tbli nordic 2015 - maria kronsteiner - impact investing in emerging markets

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  1. 1. Impact Investing in Emerging Markets: What have we learned? Lessons Learned from Results Measurement 16 June, 2015 TBLI Conference Nordic 2015 Copenhagen, Denmark Maria Kronsteiner, Senior Development Effectiveness Specialist, mariakr@iadb.org
  2. 2. www.iic.org IDB Group Impact Investing Tagging Approach 2 DEVELOPMENT IMPACT FILTER Generates social and environmental externalities Contributes to economic growth and/or private sector development Complies with ESG criteria Follows a specific Impact Investing approach: Deliberately aims at generating social/environmental impact in addition to a financial return Is accountable for both financial and social outcomes Generates direct/visible social impact by: Creating income and employment opportunities for BOP/ disadvantaged populations; and/or Delivering essential products and services to BOP/disadvantaged populations SOCIAL IMPACT FILTER IMPACT INTENTION FILTER FINANCIAL VIABILITY FILTER Project involves a financial instrument (private debt, guarantees or equity investment) Investment is expected to return at least nominal principal Yes Yes Yes Yes = DEVELOPMENT FINANCE = HIGH IMPACT SECTORS = IMPACT INVESTING ! " # $
  3. 3. www.iic.org Development Finance $7.2 bn, 517 projects Generate positive social/environmental externalities High Impact Sectors $3.8 bn, 311 projects Generate tangible social/ environmental impact Impact Investments 1.1 bn, 131 projects Explicit intention to generate and measure social/ environm ental impact Preliminary Results: Impact Investment within a Development Focused Portfolio + ~ 200 projects ~ $39M The IDB also has a portfolio of more than 200 small impact investing projects ($39M in value) corresponding to the first phase of the Social Entrepreneurship Program (approved prior to 2006). This program is administered by the MIF and provides small long-term concessional loans to high-impact social enterprises.
  4. 4. www.iic.org Inter-American Investment Corporation (IIC): Private Sector Window Dedicated to SMEs % Member of the Inter-American Development Bank Group % Non-sovereign private sector lending % Mission: promote economic development by financing small and medium-size enterprises (SMEs) % 45 member countries are shareholders from the Americas, Europe, Asia/26 borrowing members % Based in Washington DC, established in 1984 % Long-standing partner for impact investments in Latin America and the Caribbean Region IICs PORTFOLIO (2014) Development-related Assets Portfolio US$ 1.1 billion Portfolio profile 229 projects in 20 countries + regional 48% of portfolio in smaller countries 68% of total portfolio involves financial services for on- lending to SMEs; 32% is in direct SME lending for agriculture, infrastructure, investment funds etc. Private Sector Resource mobilization US$ 274 million SMEs financed 27,000 SMEs benefitted from technical assistance and knowledge transfer (e.g. Sustainability Week training) www.iicsustainabilitywee k.org. 8,000
  5. 5. www.iic.org Development Results Framework: Focus on Measurements and Results 5 How When Why % What gets measured gets done % Accountability and Learning % Strategy % Throughout project cycle % Development Impact and Additionality Scoring System (DIAS); Result Matrix (sector and cross- cutting indicators) % Evaluation: Expanded Supervision Reports (XSR)
  6. 6. Systematic Approach to Selecting Relevant and Sustainable Projects Criteria Questions Tools Objectives % Relevance %Does the project meet country development priorities? %Does it address market failure? %DIAS %Provide access to Finance for SMEs %Provide financing otherwise unavailable % Effectiveness %What are the projects development objectives? %What are expected results including baselines and targets? %Results Matrix %Focus on key development indicators (i.e. jobs created, # of SMEs reached; GHG reduced etc.) % Efficiency %Do expected financial and economic benefits justify project costs? %Financial and Economic Analysis %Portfolio Approach Achieve attractive financial and economic returns % Sustainability %What are prospects for project sustainability? %What can be done to mitigate Environmental and Social Risk? %DIAS %Financial sustainability %Environmental and Social sustainability assured % Additionality %How can we add value (Financial and Non-financial)? %DIAS %Provide better terms %Mobilize resource %Improve ESG standards 6
  7. 7. www.iic.org The DIAS Result Framework Based on 340 projects approved between 2008-2013 High outcomes are measured as high and medium ratings, or any score from 70% of the maximum performance score. IIC Strategic Objectives Project or Company Business Performance 84% Contribution to Economic Development Environmental & Social Performance 66%* *excludes FIs Private Sector Development 99% 82% 87% DEVELOPMENT OUTCOME ADDITIONALITY 100% 38% Financial Additionality Non-Financial Additionality Percentage of projects with high outcomes (projected) DIAS Granularity: Indicators by sector Emphasis on final beneficiaries Gender Strengthen non-financial additionality Intrinsic part of the project cycle Data collection throughout project cycle Project logic improves Evaluability Result focus: Baseline and Targets Approach Elements
