´s wide-ranging contributions from around the world make a powerful case for positive impact and profit to fund substantive, lasting solutions that solve critical problems across the world.

Edited by two experienced and distinguished professionals in the sustainable investing arena and authored by two dozen renowned experts from finance, academia, and multilateral organizations from around the world, the Global Handbook of Impact Investing educates, inspires, and spurs action towards more responsible investing across all asset classes, resulting in smarter capital markets, including how to:

·         Realize positive impact and profit

·         Integrate impact into investment decision-making and portfolio

·         Allocate impactful investments across all asset classes

·         Apply unique Impact Investing frameworks

·         Measure, evaluate and report on impact

·         Learn from case examples around the globe

·         Pursue Best Practices in Impact Investing and impact reporting

 While other resources may take a local or limited approach to the subject, this Handbook gathers global knowledge and results from public and private institutions spanning five continents. The authors also make a powerful case for the ability of Impact Investing to lead to substantive and lasting change that addresses critical problems across the world.

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 xxxi

Acknowledgments xlv

About the Contributors xlvii

Acronyms and Abbreviations lxi

Introduction 1

Chapter 1 Impact Investing: Innovation or Rebranding? 9
Haifa Ben Abid, MPhil

Introduction 10

Methodology 11

Impact Investing: Clarifying the Concept 13

Types of Impact Investing: Financial-First versus Impact-First 15

Impact Investing: A Response to a Changing Investment Environment 18

Changing Demographics: Investment Practices Among Millennials 18

A Global, Multibillion-Dollar Market 20

Mechanisms for Institutionalization 21

Key Features of Impact Investing 22

Refining the “Good” Return: Financial and Social Considerations 24

Helping Investors “Walk the Walk”: Aligning Mission, Values, and Investments 24

A Prudent Entrepreneurial Spirit: Experimentation and Mitigating Risks 25

Impact Investing: Leverage for Development? 25

Conclusion 28

References 29

Chapter 2 Investing for Impact: Socially Motivated Investors and Externalities 37
Raghavan Narayanan, MBA and Stoyan V. Tenev PhD

Introduction 38

A Conceptual Framework for Socially Motivated Investment Behavior 39

Typology of Socially Motivated Investors 43

Impact Investing 52

Conclusion 56

References 58

Chapter 3 Place-Based Impact Investing: Local and Regional Assets for Local and Regional Impact in Globally Diversified Portfolios 61

Introduction 62

Targeting Impact Through Place-Based Impact Investing 66

Constructing Institutional Place-Based Impact Investing Portfolios 71

The Bay Area Model Equity Strategy 74

The US Community Investing Index, by the F. B. Heron Foundation 77

Creating Investable Opportunities for Sustainable and Resilient Communities Through Inclusive Community Engagement 81

Capital Stacks: Financing Local and Regional Projects 88

Global Examples of Place-Based Impact Investing Success 93

Final Remarks and Key Conclusions 98

References 99

Chapter 4 How to Invest in Human Capital: Measuring and Integrating Human Capital Valuation to Realize Higher-Impact Portfolios 103
R. Paul Herman, BSci and Kirstin Dougall, MFA

Why Impact Investors Should Care About Human Capital Valuation 104

Methodology 105

Measuring the Contribution of Human Capital to Returns 106

Human Capital Valuation Methods 107

Investor Methods for Capturing Monetary HCV 109

The Heritage of Monetary Human Capital Valuation Methods 109

Investment Strategies Using Monetary HCV 110

Non-Monetary Human Capital Valuation for Impact Investors 111

Exemplary Ratings Systems That Feature Human Capital Valuation 111

Non-Monetary Human Capital Metrics That Impact Investors Can Use in Custom Analyses 112

Employee Participation 114

Incorporating Data from Human Resources Management Systems 115

Standards for Human Capital Valuation 115

Integrating Human Capital into the Investment Process 118

Examples of Human Capital Valuation Applied in Impact Investing 118

Examples: Monetary Human Capital Valuation in Action 119

Monetary HCV Example: Asian Company “BroadTek” Uses Human Capital Financial Statements to Calculate Returns on Workforce Investments 119

