2023 Impact Investing Insights: Reflecting to Inform the Path Ahead

2023 Impact Investing Insights: Reflecting to Inform the Path Ahead

As we stand on the brink of a new year, I've taken a moment to reflect on the past year and its significant influence on our 2024 impact investing priorities. Join me as I share key reflections that offer valuable insights from the past and guide us into the future.

Catalytic Capital: Paving the Way for Change

Catalytic is one of those terms that tends to be used, and perhaps overused, in celebrating the contributions an investor can make in moving others to act. We talk about the catalytic role an investor has played in convincing another investor to deploy capital. We sometimes describe the voice an investor uses at a convening as catalytic. Or a thought piece put forward by an investor for the broader community to consider. But for me catalytic capital is the bull’s eye; capital that is flexible, risk-taking, patient, impact-centered and not necessarily concessionary.

Why it Matters:

We need more investors embracing a bigger risk appetite – for at least some of the capital in their portfolio- to attract others in pursuit of impact. With disciplined determination and bold ambition, we are seeing signs of catalytic capital at work. The recently launched SDG Loan Fund (about which I posted last week) tapped a modest amount of catalytic capital in the form of an unfunded guarantee to tap a reasonable level of first loss protection which, in turn, unlocked $1bn of commercial capital. The principles underpinning this deal can – and should – be embraced by others and converted into action. Both the ‘providers’ of catalytic capital and the ‘takers’ of catalytic capital should respond by moving more money into impact.

The C3 Catalytic Capital Learning Labs that I had the privilege of leading together with my amazing colleague, Leonie Arnoldi, used real deal examples to challenge a group of 36 investors how to use catalytic capital more efficiently and effectively.  Segmenting catalytic capital deals by ‘seeding’, ‘scaling’ and ‘sustaining’ we identified several concrete suggestions for increasing the flow and accelerating the pace of catalytic capital deals.

What We Can Do in 2024:

  • Take confidence and inspiration from these concrete examples.
  • Pursue partnerships underpinned by mutually aligned commitments.
  • Deploy capital in pursuit of impact with a willingness to share openly with fellow investors – pricing parameters, risk analysis, and impact tracking!

 Governance: An Under-weighted Driver of Impact

Impact investing discussions often focus on deals (as noted above) and on the growing range of actors showing up in the impact field. For those of us who have been in the field since before it was called impact investing, we welcome both the spotlight on tangible examples of capital flowing and the expanding constellation of actors beyond asset owners. For we know an impact economy requires the full suite of agents working towards a common ultimate objective, from investors and entrepreneurs, producers and consumers, to policy makers and regulators.

Why It Matters:

The table of actors we have perhaps under-considered in recent years is the board table. Every organization is ultimately comprised of people, and it is the willingness of people with decision-making authority who should be assessed for what they do – and what they fail to do – if we aspire to a more inclusive and sustainable world.

Joining forces with my partners at Mondiale Impact, in 2023 we have engaged with decision-makers from various types of actors (corporates, investment entities, governments, etc.) across the globe asking the question: ‘where do boards get stuck; and how can they get unstuck’ to make more impact-driven decisions? What we learned will influence discussions in 2024 including:

  • understanding and using ESG and impact as distinct considerations in board discussions from strategy to execution
  • framing positive impact through an offensive lens of what’s possible alongside the defensive lens of risk management
  • assessing performance honestly and transparently, sharing positive and negative impact results and determining the sometimes difficult to identify net impact
  • and putting an organization’s purpose as the central tenet to guide all topics on the board’s agenda, thereby allowing the board to be rigorous in recognizing the boundaries of what actions it can and cannot take in furtherance of that purpose

At Mondiale Impact, we are engaging with boards as peers as we seek to confront, examine and anticipate the environmental and social challenges that surround an organization’s operating existence. It is only through confronting, examining and anticipating that we can navigate a path of pursuing positive impact.

What We Can Do in 2024:

  • For every board you are on and/or engage with, encourage the members of the board to ask the tough questions and the follow-up questions.
  • Revisit the answers and interrogate the potentially shifting boundaries of the organization’s purpose in the context in which it operates.
  • As a board member accept accountability for what actions the board takes – and chooses not to take – on specific topics and be prepared to share the rationale underpinning these decisions.

The Power of Cash: Deposits with Purpose

In the United States, Community Development Financial Institutions (CDFIs) are increasingly recognized as the local capillaries of the US financial system, reaching communities that other banks cannot and/or do not want to reach. CDFIs have attracted significant capital during 2023 including with the allocations of ECIP funding. While this capital is important to bolster the balance sheets of CDFIs, enabling them to lend more to underserved communities, they need deposits to make the funding engine hum.

Why It Matters:

Most depositors rarely consider where their money spends the night (i.e., what financial activities and impact are those deposits supporting?). Have you asked recently whether your bank is using your deposits in alignment with your values? Are your deposits being leveraged to make positive environmental and social impacts on society?

The good news is that for those who want their deposits to make a positive difference for low-income families and minority underserved communities, there are choices. One that I have the privilege of working with is Southern Bancorp.  The bank’s markets consist of low-income, underserved areas across Arkansas and Mississippi, with future expansion focused on both urban and rural, minority and underserved markets throughout the Mid-South:

  • 55% of branches are in persistent poverty counties (counties that have maintained poverty rates of 20% or more for at least 30)
  • 41% of branches located in majority African American census tracts
  • 95% of lending in CDFI target areas (low and moderate income communities)
  • 93% of branches outside a principal city
  • 41% of branches in counties with populations <25,000

This bank, part of the Global Alliance for Banking on Values, puts its money where its mission leads!

What We Can Do in 2024:

  • Recognize the power of cash and put your deposits to work with a values-aligned financial institution

Stepping up for Gender Equity: The Legacy of a Field Builder, Suzanne Biegel

Suzanne Biegel’s passing in September 2023 left a gaping hole in the gender lens field. Her legacy is profound, and her impact immeasurable. So many of us have felt the absence of her voice of challenge and perspective, her personal and substantive connections, her prompts to push the envelope – always. Throughout the fall season of conferences and convenings, from the GIIN and SOCAP to COP28 and beyond, we missed Suzanne’s familiar ability to at once ground a discussion in reality and inspire its participants to go further than they would have initially contemplated.

Suzanne Biegel’s lifelong dedication to gender equity is a beacon guiding us forward. Her work centered on the belief that women are powerful agents of change and that mobilizing financial, market, and human resources for these agents is not just a moral imperative but a pathway to a more equitable and prosperous world. She was one of the early champions of recognizing the connection between women and climate change, reframing the default tendencies to see women as disproportionately disadvantaged by the effects of climate change into a global investment thesis with women as agents of change in designing and delivering climate solutions that can make a difference - now.

Why it Matters

A true builder of a field, we cannot replace Suzanne, but we can all do more. In her final months, she did more than most could do over the span of several years, by launching Heading for Change.

What We Can Do in 2024:

  • Honor Suzanne’s legacy and put the interests of women and girls at the core of at least one [more] commitment you are making in 2024.