Philippe Mores, Counsellor at the Ministry of Foreign and European Affairs of Luxembourg, is currently attending the Oxford Impact Investing Programme 2020-2021 thanks to an InFiNe.lu scholarship. The third and fourth weeks of the programme focus on the art of deal making and public policy for impact investment. Read here the outcomes of what he is currently learning.
After focusing on the impact investing spectrum in more general terms and impact measurement and management, the third week of the Oxford Impact Investing Progamme was dedicated to deal making, followed by a more practical exercise session, which required the participants to prepare for a case study on SDG 4 on Quality Education.
Ms. Jenn Pryce, President and CEO of Calvert Impact Capital, provided a deep dive into the art of deal making. The session aimed at better understanding the role of financial intermediaries, fund of funds as it applies to debt and mezzanine asset classes and the use of blended finance as a strategy to reach markets that are often overlooked by traditional finance. Yet, problems with accessing capital do not lie in the lack of money, but rather in the lack of connection between those who need the capital and those prepared to offer it. As an example, Europe’s largest pension funds are struggling to engage seriously with impact investing because there are not many impact funds large enough to absorb commitments of £50 million or more. On the other hand, smaller investors also have difficulties investing in impact funds, as they are mostly available on private markets, which often require a high minimum investment and a higher level of due diligence, creating a barrier to entry. This was showcased through different case studies on how to move money from investors to the communities (scenarios: small business lending in acute crisis or access to capital leveraging technology; these were discussed in smaller groups).
She then explained how to structure a fund and consider important inputs such as incorporating community voice, an impact thesis as well as a capital raising strategy. This illustrated how money moves from investors or asset owners onto communities and projects. In her presentation, Ms. Pryce also addressed the role of blended finance and catalytic capital. There is lack of understanding about how to use concessional capital to help de-risk deals and bring in private investors.
In her presentation, Ms. Pryce referred to Bamboo Capital Partners who have been stating that there is “a psychological or knowledge barrier to using blended finance. While people understand grants, or for-profit companies or investments, the space in-between is complex and different”. She used the example of the SOAR Fund to explain how to structure a fund along Loan Loss Reserves, Equity, Class B (subordinate debt) and Class A (senior debt) through different stakeholders (i.e. foundations, PRIs, impact investments, banks and other institutions). Furthermore, the course touched upon investment policies, internal processes, investment monitoring, ESG, management and measurement. In a subsequent phase, the goal of a fund can or should then be to build a centralized structure that can be scaled to better meet the enormous needs (build – grow – sustain). For the mainstream capital markets, such structures might not yet be fully proven, but the goal is to encourage more actors to engage in order to get them on board.
Personal reading suggestions (out of many others):
During the second session, Mr. Peter Hinton, Associate Fellow at Oxford University (and a big fan of Calvin & Hobbes), guided the class through a more practical case study entitled: “Delivering SDG4 on Education – Catalyzing Private Finance in Seven African Cities to Build Scale and Deliver Measurable Education Quality to Low Income Communities”. This had to be prepared in advance by the students. Besides public schools, low-cost private schools (70-80% depending on the country) face numerous challenges: certification, access to finance, unmet demand, fee payment or trust – to name just a few. Additional input from experts from the ground such as Ms. Helena Riese Harstad (Optimizer Foundation) or Ms. Sarah Mathies (on the Medical Credit Fund) was provided for the class’ consideration. The class divided up in different groups, which looked at the problem from the view of: (i) the government/regulator, (ii) schools, (iii) conventional providers of finance or (iv) impact investors and propose solutions. I was assigned to the schools group, which was first briefed by Ms. Bunmi Oyinsan, Founder of Leki Peninsula Affordable School in Lagos. I had the privilege to present our group’s considerations and suggestions to the class afterwards, which allowed for a broader discussion and feedback from everyone involved. Some of the conclusions from the exercise highlighted the needs for a long-term approach and for pools of affordable finance, the importance of independent education quality assessments, capacity building and honest information, as well as realistic licensing linked to education quality and systems change.
Personal reading suggestions (out of many others):
The fourth week and current sessions have focused on Public Policy for Impact Investment and their importance to building the impact investment market globally. Government can do things no other actor or entity can do through setting policy objectives, deploying public capital (direct, indirect, grants), catalyzing capacity building, innovating (new legal forms and impact bonds), advocating (fiscal policies) and supporting research. In this context, Professor Andrew Nicholls referred to the brand new 2021 background paper on “Policies, Initiatives, and Regulations Related to Sustainable Finance” (A. Nicholls).
Many networks are being established to shape impact investing efforts more globally, share knowledge and create definitions and standards. The Global Steering Group for Impact Investment (GSG) for example is represented in countries via their National Advisory Board (or NABs) and Regional Advisory Boards (or RABs). To date, 33 countries have joined. The GSG is governed by a Board of Trustees, which includes representatives from the NABs. Some participants of our group took the initiative to schedule an off-class call with a representative from GSG next week, which I will join, to hear from them in more detail.
Three speakers presented three different perspectives. Ms. Rosemary Addis (Executive Director, Impact Strategist) provided a detailed overview on how government can determine the fault lines on a number of issues (environment/social, ESG/impact, compliance/value creation, market/innovation, policy/politics, geopolitical/development, transactional/systemic, incremental/step change). Interestingly, she alluded to the difference between policy and politics, the latter being much more cyclical, especially in emerging economies; more needs to be done to fine-tune the policy toolbox in order to ensure better sustainability. Key trends are defined by large collective efforts such as the G-7, the G-20 Sustainable Finance Working Group, the OECD and the NABs. To ensure greater coherence, Ms. Addis notably mentioned the OECD’s “Impact Imperative” in four key areas (financing, innovation, data and policy). She indicated that the tools for impact management and measurement are already quite robust and that some tools are even ahead of the current market (UN, ESG, taxonomy). In the future, she predicts more public call-outs on impact- or greenwashing. One of the takeaways from her presentation was that governments and institutions must create and support intermediaries in the market, break through barriers where access to capital is too difficult (other than in the established markets of energy or health) and nurture the space to let it develop itself. She also suggested that governments should create offices or structures that are dedicated exclusively to this purpose; ministerial responsibility helps a great deal.
Ms. Radana Crhova from the Foreign, Commonwealth and Development Office (FCDO) gave in my opinion a very interesting overview of the UK government’s pioneer engagement in the field of impact investing. She provided a number of examples of funds and policies such as the Social Value Act, the Investment and Contract Readiness Fund, the Art Impact Fund, the Innovation Fund, the Youth Engagement Fund & Life Chances Fund and social impact bond investing. The FCDO also established a new independent body to advance the UK’s role on impact investing (Impact Investing Institute). She explained the FCDO’s impact investing strategy, which is built around four pillars: (i) growing demand for impact investing, (ii) mobilizing new sources of impactful capital , iii) embedding robust impact measurement and reporting and (iv) generating evidence what works.
Apart from the courses and individual sessions, the more permanent student groups that have been set up continue to advance on the exercise (i.e. mobilizing £100 million to get a private bank involved in SDG14). The groups have a substantial degree of autonomy and can contact for example experts from the field to get insights and gather more information. Although quite intensive, this exercise is most valuable since all group members have different backgrounds representing the diverse environment of impact investing. It is an extremely useful way to learn more about it, to get to know new colleagues and make new friends.
If you want to know about Week 1 and 2 click here
Author: Philippe Mores
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Picture 1 © Pallab Seth