Monetary HCV Example: Global Technology Company Infosys Uses Present Value of Compensation Method to Calculate Returns on Workforce Investments 119

Example: Being a Global “Great Place to Work®” Creates Higher Growth 122

Non-Monetary HCV Example: Indian Company HCL Technologies’ “Employees First, Customers Second”

Initiative Leads to Higher Growth and Economic Resilience 123

Examples: Using Standards to Assess Whether Companies Value Human Capital 123

HCV Standards Example: How Novartis Used the “Social and Human Capital Protocol” to Calculate the Economic Value of Improving Health Across Africa 125

HCV Standards Example: French Automaker Groupe PSA Demonstrates How Human Capital Contributes to Their Value Chain Using the International Integrated Reporting Framework 125

HCV Standards Example: Managers of Australian Retirement Fund Assess and Adjust Holdings Using GRI Human Capital Guidelines 126

Stock Indexes and Funds Built on Human Capital Metrics 128

Looking Forward: New Human Capital Valuation Reporting Will Make Impact Investing Easier 130

An Investor’s Action Plan for Human Capital Valuation 131

Conclusion 133

Further Reading for Impact Investors 134

References 135

Appendix 4.1: Experts Interviewed 141

Appendix 4.2: Human Capital Management Institute Monetary Human Capital Valuation Formulas 142

Appendix 4.3: Human Capital Valuation Ratings Systems 143

Appendix 4.4: Human Resource Metrics and Where to Find Them 146

Chapter 5 Leadership by Results for Impact Investors and Investees 147
Rajen Makhijani, MBA

Introduction 148

The Impact Sector Underinvests in Leaders 151

The “Leadership by Results” Approach 154

Three Practical Frameworks and an Example 168

Translation of Goal Achievements into Returns on Investment 181

Conclusion 190

References 192

Chapter 6 Gender Lens Investing: Co-Creating Critical Knowledge to Build a Credible, Durable Field 195
Edward T. Jackson, OMC, EdD and Elsa de Morais Sarmento, MA

Introduction 196

Gender Lens Investing: Evolving Definitions 198

A Professional Field with Visibility, Force, and Momentum 201

Building a Larger, More Robust Field: Five Scaling Strategies 202

Deepening the Empirical Knowledge Base: Four Themes 207

Constructing a GLI Research Agenda Through 2030 216

Impact Investing Community-University Research Partnerships 220

Final Remarks 223

References 225

Chapter 7 Investing with a Gender Lens: Uncovering Alpha Previously Overlooked 233
Kristin Hull, PhD

Introduction 234

Gender Lens Investing: Definitions, History, and Potential for a Growing Movement 236

Factors Driving Investors to Adopt a Gender Lens 243

Female Asset Managers Outperforming 244

Women at the Top 246

Board Representation 247

Women Founders and Women-Led Startups 248

How Impact Investors Can Pursue Gender Investing 250

Gender Lens Cash Equivalents and Short-Term Notes 254

Gender Lens Public Fixed Income 254

Gender Lens Fixed Income 255

Gender Lens Private Debt 255

Gender Lens Public Equities 256

Gender Lens Global Equities 257

Gender Lens Private Equity 258

Startup Ventures with a Gender Lens 258

Private Equity and Venture Capital Funds 258

Fund of Funds 260

The Importance of an Investment Policy Statement for Gender Lens Investing 260

Conclusion 263

References 265

Appendix 7.1: Resources 271

Chapter 8 Gender Lens Investing in the African Context 273
Michael Z. Ngoasong, PhD and Richmond O. Lamptey, PhD

Introduction 274

Methodology 276

Why Gender Lens Investing in Africa Matters 279

Adopting Gender Lens Investing 281

The Practice of Gender Lens Investing in Africa 283

Discussion 295

Conclusion 296

Recommendations 297

References 299

Chapter 9 The Evolution from Gender-Focused Microfinance to Gender Lens Investing in Latin America: The Case of Pro Mujer 303
Angélica Rotondaro, PhD, Maria Cavalcanti, MBA, MS and Carmen Correa, BS

Introduction: Building the Business Case for Gender Lens Investing in Latin America 304

