Impact Investing Digest #11 - 18th July 2024

ECOSYSTEM NEWS

The next mega foundation (via Axios): as of the end of 2022, Warren Buffet had donated $36bn to the Bill & Melinda Gates Foundation alongside contributions from BMGF's founders. It had long been assumed that the remainder of his vast wealth would eventually pass to the Foundation, but it has recently been revealed that his estimated $120bn+ wealth will be transferred to a new entity to be controlled by his three children. As per Timothy Ogden of Financial Access Initiative, NYU Wagner, this will make it nearly twice as large as BMGF and nearly 150% larger than most of the other brand names among large foundations combined. Little is known of what this new entity will focus on - albeit the varied existing philanthropic work of Buffet's children may provide some indication - but it is clear that it will become a major player in global philanthropy over the coming years.

The ongoing impact of fixed-life foundations (via Stanford Social Innovation Review): There is a very interesting moral debate about why foundations should exist in perpetuity given the huge tax reliefs than incentivise them and the urgency of the problems facing people and planet. For instance, there is some advocacy in the US to increase minimum payout rates from 5 to 10%. In the UK I have been shocked to learn that there is no minimum payout rate for foundations! I loved this recent piece on the Linked Foundation, a $20m foundation that has eschewed perpetuity in favour of maximizing social impact. It goes beyond this debate to focus on how fixed-life foundations can continue to sustain impact long after its doors close (featuring Ceniarth investee Global Partnerships). Spending down is a tactic, not a strategy - under Nancy Swanson-Roberts and Dorothy Largay's leadership, the Linked Foundation has shown a thoughtful approach to embedding sustainability in some of their core impact-first partners such as Global Partnerships and New Ventures.

Funders fundraising (via Stanford Social Innovation Review): Philanthropists and impact investors pooling funds in pursuit of impact at scale has emerged as a new trend, with innovative structures such as The Audacious Project, Co-Impact, Allied Climate Partners, Trimtab Impact and The Global Energy Alliance for People and Planet (GEAPP) launching in recent years. At Ceniarth, we've looked to deepen partnerships with other like-minded investors and 2023 saw the development of a highly effective co-investment partnership with a peer family office. While written from the perspective of philanthropic funders, I found this piece Valerie Conn and Sofia Michelakis very helpful in framing some of the rationale and challenges for "funders fundraising".

The cost of UK pension fund caution (via Investment & Pensions Europe (IPE)): There have been positive recent trends with UK local government pension funds investing in high impact strategies domestically. However, UK pension funds only invest 0.5% of their portfolios in emerging markets and developing economies. Samantha Attridge of ODI argues this is not a function of regulatory constraints but instead behavioural conservatism. Overcoming this will require clearer regulatory guidance as well as MDBs and DFIs working to create low-cost, liquid investment options.

Emerging market debt investors debunk risk myths (via ImpactAlpha): In emerging markets, Ceniarth is primarily focused on growing the supply of credit to impactful social enterprises and financial service providers. While the many of our allocations are into more impact-first strategies that struggle to deliver commercial returns, we also see huge value in seeding and scaling more commercial solutions such as Blue Earth Capital AG, Lendable and Community Investment Management that can over time attract more institutional capital at scale. It was therefore interesting to see Muzinich & Co announce the launch of billion-dollar private debt strategy to invest in infrastructure, real estate, agriculture, financial services and other sectors supporting climate change mitigation and adaptation. The strategy will put Muzinich in a tiny club of $1bn+ emerging market impact debt fund managers. While a shift in the interest rate environment has put pressure on more impact-first strategies, commercial strategies can take advantage of the strong performance (0.4% annual write-offs) and uncorrelated nature of the asset class - while still contributing to positive social and environmental impact.

