September and October were very busy months in terms of CDI operations! We went on a couple of trips – to Sweden and Ghana – which have helped us in developing our thinking and learning on social impact.
Swedfund: Evaluating Development Finance
Chris Barnett, Stephen Spratt, and I travelled to Sweden in late September to work with Swedfund, a development finance institution (DFI) investing in the private sectors in Africa and Asia. We are working on an evaluation commissioned by Expert Group for Aid Studies (EBA), to consider if, to what extent, and how Swedfund investments contributed to poverty reduction? We are assessing Swedfund’s relative contribution to development outcomes by looking at their financing of investments with a developmental goal, and the extent to which their involvement was ‘additional’.
Additionality can take many forms: financial, market building, demonstration effects and signalling just to name a few. At SOCAP 2016, Ted Jackson provided a useful summary of different types of additionality (see for instance, slide 8 of Ted’s presentation). Because of this, we need to collect and review significant amounts of information in order to understand the ways that Swedfund’s investment in processes has changed the poverty outcomes for investees, customers and companies/individuals further down the supply chain. In addition, we want to assess how Swedfund’s involvement in the investment process has changed the incentives, risk positioning, and willingness to invest of other impact investors, thereby demonstrating market-building additionality.
Our two day visit offered us a first glimpse of the expansive data collected by the DFI through its due diligence process, sustainability reporting by investees, and the extensive process of ensuring environmental and social governance (ESG) throughout Swedfund’s investment portfolio. Through analysing this data, and the process of engagement between investee and investor, we will be able to assess where Swedfund’s involvement has been additional, or if not, why.
Another trip to Sweden is planned to start data analysis, and undertake some additional case studies to understand the variation of social impacts from investments as diverse as hospitals to hotels.
In October, Chris and I travelled with IDS Honorary Associate Ted Jackson to Ghana, to visit the Venture Capital Trust Fund (VCTF), who we are working with to build a learning framework for understanding their social impact.
VCTF, created in 2004, works to create a vibrant and well-structured venture capital industry, and invests in small and medium enterprises (SMEs) across Ghana. It currently invests in around 50 businesses, and operates through a range of intermediary funds, providing technical assistance where necessary. In addition to purely providing financing, VCTF promotes the venture capital industry through various means, including co-founding the GIMPA Centre for Impact Investing.
We are working with VCTF to understand the investment process, and develop an understanding of impact measurement and citizen engagement through action research. In particular, we want to consider the broader positive, negative, and unexpected effects of impact investments on different societal groups. This will contribute to improving understanding of the potential and limitations of innovative finance being used to address the SDGs.
Accurately identifying, measuring and reporting these social impacts can allow VCTF to amplify the impact of its investments, and mitigate potential risks. The purpose of the learning framework is:
- to better understand and document the social impacts of the trust funds investments and its affiliated funds
- to improve the performance of the investments and the affiliated funds in terms of their social impact
- to better communicate and report social impacts to government and other co-investors
After our visit, which included trips to Tamale in the north and meetings with investors, including the Safe Water Network, we scoped the next step of the research. We plan to build out a series of case studies across the investment portfolio, to capture some of the social impacts achieved by the investments. We are already developing our investment profiles across these investments and later this month we are travelling to Ghana to conduct face-to-face interviews with other investors, investee company management, and wider stakeholders (consumers, employees, individuals further down the supply chain, relatives) to capture some of these wider claims.
The result of these extended case studies will be to set out suggestions on more immediate metrics (and other more evaluative ways to assess social impact) that VCTF can use and communicate to the markets, and promote through their networks.
In working with both Swedfund and the Ghana VCTF, we are exploring how case studies can be used to illuminate the different types of social impact, giving greater knowledge and understanding to other impact investors who wish to make a difference. Through this research and learning we aim to better understand social impact in terms of two neglected areas in evaluating impact investing, specifically:
(1) Different Perspectives: looking at social impact as perceived by different actors: from investor to investee company, from employee to community.
(2) A Household perspective: to go beyond job creation of employees to broader social impacts for women, the marginalised, the poorest, and so on.