Ronald Cohen on what's needed to drive impact investment to lower-income countries

BUENOS AIRES — As the impact investing industry grows and matures, there are increasing opportunities to tap into the money it can mobilize to fund the Sustainable Development Goals and push funding to lower income countries, according to Ronald Cohen, chair of the Global Steering Group for Impact Investing. While today’s impact investments amount to about $500 billion, based on figures from the Global Impact Investing Network, Cohen said he believes that number will double and reach $1 trillion in the next year or two. “We have progressed sufficiently now that we have proof of concept … so we’re ready to scale,” he told Devex in an interview. As impact investing grows, and particularly as it seeks to invest more in lower-income countries, it is important to distinguish between venture capital and equity investments, which create jobs and economic growth, and investments that tackle issues that constrain growth — including a lack of education or training. Both types of investments should be encouraged, he said. The latter type of investments, in particular, will rely on blended finance, where private capital and public money come together to help mitigate risk and spur investment. Future growth and investments can be built on the knowledge, experience and models that already exist, Cohen said. “We're going to Africa because we feel we have the tools now to help Africa to progress.” --— Ronald Cohen, chair, Global Steering Group for Impact Investing “What we need to do is to get to a critical mass,” he said. “We can't do it with small amounts all the time.” Cohen pointed to the International Finance Facility for Education, a blended finance fund that aims to use about $2 billion in guarantees from donors to leverage about $8 billion in private finance for education funding, as an example of the types of blended finance instruments that are needed. But even that fund, headed by former-U.K. Prime Minister Gordon Brown, has taken a long time to raise funds, Cohen said. “The reason is that trying to implement it at scale takes a very long time,” he said, adding that once you have one scaled fund it will get easier to replicate. One of the big questions in accelerating blended finance is whether big philanthropies such as the Chan Zuckerberg Initiative or the Bill & Melinda Gates Foundation will participate in establishing some of the new instruments, Cohen said. With pay-for-success or pay-for-results funding models, money committed by philanthropists and aid agencies can’t be wasted because it is only paid if the results are achieved. Cohen said he hopes that more philanthropists and aid organizations will come together to help create billion-dollar outcome funds that tackle a number of different issues. One area that would be ripe for an outcomes fund is investments in refugees. In Massachusetts, a social impact bond is already proving that this is possible. There, investors are supporting a program that provides refugees with language and skills training and job placement assistance, and the government repays the investors based on the improvements in the refugees’ salaries, which in turn will both help refugees and grow the state’s tax base. There are a number of key factors moving forward to help accelerate the impact investing industry and its investment in lower-income countries: getting philanthropists engaged in blended finance investments, having reliable data on investments, engaging pension funds and developing a system that is widely adopted that will measure corporate impact on the SDGs. The Impact-Weighted Accounts Initiative at Harvard Business School seeks to tackle that last issue and create a framework that would require companies to have line items on financial statements outlining the positive and negative impacts of a company on employees, customers, the environment, and society. If that effort is successful it could mean measuring the impact of the $30 trillion invested in public companies today and linking their performance to the SDGs, Cohen said. The link between impact investing and the SDGs is growing, and the industry has matured to the point that it’s ready to be used more widely in Africa, which is why next year’s GSG summit will be held in South Africa. “We're going to Africa because we feel we have the tools now to help Africa to progress,” he said. “If we can manage to bring these mechanisms into play, they will accelerate the progress of this change in values.” Business in Africa should be contributing to local communities and they’re not necessarily paying taxes or doing much for local populations, Cohen said. The push to take impact into account can push companies to invest more in their communities and help long term stability of both, he said. Editor’s note: The Global Steering Group for Impact Investment facilitated Devex's travel for this reporting. However, Devex maintains full editorial control of the content.