Speech

G8 Social Impact Investment Event

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Speech by International Development Secretary Justine Greening on impact investing.

The Rt Hon Justine Greening MP

Video of Justine Greening’s speech at G8 Social Impact Investment Forum

Welcome and introduction

Thank you Elizabeth. I congratulate you for your work in this sector establishing OPIC as one of the leading DFIs on impact investment.

And thank you Dr Rodin, for your inspirational remarks. And for all the great work that you and the Rockefeller Foundation have done over the years to support the development of impact investment at both the domestic and international level.

It is a real pleasure to be here today with so many of the key players in this fast emerging impact investment community.

I am especially grateful to those who have travelled from Africa, Asia and Latin America to join us for these discussions.

So what is impact investment from the perspective of international development? We define this as investments that are made with the intent to generate both a social and a financial return. In the case of international development these investments are targeted at enterprises that benefit poor people as consumers, producers, suppliers or employees.

The possibilities are almost limitless. From low cost urban housing in the slums of Nairobi to emergency ambulance services in Mumbai.

Impact investment can be a broad spectrum: from impact-first investors such as philanthropic investors and donors seeking to preserve their capital; to development finance institutions and other finance-first investors.

I want to set out today about how much transformational potential we see in the impact investment market for international development:

  • To fundamentally change the way we use our resources
  • To radically improve the way investment works
  • To unlock the potential of business in developing countries
  • And in doing so to transform the lives of poor people by providing vital employment and producer opportunities as well as access to affordable goods and basic services.

But with anything that has the potential to be so transformative, we recognise that there are challenges that inhibit the growth of this market in developing countries.

These are challenges that will require collaborations between donors, development finance institutions, foundations and other investors to enable the market to grow in the way it needs to in order to provide people the means to lift themselves into prosperity.

And we are working hard to overcome these challenges through our aid programme to unlock this potential.

Economic Development

I believe impact investment has a vital role to play in driving economic development.

These investments are building supply chains that allow smallholder cotton farmers in northern Uganda to access international export markets and rebuild their livelihoods after years of civil war.

In East Africa, impact investments are being made into the local production of artemisinin to combat malaria, which not only devastates millions of families but can cost up to 5% of GDP per year in some countries- and there are countless other examples where impact investment is driving economic growth through enterprise growth, job creation and improvements in human and physical capital.

Why have I put economic development at the heart of everything DFID does?

The evidence is clear. Economic growth is essential for sustained poverty reduction. The facts are compelling – wherever long-term per capita growth has been higher than 3%, we have also seen significant falls in poverty.

We need to unlock the ability of entrepreneurs and business people in developing countries And we need to increase inward investment to help these enterprises grow. Impact investment- through linking game-changing entrepreneurs in developing countries to new forms of capital has a crucial role to play in driving both economic and social development.

Transforming Development Programmes

The way we think about development is changing. The landscape is shifting.

Many of the countries that DFID works in are becoming our trading partners. Governments are focussed on market development, trade and growth. A shift has happened. We need innovative financing approaches to meet these changing needs and the changing landscape. A new global partnership that recognises the shared value of economic development.

It is for this reason that in December I launched the DFID Impact Fund, DFID’s first ever returnable capital programme, which aims to catalyse the growth of the impact investment market in Africa and South Asia over the next 13 years.

Transforming investment

Impact investment has the potential to transform the way investment is made into enterprises that can provide much needed jobs and access to the services we take for granted such as education, health, water and sanitation.

The DFID Impact Fund, which is managed by the UK’s development finance institution CDC, aims to benefit the lives of over 5 million poor women and men.

We will invest up to £75 million into Funds that invest in sustainable enterprises that target those who are most in need.

We believe that there are large pools of capital currently sitting on the side-lines that could be mobilised to invest alongside us. This is why the Funds we invest in must match the DFID capital with other raised capital, pound for pound.

We expect the DFID Impact Fund to generate a modest return that can itself be reinvested.

This is good for investors, who earn a financial return. It’s good for enterprises that meet the needs of poor people, opening new sources of capital for growth. And good for DFID as it allows us to leverage in far more investment and recycle our resources, meaning each pound of our budget has even more impact.

Transforming businesses

Impact investment also has the potential to transform businesses. Through our programme we will be investing in over 100 enterprises providing them with the crucial capital they need to take their businesses to scale.

Enterprises are the vital ingredient for economic growth– by providing jobs, linking their produce into supply chains or access to decent services and products.
And enterprises that have a double bottom line, where financial return is achieved in lockstep with development impact, demonstrate a new approach to doing business- doing good, while doing well.

Transforming the lives of poor people

These enterprises have to be financially sustainable if they are to be enduring engines that generate opportunities that transform the lives of poor people and drive economic development without the need for grants or handouts.

