Impact Investing: Is There A Trade-off?
Generally speaking, impact investing can mean different things to different investors, and the field is still in the process of helping investors define it for themselves. As such, we need to move the conversation beyond the question of “trade-off.” In Bamboo Finance’s investment approach, profits do not have to be sacrificed for social and environmental impact. While this idea may sound counterintuitive, Bamboo Finance has proven that it is possible to maximize profits and achieve social and environmental benefits by investing expansion capital in companies providing access to essential goods and services for low to lower-middle income consumers in fast-growth markets.
Low-income households in frontier markets are already consumers of essential goods and services (healthcare, energy, financial services, agriculture for example), but they often pay dearly for very poor quality. These hundreds of millions of low-income consumers represent a significant market opportunity for companies that are able to design, produce and distribute quality and affordable products and services. Access to new and/or improved products and services can have an immediate positive impact on their quality of life. When investments are creating access to new and/or improved goods and services for low-income consumers, the social, environmental and economic impact can be intrinsically linked and profit and impact objectives can be achieved simultaneously.
It’s important to find an investment manager who views their fiduciary responsibility as a transparent and ongoing dialogue about how to achieve a shared vision of social, environmental impact and financial returns. At Bamboo Finance, our fiduciary responsibility begins with an investment thesis and strategy aiming to maximize total performance. We then align our incentives along social, environmental and financial dimensions and report on the performance of our portfolio quarterly. We also engage with external rating agencies to assess the social and environmental dimensions and participate in leading campaigns and initiatives in impact investing.
Progress and Potential
It has been close to eight years since the collapse of the financial markets, and progress has been evident. However, more investment capital is required to advance the movement and realise the potential of private capital as a force for positive change. Markets take time to build and yet the magnitude of the problems we collectively face today do not leave us with a lot of time.
Moreover, it is important to note that the impact investing is still in a nascent stage of market development with different sectors at various stages of evolution. Some sectors are ready for investments while others are testing the viability of business models. New models of financial services have emerged to reach the unbanked even faster and more affordably since its emergence. As such, financial services for low-income consumer remains a high growth, high value and high impact sector. Access to clean energy, agriculture, and healthcare are also sectors in which there
is enormous potential for social and environmental impact globally. In our opinion, we would ask people to invest in this area right away.
In terms of our investment strategy, we invest growth capital to build middle-market companies serving low-to-middle-income consumers. We deliver social and environmental value and provide attractive financial returns to investors. To date, Bamboo Finance manages 280M USD; representing a portfolio of more than 38 investments operating in 20 emerging market countries with a track record of demonstrated returns, and a portfolio of investments that have provided 16 million clients with access to services and created more than 20,000 jobs.
Established in 2007, Bamboo Finance was founded by Jean-Philippe de Schrevel alongside a team of microfinance pioneers who continue to forge new paths in impact investing. The vision of Bamboo Finance is to demonstrate that private capital can be profitably deployed as a tool for effective social and environmental change. The mission is to deliver attractive financial and social returns to investors by investing in growth companies that provide access to essential services for low-to-middle income consumers in emerging economies.
As for our philosophy, there are four key factors that underpin what we do at our company. Apply A“Total Return” Approach Firstly, we believe that it is important to acknowledge that there is a risk to doing business as usual, and this mentality has created significant societal and environmental costs. Until recently, the financial world has been governed by a simple two dimensional risk and return model, which no longer can be reconciled with the present day realities. There are social and environmental returns that ought to be included when making an investment and risks ought to be expanded to include the consequences on society and the planet.
Fund the Gaps
Secondly, it is central to our strategy that we ‘fund the gaps’. Investment opportunities have arisen as a result of rapid growth at the middle and higher end of many emerging economies thereby leaving an “access gap” for low and lower-middle income consumers. At Bamboo Finance, we believe that this gap can be bridged by investing in businesses that provide access to essential products and services. This includes primary care clinics, off-grid renewable energy systems and financial services companies serving small to medium-sized businesses as well as consumers.
Take a Long-Term View
Alongside these considerations, we firmly believe in partnering for many years and building long-term relationships with our clients. Deploying private equity allows us to engage deeply in the development of businesses as shareholders and board members and allows us to take a long-term view on growing value in the company.
Partnerships Are Essential
Last but not least, we place particular emphasis on leveraging the value of strategic partnerships, and the true value of strategic partnerships is yet to be realised in impact investing. Currently, large corporate involvement with impact investing tends to mirror traditional CSR grant-focused approaches. We believe the optimal role(s) of corporations is in incubating, catalysing, and investing.
Company: Bamboo Finance
Web Address: www.bamboofinance.com