Gender Lens Investing in Latin America and Beyond: Backstage Highlights 306

Pro Mujer’s Gender Lens Investing Process 310

Pro Mujer’s Gender Lens Investing and Scorecard 314

Ilu Women’s Empowerment Fund GLI Scorecard 316

Unite to Conquer: The Crucial Role of Partnerships for Leveraging Catalytic Capital for Gender Lens Investing in Latin America 319

Key Learnings and Recommendations 323

The Way Ahead 329

References 330

Chapter 10 Inclusive Investing: Impact Meets Diversity, Equity, and Inclusion 333
Julianne Zimmerman, MSci, Edward Dugger III, MPA-UP, and Shijiro Ochirbat, MBA, MPA

Introduction: “DEI” Is Not an Asset Class 334

Aligning Purpose with Evidence and Practice 336

Inclusive Investing Methodology: Adapting the Scope 1, 2, 3 Approach to Assess Who Are the People in Your Portfolio? 343

Inclusive Investing in Practice: UNC Ventures 350

How to Begin: Determine What Is Material and Relevant 354

Conclusion 359

References 360

Appendix 10.1: Starting Examples of Communities of Practice and Knowledge-Sharing Platforms 366

Appendix 10.2: Additional Resources for Further Exploration 368

Chapter 11 Investing for Impact in Employee Retirement Plans 371
Megan E. Morrice, MBA

Introduction 372

Retirement Plans Demand and Types 374

Regulation in the United States, United Kingdom, and European Union 380

Creating Successful Retirement Savings Plans 392

Benefits of Successful Sustainable Retirement Savings Plan 398

How a Retirement Plan Can Become More Sustainable 399

Get Educated on Sustainable Investing 400

Engage Employees Through Their Retirement Plans 400

Prepare for Inspired Incremental Change 401

Educate Participants with Managerial Support 402

Research and Prepare 402

Talk to Colleagues and Build Consensus 403

Identify Who to Approach 403

Approach with Potential Solutions 403

Conclusion 404

References 405

Appendix 11.1: Experts Interviewed 411

Chapter 12 Fossil-Fuel-Free Investing: Weaving a New Investment Paradigm 413
Umachander Balakumar, MSci

Introduction 414

China: Lessons from the Biggest Polluter and Biggest Green Energy Market Maker 417

Metrics 419

Building a Fossil-Fuel-Free Portfolio 428

Private Equity (PE) 441

Hedge Funds 444

Commodities 446

Real Estate 448

Public Debt 449

Green Bonds 449

Cryptocurrency 451

Final Remarks 452

References 455

Appendix 12.1: Experts Interviewed 459

Appendix 12.2: Fossil-Fuel-Free Topics and Information 459

Chapter 13 The Role of Transition Finance Instruments in Bridging the Climate Finance Gap 461
Pauline Deschryver, MSci, MPA and Frederic de Mariz, PhD

Introduction 462

An Overview of Green Finance 465

Green Bond Certification: Growing Diversity Toward Transparency and Integrity 469

Green Bond Issuances Are Not Large Enough for Most Investors 470

Lack of Standardization in the Green Bond Market Threatens Integrity of Label 471

Reputational Risks Scare off Issuers and Investors Alike 472

The Sustainable Finance Market Stands to Benefit from the Development of Transition Finance 473

Existing Frameworks for Transition Bonds 475

Issuance of Transition Bonds 482

Conclusion 490

References 491

Chapter 14 Social Impact Bonds: Promises and Results 499
Maria Basílio, PhD

Introduction 500

Social Impact Bonds: Key Concepts 501

Expected Benefits and Reasons for Concern 505

The Theory Behind 506

Successes and Failures of SIBs 509

The Role of Impact Bonds in Sustainable Development Goals 511

Development Impact Bonds 512

Environmental Impact Bonds 514

Conclusion 518

References 520

Chapter 15 Climate and Money: Dealing with “Impact Washing” and a Case for Climate Impact Bonds 525
Jyotsna Puri, PhD, Aemal Khan, MA, and Solomon Asfaw, PhD

