What has emerging technology meant for impact investing?
When I started out in microfinance at BlueOrchard, it was very much about bricks and mortar. New technologies have since become central to business models. First, tech provides easier access to the services you are trying to get to low income populations. Second, it drives cost reduction. That applies to financial services, certainly, with mobile banking, for example. But it is equally true of sectors such as energy, with pay-as-you-go models, as well as access to healthcare.
When we first invested in chains of pharmacies and small hospitals, it was very hard to make those models sustainable. The impact was significant, but it was tough to generate a profit. Technology has now combined with physical access to healthcare to not only provide a better service to our low-income patients, but to make the economics far more attractive.
What challenges does the industry face if it is to continue to grow?
I think impact washing is definitely the big one, because if that were to happen, it would cast doubt on the true impact of everyone else. In addition, however, we need to achieve standardisation. There is so much different terminology from responsible investment, to sustainable investment, ESG investment and impact investment, that creating some order around these definitions would prove beneficial to everyone. I think it will happen. It will be a feature of the maturation of the sector. Other than that, I have no real concerns. Just as responsible investing has become the norm, I think its more proactive peer, impact investing, will become the norm in time as well.
Has covid caused a setback or spurred the sector on still further?
In the short term, there was a slow down in LPs backing funds. That was a natural reaction. Now everyone has realised that impact investing is needed more than ever, especially around the creation and maintenance of jobs. Approximately 70 percent of jobs in emerging markets are created by SMEs, if no one supports the financing of those companies, then that is a major problem. The other encouraging sign is the role that digitisation has played throughout covid. That has been to the benefit of some of our companies, for example a Colombian fintech company that caters for digital wallets for those on very low incomes. The Colombian government chose that business to distribute aid to more than a million people because it was effective, efficient and quick.
But how will impact businesses fare in a prolonged recession?
Even if there is recession at a global level, we are working in the trenches. We may not be completely decorrelated to global markets, but we are working with the real economy, dealing in job creation and providing services to populations that are not going away.
What do you think the future holds for impact investment?
I am convinced that within the next decade or two, impact investment will become the norm. It simply isn’t possible to continue looking at investment purely through a profit lens. Responsible investment was about doing no harm. ESG was a little bit more specific. Impact is more proactive still. Impact investing must move from being a separate asset class to standard investment behaviour for the sake of all mankind.