Bill McGlashan: Impact Investing for Returns
He plans to collaborate and share his fund’s approach to impact assessment with the industry
The scale of the challenges we are working to address demands we question the notion of some in impact investing that market-rate financial returns and positive social and environmental impacts cannot — and perhaps should not — coexist.
The notion that scaling impactful companies requires conceding on returns rests on the assumption that impact is something that happens outside normal business. Of course, social enterprise can catalyse new and effective approaches, but it is not the only model that works. Every business, large or small, has an impact; the questions are: how big is that impact, and is it positive or negative?
The Rise Fund’s purpose is to seek out and grow businesses that create impact aligned with the UN’s Sustainable Development Goals. An example is Cellulant, a Kenyan company that provides digital payment tools. One of its products is Agrikore, a blockchain-based mobile platform to help distribute fertiliser subsidies directly to farmers and provide an easy way for them to sell their goods. Used by more than 7m farmers, these tools help them increase yields and reduce costs, raising household income and enabling spending on education, healthcare and other basic needs.
Unfortunately, the biggest disconnect today in impact investing is not the specific kinds of capital available but the fact that global needs are immense yet the resources devoted to them are so meagre. While it is true that social enterprises need different types of capital, there is also an urgent need for impact investing at scale.
There is more than $1.8tn in capital on the sidelines in private equity alone, and that doesn’t include the trillions more in institutions around the world not yet invested. We need to come up with a model that channels this capital towards solving these global problems, and to do that we must show investors we can drive impact at scale and produce market-rate returns.
This approach doesn’t negate the importance of philanthropy and government funding — both critical, as not every issue can be solved through commercial investment — nor does it obviate the role of investment that allows for concessional returns.
We certainly need more effective ways to evaluate impact: rigorous, research-driven methods that are consistent across industries and businesses. That is why The Rise Fund developed an impact assessment methodology that shows how core products or services deliver positive social and environmental outcomes.
We apply the same diligence and discipline to impact assessment as we do to traditional operating and financial analysis. We commit up front to delivering a specific level of impact, and by knowing what the biggest drivers of that impact will be, we can hold ourselves accountable to those goals. We plan to collaborate with others and share the approach with the industry, governments and business.
We must harness the power of the private sector if we are to solve the complex global issues of our time. To do that, we need to prove we can accurately evaluate positive and negative impact and that we do not need to sacrifice returns in pursuit of it.
We need to change institutional investors’ understanding of what is possible, and demonstrate that pursuit of impact and pursuit of returns are not mutually exclusive.
Bill McGlashan is chief executive of The Rise Fund, a San Francisco-based global impact fund led by private equity firm TPG Growth.
This piece originally appeared in the Financial Times on September 23, 2018