Introduction 526

Impact Investing: Definition and Measurement Challenges 529

Social Impact Bonds 533

The Case for Climate Impact Bonds: A Hypothetical Example 534

Conclusions and Implications 547

References 550

Appendix 15.1: Definitions of Terms Used in the Impact Investing Industry 553

Chapter 16 Measuring and Evaluating Social Impact in Impact Investing: An Overview of the Main Available Standards and Methods 555

Ana Pimenta, MEcon and Elsa de Morais Sarmento, MA

Introduction 556

The Importance of Measurement in Impact Investing 559

A Brief Overview of the Evolution and Current Status of Impact Measurement in Impact Investing 569

Frameworks for Measuring and Reporting on Impact 575

Standards 595

A Selection of Methods for Impact Measurement 613

An Integrated Approach for Impact Measurement 634

Conclusion 642

References 644

Appendix 16.1: Definitions and Terminology 655

Appendix 16.2: Global, National, and Company Level Initiatives,

Frameworks, and Toolkits 661

Chapter 17 Impact Measurement and Management Techniques to Achieve Powerful Results 667
Jane Reisman, PhD and Veronica Olazabal, MCRS

Introduction 668

Methodology 670

Conclusion 691

References 694

Chapter 18 Transformative Evaluation and Impact Investing: A Fruitful Marriage 697
Courtney Bolinson, MS and Donna M. Mertens, PhD

Introduction 698

Methodology 702

The Transformative Methodological Framework 703

Application to Impact Investing 714

Village Capital and Peer-Selected Investment 721

Global Agri-Development Company and the Absence of a

Transformative Framework 725

Conclusion 729

References 732

Chapter 19 Geospatial Analysis of Targeting of World Bank’s Development Assistance in Mexico 735
Mario Negre, PhD, Dr. Hannes Öhler, PhD, and ?eljko Bogetic´, PhD

Introduction 736

Background and Context 739

Data and Methodology 741

Empirical Results 744

Regression Results 751

Conclusion 754

References 757

Chapter 20 Evaluating the Impact of Portfolio Allocations to Large Firms Along the Value Chain to Develop Small and Medium-Sized Enterprises 761
Maximilian Foedinger, MBA, MPA and Elsa de Morais Sarmento, MA

Introduction 762

Value Chains and Small and Medium Enterprises 765

Best Practices for Impact Investors 782

Approach and Principles Underlying the Development of the EBRD

Methodology 786

Development of the Methodology 787

Assessment of Results 797

Final Remarks 801

References 804

Appendix 20.1: Details on Indicators Used 808

Appendix 20.2: Impact Assessment Draft Questionnaire for Large Firms 817

Appendix 20.3: Impact Assessment Draft Questionnaire for SMEs 822

Chapter 21 Two Decades of Front-Line Impact Investing 827
Jean-Philippe de Schrevel, MBA

Introduction 828

Five Pillars of Impact Investing Best Practice 830

Conclusion 840

References 840

Chapter 22 China’s Rapidly Evolving Practice of Impact Investing: A Critical Perspective 843
Zhao Jianbo, PhD

Introduction 844

Literature Review: Defining the Spectrum of Impact Investing 846

The Practice of Impact Investing in China: An Overview 850

Targeted Poverty Alleviation Needs Social Capital 855

The Maturing Market for Impact Investing in China 857

Challenges to Impact Investment in China 859

Discussion 860

Conclusion 863

References 864

Appendix 22.1: List of Interviewees 867

Chapter 23 Impact Investing Through Corporate Social Responsibility: The Indian Experience 869
Tanvi Kiran, PhD and Shivam Dhawan, MA

Introduction 870

Data and Methods 872

Overview of the Corporate Social Responsibility Model in India 872

Focal Areas of Impact Investment Under CSR 872

Findings 878

Parameter 1: Magnitude of Impact Investment: Total CSR Spent on Developmental Activities 878

Parameter 2: Nature of Impact Investment: Sectoral Breakup of CSR Expenditure in India 878

Parameter 3: Extent of Impact Investment in Terms of Geographical Distribution of CSR Expenditure in India 889

Parameter 4: Type of Impact Investment in Terms of CSR Spending by Public Sector and Non-Public Sector Undertakings 890