  8. 8. www.iic.org Balancing Financial Viability and Development Impact 8
  9. 9. What have we Learned from Results Measurement? What gets measured gets done Results measurement is a critical vehicle for continuously improving project design and optimizing development impact % Strengthens accountability to stakeholders % Results indicators must focus on key development objectives with few meaningful indicators % Overall standardized results measurement system must permit performance comparison by sectors and aggregation % Set realistic targets against which performance will be measured % Quality of data is important % Agree on reporting requirements with client and preferably in loan agreement % Offer TA support for improving client capacity to measure results % Adopt common standards to facilitate comparison with other DFI institutions % Consider offering incentives for investment officers to develop pipelines of projects and for development results achieved Financial viability and development impact are strongly correlated: Doing well by doing good % Financially successful projects allow for higher demonstration effects and provide a basis for replicability Cooperation between private investors and MDBs leads to higher development impacts % IIC resources are insufficient to meet market needs which places a premium on syndications, privatizations, PPPs, co-investments etc. to generate additional resources Improving ESG standards leads to long-term sustainability % Financial performance and ESG performance are correlated % Makes companies sustainable and more attractive to investors % Enhances public opinion regarding investments SMEs can be reached successfully with resulting positive impacts on employment, productivity and ESG standards.
  10. 10. www.iic.org IIF Fund$18MCalvert Foundation IDB Group Borrowers $2MEquity % Innovative facility supported by all private sector windows of the IDBG % Calvert pools capital raised from individual investors for impact investment projects % BUT, need help developing pipeline % Creating a vehicle where the IDB is contributing US$2 million in equity and Calvert is providing US$18million in debt % Calvert will co-invest in current and future deals with a weighted average duration of five years Facility is in signing stage Example: IDB Group-Calvert Fund
  11. 11. Inter-American Investment Corporation www.iic.org
  12. 12. ANNEX
  13. 13. www.iic.org The IIC invests in healthy foods in Mexico 13 KUA: A Food and Beverage Producer and Distributor in Mexico % KUA seeks to invest in healthy products for Mexican population Solution: % US$ 9 million equity investment by IIC to support companys growth strategy, which consists in acquisitions and investments to incorporate and consolidate healthy food products % The equity investment will support KUAs portfolio diversification, innovation and healthy promotion
  14. 14. www.iic.org 14 Rural Costa Rica: SME Forestry Project Led to Improved ESG Standards Expected Results Actual Results Development Outcome 5.96 (out of 6.5) Highly Successful Additionality 3.05 (out of 3.50) Excellent Improvements in Environmental Standards IIC required company to obtain Forest Stewardship Council (FSC) certification in Nicaragua and maintain it in Costa Rica ensuring sustainable forestry practices Obtained FSC for the sustainable reforestation model in Nicaragua Maintained FSC in Costa Rican operations Implemented Environmental and Social Action Plan (ESAP) Improvements in Corporate Governance IIC required consolidated financial statements for project appraisal IIC engaged with company in the implementation of their Strategic Business Plan Provided consolidated financial statements Implemented Strategic Business Plan Use of Technical Assistance IIC identified need for TA to address succession plans IIC provided TA and SME hired consultant to carry out study on corporate governance Company identified through FINPYME Diagnostics US$ 1.5m loan to expand operations in Costa Rica and initiate operations in Nicaragua Financial Additionality: Long-term financing (6 years) is rarely available for plantation activities. Loan allowed SME to make long-term investments sooner and on a larger scale.
  15. 15. 15 Small Family-Owned Business: A Successful Transition % US$ 1.2m loan to finance expansion of a manufacturing company in Costa Rica and Panama % Excellent terms for small company: 9.5 years was not available in the market Expected Results Actual Results Development Outcome 4.86 (out of 6.5) Mostly Successful Additionality 2.85 (out of 3.5) Satisfactory Improvements in Environment