Risk, Return and Responsibility: Reflections from GIIN Investor Forum and SOCAP19
This year marks nearly one decade since I left mainstream finance to pursue impact investing. Beckoned by the call of investing with impact in the middle of the financial crisis, I joined Acumen Fund in 2010 when impact investing was more niche, comprising a modest group of investors and entrepreneurs. And what a difference 10 years has made! Last month, I attended the GIIN Investor Forum in Amsterdam and SOCAP19 in San Francisco. It was clear that investing for impact is no longer niche, as each conference attracted more than 1,000 attendees.
During the last 10 years, there has been a remarkable shift in recognition that non-financial risks and social outcome objectives are inherent in how each of us directs our business decisions. In Amsterdam, Urban Angehrn, CIO at Zurich Insurance, noted that investors must move from “risk-return” to a “risk-return-responsibility” evaluative framework. As early-stage impact-first investors in frontier markets, this idea is fundamental to how we invest, and it was remarkable to hear institutional capital investors espouse this ethos. The notion of responsible investing naturally rang true for us given FINCA’s pioneering history in microfinance and membership in the Partnership for Responsible Financial Inclusion.
Inspired by the progress over the past 10 years, I thought about what a decade hence might look like. The companies in FINCA Ventures’ portfolio are reimagining how we think about everything from the supply chains connecting smallholder farmers to infrastructure business models. While institutional investors may seem far removed from this sphere, they are likely invested in companies that contract to buy from and sell to the customers, owners and stakeholders in FINCA Ventures portfolio companies. Consequently, can upstream investors like us collaborate with institutional investors (and those in between) where the principles that drive our decisions to invest mutually spring from the “risk-return-responsibility” framework for deploying capital? Will we be able to demonstrate a more responsibly connected capital ecosystem between the kinds of investments that FINCA Ventures makes and the kinds of capital that institutional funds deploy?
While GIIN increasingly attracts more institutional investors, SOCAP appeals to the growing spectrum of entrepreneurs and social innovation actors operating on the frontlines of transformative change. Alongside Rural and Agricultural Finance Learning Lab and Good Nature Agro, I participated on a panel, “Fintech for Agriculture: What’s the Real Impact?”, to discuss how technology could improve smallholder farmers’ lives. Interestingly, the conversation was meant to focus on financial technology, and yet it ended up emphasizing affordable and timely access to cash or capital in rural economies. Carl Jensen, founder and CEO of Good Nature Agro, noted that when financial institutions look to lend to farmers, they need to go beyond traditional “risk-return” evaluative frameworks that cast farmers as un-bankable. Technology and innovation must be used to see farmers as individuals, and financial institutions have a responsibility to apply a finer lens using technology and other tools.
Whether at an institutional level or at a farmer level, the conversation on capital is increasingly moving away from risk vs. return, to risk vs. return plus responsibility. This third lens is what will transform how impact or institutional investors provide capital to those that seek it, as well as change the formula for how businesses make decisions. Such possibility has me excited for the next decade.