Unlocking CSR funds for impact investment ecosystem

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“In the business world, unwise men take more that they give. They don’t realise that they are breaking the universal law which will eventually break them to an equal extent. It may not be balanced in the form of dollars and cents but in the loss of goodwill upon which their future business depends.” - Walten Rusell

The introduction of Alternative Market Investment (AIM) in the year 1995 by the London Stock Exchange (LSE) broke the stereotype that the sole purpose of any business is to increase its profits while staying in its limits. AIM was created to assist smaller companies in raising capital they may need to scale up. At launch, AIM found only ten takers. Today it boasts of more than 3,500 companies that operate in more than 100 countries. It continues to help smaller and growing companies raise the capital they need for expansion.

Michael Kowly once said, “Build your business around your ideas of making the world a better place. That’s how you become rich.” His words seem to manifest in the business world today. With increasing interest in sustainable development and as more and more customers become socially and environmentally aware, impact investment has become a global movement.

As India emerges as an attractive market for impact investing, there lie some greater synergies with CSR. So far these synergies are not tapped enough but they clearly exist as both CSR and sustainability reflect the need for aligning the business goals with the need for society.

While impact investment and CSR are based on the belief that businesses can be used to affect positive environment and social change, yet there is a fundamental difference. CSR remains voluntary and self regulated, impact investment must demonstrate social as well as financial return.

Impact Investment: The growth scenario
The market for impact investment is no longer embryonic. Statistical data suggests that there has been a rapid increase in the impact industry. J.P. Morgan’s 2015 survey of the sector found that $60 billion of impact investments are under management by the firms surveyed. The survey found that 41 percent of those investing were making long-term investments (over 10 years). The sector is experiencing a 16 percent growth rate with a full 45 percent of investors willing to forgo market rate returns for social impact.

While 90 percent of investment assets are invested by those in developed countries, over half of those investments are deployed in emerging and less developed markets. Impact investment has gained worldwide traction as a method of solving development problems in a more sustainable way.

CSR has become an essential part of the business curriculum in India and is prompting companies to redirecting huge funds. As CSR has been an old concept, the sector is still figuring out various ways of impact measurement.

Impact investment refers to the act of pursuing both financial and beneficial return. It is clearly visible that the synergies between CSR and impact are bound to make a difference in the years ahead.

CSR: An Impact investment opportunity
Businesses now no longer remain solely confined to their limited personal profits. They aim achieving the loftiest goals and create greater impact on social investments. By investing in CSR, companies enjoy better brand recognition, good reputation, increased sales and customer loyalty. It also helps smaller companies who are keen to raise their capital for expansion but lack resources. With new technologies and geographical areas to invest in, impact opens up a range of possibilities for CSR capital.

Impact investment provides innovative ways to use all CSR resources for good and bring forth the enterprise’s potential to grow beyond the startup stage and become a feasible business. All it requires is the appropriate combination of grants, mentoring and impact capital, and the intuitive wisdom to apply each at the right time.

Suggestions
The impact investment ecosystem is growing rapidly. According to GIIN’s 2017 Annual Impact Investor Survey Impact, investors managed $114 billion in impact investing assets, a figure that serves as the best available floor for the size of the impact investing market.

Now the leaders in the movement not only include high net worth families, foundation, pension funds and insurance companies but also involve mainstream financial players like BAML, Goldman Sachs, Morgan Stanley, Bain Capital, Jana Partners and TPG.

With such steadfast action, it is quite evident that CSR capital could bring much to the impact sector. The industry could work with the Indian government to leverage CSR funds for approved uses in the impact investing ecosystem.

The overall value proposition of impact investments including its 3X commitment to profit, benefit and metrics provides a methodology to think about how businesses might do more to bring benefit. Ultimately, the tools developed for impact measurement may prove a boon for all types of social business projects, including those pursued by CSR programs. By taking impact’s cues and amalgamating business targets with their social mission, CSR programs could take a huge step forward in creating a positive impact.

The thoughts and opinions shared here are of the author.