More than 150 representatives from governments, investment firms, foundations, corporations, international financial institutions and NGOs attended the Royal Netherlands Embassy and SNV Netherlands Development Organisation’s Global Forum on Impact Investing in late February in Washington, D.C. The Impact Investing Forum was co-organized with the Aspen Network of Development Entrepreneurs (ANDE), the Global Impact Investing Network (GIIN), the Rockefeller Foundation and the Small Enterprise Assistance Funds (SEAF).

Impact investing is a targeted investment strategy designed to earn a financial return on investments while at the same time advancing positive social, economic and environmental change. While interest in impact investing has grown, this is a relatively new field, in which challenges remain. Leading experts in impact investing shared lessons learned from their organizational experience and discussed possible solutions to challenges in the field, such as the view that impact investing and making profits are mutually exclusive. 

According to Dutch Ambassador Renée Jones-Bos, “impact investing unifies all of us behind a singular and ambitious purpose: to change the way business is done, so that people across the globe benefit in the fullest possible way. To demonstrate that sustainable, environmentally and socially beneficial business can at the same time be profitable.”

For his part, Dirk Elsen, Chief Executive of SNV, stressed the need for the sectors to increase collaboration and noted, “The development community and the business community have not been the most intimate of friends.”

View video segments from the event, and read the press release.

On 10 March 2010, the UK’s Department for International Development (DFID) launched the Business Innovation Facility with the aim of supporting companies to develop or scale up innovative inclusive business models. During its 3 year pilot period, the Facility will operate in 5 countries (Zambia, Malawi, Nigeria, India and Bangladesh).

The Business Innovation Facility will: share costs with company-led initiatives as they develop feasibility studies and plans for the implementation of inclusive business models; assist companies to broker partnerships with NGOs, development agencies, other non-business partners, and local businesses or entrepreneurs; and share knowledge and learning on how best to execute and evaluate such projects.

Inclusive business initiatives that will be supported by the Facility will include, but not be limited to those that:

- Develop, or adapt existing, supply and distribution chains so as to increase the participation of disadvantaged producers, informal traders and employees

- Develop low carbon and/or climate resilient business models that lead to direct positive impacts for the poor

The industry sector focus of the Facility will vary depending on the economic environments of each pilot country. Download this leaflet (pdf, 2 pages) for additional information.

International companies investing in developing countries need to purposely plan for social equity and community participation in their commercial operations, right from the start - in addition to the usual profitability and environmental impact considerations. This is the main conclusion from the recent review of The Forests Dialogue's Forests & Poverty Reduction Initiative.

Called Advancing Poverty Reduction & Rural Livelihoods Through Sustainable Commercial Forestry (pdf, 29 pages), the review notes that: "The complex connection between forests and human livelihoods has led some to view forests as poverty traps, providing sufficient resources to maintain forest-dependent populations but not generating enough wealth to enable these populations to escape poverty."

The review - based on field visits and stakeholder dialogues held in South Africa, Indonesia, China, Bolivia, Brazil and the Komi Republic in Russia from 2007 to 2009 - makes the following recommendations for structuring commercial forestry initiatives to reduce poverty and promote sustainable livelihoods:

The meeting was attended by a large number of OMJ’s partners, most notably Aspen Network of Development Entrepreneurs, CEMEX, Dalberg, Empresas Públicas de Medellin, GAIN, Grameen Foundation, IGNIA, International Finance Corporation, Mi Tienda, Microsoft, PepsiCo, SEVEN Fund, VisionSpring, and the World Business Council for Sustainable Development (WBCSD).

In his opening remarks, IDB President Luis Alberto Moreno underlined that “across the globe, proponents of sustainable development are pioneering new products and services that can offer low income populations tools for reducing vulnerability and/or enhancing socio-economic well-being. Targeting this market gives the international development community a framework for concerted action.”

Mr. Moreno also mentioned the need for innovation support and assistance to help pioneering inclusive business ventures “make the leap from interesting pilot to commercial, replicable and scalable” models.

In view of delivering the next generation of commercially scalable and replicable activities that benefit low income-markets, Mr. Moreno emphasized the need to take advantage of what the IDB calls “platforms” by establishing “agreements with those existing networks with great capillarity in low-income populations” in view of multiplying the impact of inclusive business investments. “For instance, we may think about how to exploit the development role of millions of low-income families in Brazil, Mexico and other countries who receive cash transfers as incentives for school attendance and preventive health. Rather than consider these recipients as victims, they can be viewed as enablers. Why? Because they are developing positive track records as citizens that can help them gain access to bank accounts, micro-cards, credit cards and debit cards. Obtaining this kind of financial identity has been proven to result in higher incomes and living standards.”

After Moreno’s speech, the IDB Vice President for Private Sector and Non-Sovereign Guarantee Operations, Steven Puig, highlighted OMJ’s portfolio, which has now approved over US$100 million in innovative, market-based business models for the base of the pyramid. Thereafter, SEVEN Fund’s Michael Fairbanks led a discussion on the different ways various entities understand poverty and prosperity, and the importance of fostering dialogue and cooperation to effectively engage the base of the pyramid. Michael Chu founder of the IGNIA Fund, talked about how innovation and risk-taking have led to the growth of microfinance and are the key to success for inclusive business models. And Jordan Kassalow of VisionSpring explained how his organization is creating new distribution channels through partnerships, helping them reach scale in making eyeglasses available in low-income communities around the world. Furthermore, the meeting addressed topics such as competitiveness, communication, measuring impact, as well as the role of multilateral institutions.

Download this document (pdf, 3 pages) for a comprehensive summary of the day's discussions.

Their article also underlines that grasping these business opportunities “is difficult due to numerous market constraints, such as limited market information, inadequate infrastructure, ineffective regulatory frameworks, missing knowledge and skills, or restricted access to financial services.” Entrepreneurs have found successful strategies to overcome these constraints by adapting their products, investing in infrastructure and education, leveraging the strengths of the poor, combining resources and capabilities with others, or engaging with governments. But Sobhani and Gasnier rightly argue that “further research is needed to get a better understanding of how economic, social and environmental value is created and distributed, and what results can inclusive business models generate.”

This is precisely one of the focuses of the second phase of the Growing Inclusive Markets Initiative, a multi-stakeholder research and advocacy platform led by UNDP that seeks to promote greater inclusion of poor people in markets of goods and services as consumers, producers and employees. The initiative’s main contribution is to create a climate in which intermediary institutions can make markets more inclusive by gathering relevant information, highlighting good examples, developing tools to support business and market development strategies, and creating space for dialogue at both the global and local level. Its 2008 flagship report, Creating Value for All – Strategies for Doing Business with the Poor, was based on empirical evidence from 50 specially commissioned case studies of inclusive business models across regions, sectors and types of companies. The report analyses constraints and strategies for companies to expand beyond traditional business practices and bring in the poor as partners in wealth creation. A number of these case studies feature companies that have developed financially sustainable business models with significant environmental benefits.