Discussion 892

Key Recommendations 896

References 897

Chapter 24 What Drives Impact Investors? Benchmarking Developed and Developing Countries 901
Robin Kipfer, MSci

Introduction 902

Methodology 904

Literature Review 906

Extrinsic Drivers for Impact Investments 909

Intrinsic Drivers for Impact Investments 911

Findings 913

India 913

Finland 914

Public Policy 916

The Importance of Capital Providers 917

Discussion 921

Conclusion 923

References 924

Appendix 24.1: Experts Interviewed 927

Chapter 25 Understanding the Demand for Impact Investments: Insights from the Italian Market 929
Alessandro Rizzello, PhD, Elisabetta Scognamiglio, PhD, Ludovica Testa, LM, and Lorenzo Liotta, LLM

Introduction 930

Methodology 933

Startup Venture Financing and Impact Investing: An Overview 934

Findings 937

Impact Investment Readiness Scoring 946

Conclusion 948

References 951

Appendix 25.1: Questionnaires 954

Appendix 25.2: Scoring Results 961

Appendix 25.3: Detailed Scoring Frameworks 963

Chapter 26 The Importance of Scale in Social Enterprises: The Indian Case 965
Vikram Raman, CA, MBA

Introduction 966

Social Enterprises and Requirements for Achieving Scale 968

Social Enterprises: Characteristics and Social and Economic Contributions 969

Factors That Influence a Social Enterprises Ability to Scale 970

Internal Factors That Influence Scaling 971

External Factors That Influence Scaling 978

Partnering with the Ideal Investor for Financing 988

Scaling Responsibly 996

Case Studies 1002

Scaling Metrics 1011

Checklist for Social Enterprises Looking for Scale 1015

Conclusion 1022

References 1024

Appendix 26.1: Experts Interviewed 1030

Chapter 27 The Role of the Entrepreneurial University and Engaged Scholarship in Impact Investing Capacity Building 1031
Richard T Harrison, PhD and Suwen Chen MBA, MSci

Introduction 1032

The Entrepreneurial University 1034

The Role of an Entrepreneurial University 1037

Three Missions of an Entrepreneurial University in Impact Investing 1040

From Top-Down to Bottom-Up 1050

Recognition of the Boundary of a University’s Intervention 1052

Conclusion 1052

References 1053

Chapter 28 A Road Map for Implementing Impact Investing: The Case of Multinational Companies 1061
Filipa Pires de Almeida, MSc and Marta Bicho, PhD

Introduction 1062

Methodology 1063

Impact Investing 1065

Company Profiles 1067

Findings on Impact Investing Strategies 1074

A Road Map for Impact Investing 1083

Conclusion 1087

References 1088

Appendix 28.1: Impact Investment Profiles 1093

Underlying Conditions 1094

Underlying Resources 1099

Impact Investing 1102

Appendix 28.2: Impact Investing Instruments 1107

Chapter 29 Impact Investing and European Wealth Managers: Why Impact Investing Will Go Mainstream and Evolve to Suit European Investors 1123
Trang Fernandez-Leenknecht, CAIA, LLM

Introduction 1124

MiFID II: A Growth-Driver for Impact Investing 1128

Assessing “Complex” Suitable Products 1130

Integrating Impact Investing into Investment Funds 1132

Developing Impact Investing to Suit the Retail Market 1135

Generalizing Impact Investing to a Mainstream Scale 1137

The Impact Report: A Protection Tool for the Investor 1139

Overview in Selected Countries 1140

France: Innovative “90/10 Solidarity” Products 1142

Switzerland: From Institutional to Individual Pension Investors 1144

Considerations for the Future 1147

Conclusion and Next Steps 1151

References 1153

Chapter 30 Fintech for Impact: How Can Financial Innovation Advance Inclusion? 1159
Frederic de Mariz, PhD

Introduction 1160

The Promise of Fintech: Innovation with a Purpose 1161

What Are the Benefits and Limits of Financial Inclusion? 1167

Within Fintech, Electronic Payments Are an Entry Point for Financial Inclusion 1172

The Drivers of Financial Inclusion: The Quality Dimension 1178

Can Fintech Enable More Impact Investing and Support SDGs? 1183

Conclusion 1185

References 1186

Index 1193

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