IMPACT MEASUREMENT & MANAGEMENT

'Tis the season (for impact reporting): we are in the midst of annual impact report season. For those who missed my last edition, please check out Ceniarth's recently published 2023 annual report. This is by no means an exhaustive list of great impact reporting, but I've enjoyed reviewing recent work from a number of our long-term portfolio partners including One Acre Fund, MCE Social Capital, EcoEnterprises Fund and Advance Global Capital. Outside of Ceniarth's portfolio, I've also enjoyed reports from British International Investment (the UK's DFI) and Working Capital Fund (a VC investing in technology to reduce inequality and build responsible, sustainable global supply chains). Please do share in the comments any other good examples of impact reporting from the sector.

An impact data ontology: Mike McCreless' work at Root Capital and Impact Frontiers has been vital to improving the quality of our nascent sector's approach to IMM. When Mike said this new work by Common Approach to Impact Measurement was "one of the most interesting and useful things I have read in the area of metric standardization (or what’s-beyond-metric-standardization) and impact data platforms in probably ten years", I had to take the time to explore it myself. It took some time for me to reach back into my undergrad philosophy toolkit and remember what ontology meant, but for impact nerds this is a must read.

When growth does – and does not – reduce poverty: High rates of private investment are historically associated with faster reductions in extreme poverty according to evidence from British International Investment. Looking to unpack the nuances from this overall trend, this recent paper looks at experiences of countries that have successfully translated growth into rapid poverty reduction, such as Bangladesh and Vietnam, and those that have not, such as Angola and Nigeria. The most successful countries encouraged private investment in sectors where large firms could deliver large productivity gains, and governments used the income generated to finance public investment programmes in rural areas and higher levels of social spending. Growth fails to reduce poverty when it is concentrated in sectors that predominantly benefit elites, without creating many jobs and with few spillovers to the rest of the economy, and where governments fail to raise revenues and increase spending on public services and social programmes. The central message is that poverty is eradicated most rapidly when a range of public and private investments reinforce each other.

Investors find child-lens impact (via ImpactAlpha): UNICEF USA have been driving an interesting agenda to embed a "child-lens" into impact investing discourse. A recent pilot with 60 Decibels looked to embed the voice of children as beneficiaries into their impact outcome research. Analysing existing data shows the impact of products, services, and interventions on children within customer households. Energy customers report feeling safer because of access to a brighter and more reliable light and children use the light for studying – and often do better in school as a result. Customers of cleaner cookstoves mention reduced risks to children both in terms of air pollution and associated health effects. In microfinance and agricultural sectors, a large majority of impact investments aim to improve economic opportunity, income, and financial resilience for the world’s poorest people - and this impacts children via increasing food security (62% of MFI clients increased meals) and investments in education (64% of MFI clients increase education spending, while 74% of farmers buying from a fertiliser company spend additional income generated on education for their children).

SECTOR-SPECIFIC CONTENT

• Reassessing Microfinance as a Development Tool (via FinDev Gateway) - a very useful webinar featuring input from leading researchers (Timothy Ogden and Greta Bull) and practitioners (Bridget Dougherty of BRAC International and Andree Simon of FINCA International). It tackles themes such as the power of financial inclusion to enhance women's economic empowerment as well as the nuanced debate over the ongoing need for partial subsidy.

• Microfinance in Gaza Will Play a Crucial Role in the Post-War Economic Recovery (via FinDev Gateway)

• Nearly 3mn fell into financial difficulty last year in the UK (via Financial Times) - a new study from Fair4All Finance highlights the growing levels of financial exclusion in the UK, with 44% of the UK's adult population living in financially vulnerable circumstances. Key figures referenced include that the poverty premium (higher finance costs for poorer households) is costing households £2.8bn per year, while “everyday money worries are driving up absences from work and reducing productivity, which is creating an additional £6.2bn burden for UK employers.”

Thanks for reading - if people have any other interesting content they'd like to share please send them to me directly or add to the comments.

PS Sorry for the slight hiatus, but work/home life has been busy recently so time has been at a premium!