Investing in the future
Industry expert Julia Balandina Jaquier explains how impact investing can introduce a new way of doing business – and provide scalable and sustainable investment in twenty-first-century education
Do you think that the UN SDG goals have been useful in providing a focus for impact investing?
The SDGs have been incredibly useful in providing a common language. That is, different types of organization can now explain what they're doing and how they contribute to the global agenda. But the issue is that the SDGs are so comprehensive and global that just about any organization can claim a contribution to at least one of the goals. The danger is that we may miss badly needed innovative and scalable solutions in the forest of SDG contributors. We need to use SDGs proactively to develop new investment and business strategies: I do not see this being done nearly enough.
How far away are we from mainstreaming impact investment?
There are a lot of encouraging signs. A lot of work is being done by many great players. But realistically, we have a long way ahead of us before we can claim that impact investing has become mainstream. What gives me confidence is the growth in the depth and breadth of investment product offering. You have impact-generating investment opportunities across all asset classes and impact themes, with various degrees of risk, return and impact. In addition to impact pioneers, large traditional investment houses are starting to come up with large impact investment funds. They may be shallower in impact, but they are incredibly important – they provide a greater legitimacy to the space, offer a broader variety of opportunities, and, can therefore, cater to more conservative investors. My greatest hope is that the smaller, catalytic and disruptive impact investments made by impact pioneers will be successfully scaled, as this is the only way to reach the targets of the SDGs.
What's your view on industry collaboration, in terms both of bringing impact investment into the mainstream and defining agreed industry standards and practices?
I think that impact investing is more collaborative than [the mainstream investment industry]. But there needs to be more collaboration to come up with universally acceptable principles, for example, for impact measurement. The Impact Management Project is a great example of such a collaborative approach. We have seen that systemic solutions to societal challenges require engagement with multiple stakeholders: investors, philanthropists and government. Naturally, such approaches have not been easy to organize and manage.
Low-income private schooling in emerging markets, and charter schools in the United States attract a lot of interest. Then, you can look at education more broadly.
Do you have a view as to where impact investing can be most effective when it comes to education?
There is a lot of excitement about using technology to provide affordable, quality education and vocational training. Low-income private schooling in emerging markets, and charter schools in the United States attract a lot of interest. Then, you can look at education more broadly. If you, as an impact investor, want to improve educational outcomes because you believe that education is the real multiplier, you can search for root causes of low educational take-up, which include, for example, lack of electrification or sanitation. Then you may decide to invest in solar home systems or sanitation solutions, as a way of reaching your impact objectives.
Have you seen certain products being developed specifically by players in the market to address some of the issues around education?
An example would be investing private equity directly into companies such as Bridge International Academies, which uses centralized, scripted teaching and school management to provide high-quality schooling, or SPARK schools that combine classroom instruction with computer-based lessons. Or buying a Higher Education Note developed by Credit Suisse or a Turner-Agassi Charter-School Facilities Fund (real estate).
Where do you think impact investment can complement philanthropic investment?
I see these sources of capital as very complementary. Impact investing can mobilize new sources of capital to deliver societal impact. Where a business solution can effectively address a societal challenge, it should be funded by impact investment, to free up philanthropic dollars for tougher problems. But grants and concessionary financing are also extremely important in funding the early stages of commercially-viable innovations to reach the proof of concept and mitigate risk.
Is it still too confusing for a potential impact investor to know how and when to place their investment?
Yes. When working with families and institutions on their strategies, I often see them being discouraged by the lack of clear guidelines. What impact do you want to make, which challenges are you keen to address? Is it important to you that your investees are aligned with your values? There is no right or wrong, it is your choice. That flexibility creates a sense of unease with some investors, as it requires deeper reflection and effort in order to articulate common values and develop effective strategies. Add to this the need to manage both financial and societal objectives, and the task can become overwhelming. I would recommend potential investors seek support from professionals or more experienced peers to successfully navigate the complexities of the field.
How does the attitude of millennials towards impact investing compare with those of other demographics?
I believe that millennials have huge potential as impact investors. They think holistically and are not satisfied with the traditional way of separating philanthropic engagements from the way wealth is created and managed. They are also eager to make a difference early on during their lives. Another promising segment is female wealth holders, who are particularly drawn to the notion of aligning their wealth with their values. With the huge generational wealth transfer to millennials and women, the effect on impact investing could be truly transformative.