Impact investing is when an investment actively aims to be long-term and there is a clear potential for social and/or ecological value creation, as part of the business idea. Just as a traditional business puts Key Performance Indicators in place, there is a similar method to impact measurements to track performance. KITE Invest spoke with Ruth Brännvall, the Co-Founder and CEO of Impact Invest Scandinavia in order to get the insider perspective of this socially and sustainably conscious and driven investment form.
KITE Invest: Can you please explain how impact investing ensures the best social and environment outcomes?
Ruth Brännvall: What investors and the market ask for is what business management will focus on, so if capital would only be available to sustainable businesses, then of course we would see much faster innovation to solve the most pressing social and environmental challenges that we have. The idea of risk and reward has to change 180 degrees in most cases. The idea that impact investing needs to come at a price of financial returns depends mainly on a) what time perspective the investor takes and b) that business are not yet held accountable for its external costs, which is a growing requirement. This is what we are interested in investigating in our investor network, and to exchange experience, since there are of course instances when trade-offs have to be made for example in sourcing and HR policies.
KITE: In your estimation, what is the reason behind the smaller presence of impact investing dedicated associations, networks, and groups?
RB: In Scandinavia, it is Impact Invest Scandinavia that since 2012 has been leading the way for impact investing. At that time the term was mainly associated with small firms, the social businesses that were not stuck in traditional business culture. As such, it did not attract much attention due to its size.
Our vision though is that impact investing should be able for anyone to invest in, like what has happened with French “solidarity capital,” in which employees can choose for their pension savings or with some of the Dutch banks that offer retail products that create value for society at large. They paved the way for showing that it can be done at large scale. Hence, our network is now growing with the participation of financial institutions along side the private investors.
KITE: As the Co-Founder of Impact Invest Scandinavia can you please comment on the process of launching the network and how it came to be?
RB: For me personally, it was the combined experience of investing myself in some businesses that provided remarkable social results and co-managing a fund to stimulate innovations for the ‘Base of the Pyramid’ segment when I saw more and more great entrepreneurs. Like any other start-up they had a challenge accessing funding, and due to their slightly untraditional business models they faced even more difficulties finding investors. With two other like-minded people, Leila Swärd Ramberg and Shawn Westcott, we saw the need to focus particularly on these businesses.
KITE: Within Scandinavia does impact investing differ between countries, and if so, how?
RB: The Scandinavian countries are pretty homogenous, so there are only small differences in the approaches. We saw the first dedicated impact funds in Denmark, with the Social Capital Fund and others, as well as, in Norway with Voxtra and Ferd.
KITE: How does impact investing differ around the world, for instance between developed and emerging countries? Do the same standards exist for all investments, sectors, and locations?
RB: Impact Invest Scandinavia promotes growth of social and sustainable enterprises in Scandinavia and around the world. Some challenges are similar, such as climate change, sustainable consumption, global migration, and access to higher education; whereas, other solutions need to be more local such as local integration, mental health and new models for elderly care. The idea of what scaling-up a company means therefore cannot be the same.
High growth companies traditionally scale geographically, whereas many local providers can grow their organisations by what I would call a “deepening” of the value proposition and to create more and more value for the same target groups.
KITE: Could you describe a typical impact investment?
RB: There is no such thing as a “typical” investment since the deals are in such different sectors and in different markets and assets.
I think one thing, which is unique though, is that philanthropic capital now starts to act as seed funding also for businesses and helping them become investable, since philanthropy has also moved towards using investment methods to make more of donations, grants, and so forth. This makes a nice blend of values, interests and experiences in our network.
Impact Invest has facilitated investments and deals in many different situations, by helping shape the investment strategy, providing due diligence support, advisory services on sustainability, and impact measurements.
KITE: Are there any impact investments or impact investors that you could highlight?
RB: As per the point above, we are very pleased that we have such a wide range of investors in our network. Our first member was an American-Swedish family office and we have several Scandinavian private equity companies, as well as, one of the continent’s first social capital funds, where we act as a pipeline provider for Northern Europe. So in principle we can cover investment needs from first or second round to international expansion capital.
KITE: Lastly what are the biggest challenges and most rewarding points of impact investing?
RB: We can build a lot of theories about what impact investing is and may become, but we need more visionary investors, who believe in learning by doing. Many are still watching the space, and perhaps making it a bit more complicated than it is. Few deals will be perfect impact investments, but I think it is more important to do something, which is ‘good enough’ and thereby also contribute to the build-up of a pipeline, as more and more entrepreneurs can see the evidence that it pays-off to start and build businesses that deliver societal value.