In the film just now we saw the d.Light business model. Teresia in Central Kenya who together with her daughter and grandson live on about $1 a day from informal farm-work. Previously Teresia and her family used a highly explosive kerosene lamp to light their home, which cost $5 to $6 dollars per month. Now they pay just $3.50 per month to cover loan payments for a solar powered product that enables them to have safe light in the evenings. The product can also be used to charge their cellphones. Once the cost of the product is paid off this power will be free!

For many poor people the only option to access health and education services are through private providers that are often unaffordable or of poor quality.

In Kenya, Bridge International Academies are providing low-cost, quality education for $5 per month to families like the Abudho family who live in a one bedroom house without electricity but can now send their 4 children to school. The demand for affordable education is reflected in Bridge’s phenomenal growth, with a new school currently opening in Kenya every 2.5 days.

In maternal healthcare, LifeSpring clinics will conduct over 12,000 deliveries in the next two years and provide quality care for more than 100,000 outpatients at 30 to 50% of market rates, while building capacity in the health system through employment of doctors, nurses and outreach workers.

And there are many other examples where innovative enterprises have seized on development challenges as business opportunities. Generating jobs and creating access to vital basic services that allow poor people the dignity of being able to provide for themselves and their family.

Building capacity in the market

At this early stage in its development, the social impact investment market faces many challenges.

  • The market is fragmented
  • Risk is perceived as high in a largely untested market
  • A new type of investment professional is needed, that understands how to identify, manage and grow impact investments.
  • There is a need to demonstrate that double bottom line investment works and that impact can be achieved- generating the hard evidence and track record on which all investment depends on, be that public or private.

DFID’s Impact Programme is working to overcome these challenges and build capacity in the market. We are pleased to be partnering with Rockefeller Foundation, USAID and Omidyar Network in their support of the Global Impact Investing Network.

DFID’s support of £10.5 million over 3 years will help grow the market for impact investment in Africa and South Asia.

A research programme will focus on documenting best practices and producing a robust evidence base to crowd in private and public investors into this space. In the coming months, DFID funded research will be published on the role that concessionary capital has played in successfully spurring investment from private and commercial investors. We will also support the Global Impact Investing Network to facilitate the use of standard metrics for measuring development outcomes. This will enable investors and development practitioners to at last share a common language for the shared outcomes we seek.

Announcement- CDC working group for DFIs

Development Finance Institutions are also crucial to the scale up of impact investment in developing countries standing on the cusp between social and commercial investment. In India, the the World Bank’s International Finance Corporation has invested in Husk Power, which provides power to thousands of rural Indians using cost effective technology that creates fuel from rice husks.

I believe there is scope for our development finance institutions to learn from each other and explore new collaborations going forward. I am pleased to announce that going forward from today CDC will be chairing a working group on impact investment. I call on those that are here today from Development Finance Institutions to take part and make their vital contribution towards taking this market to scale.

Announcement

And the UK wants to recognise and reward the growing talent and experience in this market. It is for this reason that in partnership with the IFC and the Financial Times, this year DFID is supporting a new Award for “Achievement in Impact Investing”.

Now in their eighth year, the awards highlight partnerships between financial and non-financial companies that are finding innovative and commercially viable solutions to some of the world’s most pressing sustainability challenges.

This is the first time that the awards will recognise the role that impact investment is playing in this space; showcasing the achievements of ground-breaking impact investors to inspire others to enter this space.

Announcement- Global Development Innovation Ventures

As I’ve stressed today, impact investment is a spectrum. There is also a need to finance early stage ventures with risk capital to build a pipeline for impact investments.

DFID is pleased to be partnering with USAID to establish a new organisation, the Global Development Innovation Ventures, with the mission to create a global focus on innovation for development and support breakthrough solutions to the world’s most intractable development challenges.

Innovation has yielded dramatic gains in global prosperity. Global Development Innovation Ventures will develop powerful solutions from anywhere in the world and take to scale those that will deliver more cost-effective, high impact results that improve the lives of millions.

We know the impact that innovation can have. DFID funding led to the development of an effective vaccine against “Rinderpest”, the cattle plague. The disease has now been eradicated globally, reducing poverty and famine in rural communities and enabling additional production of over $1 billion from India and Africa.

G-DIV will nurture and cultivate innovations such as these by finding, developing and testing new ideas.

Creating a marketplace to broker co-investment and collaboration between investors and innovators alike.

This will develop a pipeline of investment-ready innovations, providing new opportunities for impact investors to take forward and scale up.

Conclusion

As was clear from this morning’s discussions, this is a nascent market with growing momentum, despite the challenges.

I am proud that the UK is pioneering the development of this market in developing countries as well as domestically and hope that we continue to see this market grow.

We are all here today to learn from each other.

I can see that there is incredible expertise on the panel and throughout this room with representatives from across the impact investment spectrum.

With senior representatives from social enterprise, Foundations, Development Finance Institutions, Multilateral Finance Institutions including the Africa Development Bank and the Asia Development Bank, as well as a number of Impact Fund Managers, I’m sure we will have a stimulating discussion.

Published 19 June 2013