British International Investment

Impact investing in a post-COVID world: driving lasting change in developing countries

Impact investing is going mainstream: investors increasingly demand positive impact alongside profits. How can leaders in developing countries use this shift to boost their post-pandemic recovery?


Pioneering investor Sir Ronald Cohen says that business and society are being redefined. Impact investing holds the key to a better world, but we need to stop relying on entrepreneurs and big business to do all the hard work.

At CDC’s Insight event on 19 February 2021, Sir Ronald—who has been described as the father of social investment—joined CDC leaders to talk about the coming shift outlined in his latest book, Impact: Reshaping capitalism to drive real change and explore the power of impact investing to transform developing economies.

You can watch a recording of the event here

Profit alone is no longer enough

As a society, our values have changed, says Sir Ronald. There are three main trends: “First, consumers and talent no longer want to purchase from or to work for companies that are destroying the environment or using child labour. This hasn’t been lost on investors because the implications for the success of their investments are huge.

“The second massive trend is something that humanity has never been able to contemplate before: using our new technologies, like artificial intelligence, machine learning, augmented reality and many other technological leaps that enable us to deliver impact globally at a scale we could never have contemplated previously.

“The third one is technology giving us a breakthrough in the measurement of the impact of individual companies, turning it into monetary values that can be reflected in their financial accounts. So the rules of the game have already changed for investors and companies.”

It’s not surprising, then, that fossil fuel valuations crashed in 2020 while the market value of Tesla multiplied seven times over. Sir Ronald says that investors have changed their view of short-term profitability: “Investors are beginning to draw correlations between impact and future growth and performance, and that is what’s going to drive impact entrepreneurship and investment in public markets.”

Getting government on board

He’s quick to point out that we can’t rely on entrepreneurial efforts alone to push this paradigm shift forward. Government must play a key role in bringing the tools that will enable transparency of impact in the same way we can see transparency of profits. “Impact isn’t currently measured, and very general reporting of selective information that shows companies in a good light seems to be the rule rather than the exception,” he says.

According to Sir Ronald, impact reporting should be made mandatory: impact weighted accounts that reflect in monetary terms “the impacts of companies through their operations, their employment and their products.” If governments do that, they will enable financial markets to shift the behaviour of companies to achieve the results we all need, “which is greater sharing of prosperity, a reduction in economic and social inequality, and preservation of our planet,” he says.

Government legislation also holds the key to unlocking the $38 trillion currently held in pension funds across the globe, and allowing it to move into impact investment. Sir Ronald is keen to point out that as soon as regulation changed in the United States in 1978 to allow pension funds to invest in venture capital, venture capital funds multiplied tenfold: from $2.5 million to $30 million.

“We have to bring pension fund investors and other asset owners alongside the asset managers who have led thus far in deploying capital,” he says. “What we need is for government to change the regulations around the duties of trustees of pension funds and endowments, to allow this massive capital to flow.”

An appetite for risk with reward

For Dolika Banda, who is a Non-Executive Director at CDC and Global Ambassador for The Global Steering Group for Impact Investment, it’s the delivery of capital to people on the ground—and the technical assistance to make it work—that will power impact investment in developing countries in the years to come.

Although COVID has brought home just how urgently the world needs to deploy impact investing, Dolika says that the pandemic just highlighted fault lines that were there already. “The fault lines suggest that we need to start thinking across three dimensions: foreign policy, development, and investment. These three elements are coming to a confluence as we build an equal world for all, and impact investment is critical in its delivery.”

We need to remember how investors are wired, according to Dolika: their first instinct is to identify the risk, and their second instinct is to ask whether the reward is worth the risk. “Usually the risk overshadows the opportunity, and within our emerging markets we have some especially fragile countries. For some investors certain parts of Africa would be no-go areas, but for others those are the very areas that drive their mission, and so their reward is fulfilling that mission.

“There are players who go to Nigeria, and there are players who go to DRC. They are both risky countries but with very different types of risks. There’s an appetite for both of them. The work we have to do is to ask ‘what is the opportunity? What is the reward? How do I use this opportunity by looking at my risk component?’ We need to look at how we structure for that risk, and how we can price for that risk.”

Measuring impact to transform society

“Impact investment brings a third dimension to risk and return, bringing the dimension of impact, which we can measure today,” says Sir Ronald. “Even a decade ago we couldn’t measure the impact of companies or the impact that their operations created on the environment, that their employment or products created on people or the environment.

Technology today enables us to do so, and so it presents us with the opportunity to turn our system into one that is capable of bringing solutions to our great challenges: to improve our society, to make it fairer, and to protect our environment.”

The need has never been greater.

This article is based on discussions at our recent event ‘Harnessing impact investing for sustainable economic development’, part of our Insight event series. Catch up on the event recording,  listen to the podcast below and find out about our future events.


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