by Taila Mueller
For over a decade, LGT Impact, a leading industry pioneer in impact investing (II) and venture philanthropy (VP), has invested in scalable business models and organisations that provide less advantaged people with access to essential services and products in education, health, agriculture, energy, and inclusive finance. Their Asia Pacific head, En Lee, shared insights on the II market and their framework at a Social Entrepreneurship Member Interest Group meeting in July this year.
En kicked off the session highlighting that II is being fast becoming a universal narrative, with investors moving away from more traditional perspective of the capital markets that bisect capital as either philanthropy or investment. Impact Investing can be defined by three broad categories of investments: Those that are exclusionary and take out harm, those that are inclusionary and those that invest in solutions. Across his portfolio, he has seen a convergence of these types of strategies. Currently on track to reach USD 1 trillion, II has doubled in recent years as investments chase a triple bottom line of people, planet and profit.
Not to be mixed with II, LGT also provides VP, which is an early stage and proactive investment strategy. LGT focuses on a few organisations that are young, developing a close and long-term relationship, providing tailored financing, continuous management support and network connections.
Global Impact of LGT
LGT has so far screened 6,000 companies but has only invested in 82 of them through a variety of investment strategies, including grants, VP and II. En responded to member questions about LGT engaging with those that do not make it down the investment pipeline stating that they are honest with these companies about their shortfalls. While some do go on to get hybrid funding, many are simply not financially viable.
En highlighted exemplary case studies, including M-KOPA – a Kenya based solar power company which brings affordable solar energy to rural communities that are off-grid. M-KOPA customers use a pay-as-you-go model, to purchase solar energy for electricity. After 12 months of paying, the customer owns the solar energy pack using an asset leasing model, which they then utilise for other energy solutions. The impact on families includes increased disposable income from not having to spend daily on kerosene, increased safety, and other related benefits. For example, once homes are equipped with solar chargers, families save up to purchase low cost fridges which bring food and other healthcare benefits.
Another interesting LGT investee is China-based IPE, a nonprofit that compiles environmental data on a searchable platform, creating an environmental map of pollution and degradation across the country. By democratising the data, IPE is able to advocate for better air quality standards, lower pollution and increase the enforcement of violations. The company has successfully used the data to get large companies and factories in China to change their environmental practices.
LGT has thought about ways of monetising this investment by creating an app or a freemium model for usage, but as a foreign investor they do not want to be seen as reaping a benefit from this. The greater purpose of achieving environmental impact should be the priority. Other company highlights in LGTs global portfolio included a cacao company in the Philippines, low cost specialist healthcare clinics in Brazil and an aviation company in Germany.
En ended the session with reflections on some key issues in the space including how to measure impact. He is hesitant to reduce social returns to one number, but instead LGT works backwards by thinking about what would make them happy at the end of the investment journey given the funding put in. Contrary to the notion that it is hard to find good solutions to solving social problems, there is actually no shortage of solutions. What is difficult is finding the right execution team that can operate in a local context.