Impact Investing: Instruments, Mechanisms and Actors

181 Pages·2017·2.04 MB·English

by  Wolfgang Spiess-Knafl

Impact Investing
Instruments, Mechanisms and Actors
WOLFGANG SPIESS-KNAFL
AND BARBARA SCHECK
Palgrave Studies in Impact Finance
Edited by Mario La Torre
Palgrave Studies in Impact Finance
Series Editor
Mario La Torre
Sapienza University of Rome
Rome, Italy
The Palgrave Studies in Impact Finance series provides a valuable scientific
‘hub’ for researchers, professionals and policy makers involved in Impact
finance and related topics. It includes studies in the social, political, envi-
ronmental and ethical impact of finance, exploring all aspects of impact
finance and socially responsible investment, including policy issues,
financial instruments, markets and clients, standards, regulations and
financial management, with a particular focus on impact investments
and microfinance. Titles feature the most recent empirical analysis with a
theoretical approach, including up to date and innovative studies that
cover issues which impact finance and society globally.
More information about this series at
http://www.palgrave.com/series/14621
Wolfgang Spiess-Knafl • Barbara Scheck
Impact Investing
Instruments, Mechanisms and Actors
Wolfgang Spiess-Knafl Barbara Scheck
Faculty of Management and Economics Munich Business School
Witten/Herdecke University Munich, Germany
Witten, Germany
Palgrave Studies in Impact Finance
ISBN 978-3-319-66555-9 ISBN 978-3-319-66556-6 (eBook)
DOI 10.1007/978-3-319-66556-6
Library of Congress Control Number: 2017955041
© The Editor(s) (if applicable) and The Author(s) 2017
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Contents
1 I ntroduction 1
2 Social Entrepreneurship 13
3 Historical Development and Investment Rationale 51
4 The Impact Investing Market 75
5 F inancing Instruments and Transactions 111
6 S ocial Impact Assessment 135
7 Assessment Tools and Methodologies 153
Index 173
v
List of Figures
Fig. 3.1 Return expectations of impact investors 55
Fig. 4.1 Guarantee scheme 106
Fig. 5.1 Financing instruments 115
Fig. 5.2 Fund economics 128
Fig. 6.1 Impact value chain model 138
Fig. 6.2 The results staircase 139
Fig. 6.3 Impact value chain model 141
Fig. 6.4 Theory of change, planning triangle
for a substance abuse initiative 142
Fig. 6.5 Levels of evidence 149
Fig. 7.1 Possible scope of impact assessment 156
vii
List of Tables
Table 1.1 Potential invested capital to fund selected BoP businesses
over the next 10 years 6
Table 1.2 Forms of social impact creation 8
Table 2.1 Institutional actors 20
Table 2.2 Growth strategies 22
Table 2.3 Categories of social business model innovation 25
Table 2.4 Categories of non-profit organizations 29
Table 2.5 Issues along the food value chain 37
Table 2.6 Key performance indicators to track progress for all SDGs 40
Table 2.7 Child labor situations 42
Table 2.8 Two schools of thought 43
Table 3.1 Legacy and non-legacy capital of foundations 56
Table 3.2 Opportunities for the achievement in different asset classes 57
Table 3.3 Theories to explain financing decisions 59
Table 3.4 Income streams 67
Table 3.5 Financing conflicts 69
Table 4.1 Actors of the social capital market 76
Table 4.2 Selection criteria 78
Table 4.3 Selected social venture capital funds 80
Table 4.4 Balance sheet data of selected ethical banks (in USD millions) 85
Table 4.5 Forms of crowdfunding 86
Table 4.6 Costs per unit in the social sector (selection) 91
Table 4.7 Overview of existing social impact bonds 94
ix
x List of Tables
Table 5.1 Characteristics of funds 112
Table 5.2 Fund index summary 112
Table 5.3 Use of financing instruments 119
Table 5.4 Age distribution of investments 120
Table 5.5 Focus groups in different regions 121
Table 5.6 Selection of investments 122
Table 5.7 Acquisition of ethical brands 130
Table 5.8 Acquisition of social enterprises 131
Table 6.1 Overview terminology 142
1
Introduction
1.1 Context
Over the last 30 years we have seen surprising developments in the way
societal changes are initiated. These developments were driven by changes
in the way public authorities deal with societal challenges, how individu-
als decide to work for the common good and changes in the corporations
corporate world.
Take the examples of microfinance, social housing, green tech or social
businesses. While those sectors were once either inexistent or unfunded,
they are at the moment important impact investing sectors and attract sig-
nificant amounts of capital. Behind this shift is a range of underlying trends.
Milton Friedman once famously wrote, “The business of business is
business” (Friedman 1970). That was true for a long time and share-
holder value thinking dominated and still dominates capital markets. The
end of the stock market bubble in the early 2000s, a financial and eco-
nomic crisis starting in 2008, and the increased feeling of economic dis-
parity led to the belief that the world needs new economic thinking. That
change came, among others, in the form of social entrepreneurship.
© The Author(s) 2017 1
W. Spiess-Knaf l, B. Scheck, Impact Investing, Palgrave Studies in Impact Finance,
DOI 10.1007/978-3-319-66556-6_1