Impact investing looks ready to fly, so what’s the problem?

Celso Grecco

16-18 October 2012, SEWF – Social Enterprise World Forum, Rio de Janeiro, Brazil. An event hosted by NESsT, with 180 speakers and 650 delegates from 30 countries. Three whole days dedicated to discussing impact investing. Taking all the debates and presentations into account, one thing is certain: the concept of impact investing is definitely on the agenda of High Net Worth Individuals, and it is present in the strategic plans of a good number of corporations and foundations and many potential donors.

Likewise, dozens of social enterprises are putting their efforts towards understanding this new concept, and preparing or changing their structures to become more attractive to this new source of financing. So what’s the problem? Impact investing seems to be a good idea hinging on a common vision shared by all parties involved.

The potential sources of social investment, represented mainly by High Net Worth Individuals and investment funds, have shown a clear interest in impact investing, ‘provided that the financial returns remain at market levels or at least just below them’, as they emphasize. Thus, they are willing to compromise a small part of their financial return in the name of social return. But it is a world used to million-euro/dollar deals; it therefore demands huge projects.

Because of this, the majority of social entrepreneurs that head up social enterprises fear that the size of their organizations could stand in the way of successful relationships. Social organizations, whether they are social enterprises or not, are not used to receiving large sums of money, undertaking big projects and delivering financial returns – all together at the same time.

This was the main concern I heard from social entrepreneurs in the corridors and coffee breaks of the Social Enterprise World Forum, which matches the conversations I’ve had over the last months with many other social enterprises. The impact investing environment is indeed a brand new world of big potential for both sides, social investors and social enterprises. But it is also a world of unexplored relationships that lacks new parameters and innovative metrics.

Quoting Nicole Etchart, NESsT co-founder and CEO: ‘We need to align expectations with what is feasible. Donors and investors need to be patient on the financing needs of social enterprises, the amount of time that it takes them to reach break-even and generate profit, and if and when they can really begin to scale. The expected financial return needs to be reasonable, particularly the need to cover the many social costs of social enterprise. And the social sector also needs to provide clear metrics and to spend time educating the philanthropic and investing communities on what they should expect in terms of social impact.’

SEWF Brazil highlighted the need for intermediaries to bridge the gap between the supply and demand side. We need a lot more conversation, understanding and agreement. If we fail to accomplish that, a big opportunity will be wasted.

Celso Grecco is a Brazilian social entrepreneur, Ashoka Fellow and member of NESst’s BAN – Business Advisory Network.

Event: Social Enterprise World Forum
Date: 16-18 October 2012 

Location: Rio de Janeiro, Brazil
Organizer: NESsT


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