DID you know that investing was originally conceived not as a means to grow one’s wealth, but for the purpose of creating value for the world?
While this notion has unfortunately faded along the way, we are seeing hints of a reversal following recent years’ events – such as Covid-19, which elevated awareness of the societal fault lines plaguing communities worldwide.
Such developments have since fuelled greater interest in being a force for good, driven by a growing pool of investors who are now more conscious about the state of the world, and want to play a part in influencing its future.
Today, there exists a wide spectrum of solutions – spanning traditional philanthropy such as cheque-writing to ESG investments – through which an individual can give back.
In particular, impact investing is coming to the fore as a way for investors to help create a better and more sustainable world, by channelling funds in support of companies that aim to achieve both financial profits and positive social and/or environmental impact.
The case for an impact-first approach
It is one thing to understand how impact investing works on paper, but a whole different thing to see it in action. In 2013, I visited rural Ghana in Africa while on a microfinance due-diligence trip, and had the opportunity to meet several entrepreneurs who were fired by passion and conviction to serve their neighbouring communities.
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Through them, our investments were used to help uplift livelihoods by empowering local farmers to purchase fertilisers to improve crop yields, and enabling goods from central markets to be distributed and sold in rural villages, among others. The experience was, and forever will be, a reminder that behind every business we invest in is a team of humans who are committed to using their best abilities to make the world a better place.
Take, for example, social enterprises, which pursue the dual bottom line of profit and impact. By challenging what it means to be a business and leading the charge towards a world where shareholder supremacy no longer is the be-all and end-all, they are testament to businesses’ potential to be a force for good.
However, being a social entrepreneur isn’t easy. You may devote all your time and energy to bring to the table innovative solutions with robust growth potential, but that isn’t enough. Eventually, external resources and funding will be required to turn these into reality and scale – whether by hiring more or expanding to new markets, deepening technical expertise, or accessing more customers and beneficiaries.
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Yet, the sector’s relative nascency means there remains a lack of funding options with which to help social enterprises to address these needs, in a way that factors in their circ*mstances.
Unlike conventional profit-focused ventures which may be able to prioritise short-term goals to remain attractive to investors, social enterprises’ commitment to an impact mission means they have less flexibility to do the same, and may require more time before results start to show – a luxury not commonly afforded by most existing financing options.
When the World Economic Forum surveyed social entrepreneurs worldwide in 2019, close to half cited the lack of consistent access to capital as the primary barrier to scaling their company.
Social enterprises require patient catalytic capital to achieve their full potential, which is where impact-first investing comes in. This is an investment philosophy and approach that prioritises impact before financial return. This is not to say that profits will be sacrificed. Rather, the aim is to achieve long-term returns while giving social enterprises the breathing space they need to thrive.
By empowering them to scale and eventually enact greater impact over time, impact-first investing serves as a more strategic means to give, and an alternative to traditional philanthropy.
It takes a village
Beyond patient capital, community and collaboration are also key ingredients to help such businesses grow. In our experience working with social enterprises, we found that it really helps when they are integrated into well-networked platforms that can provide access to a wide range of support – such as mentorship, incubation, client connections and even other forms of funding such as grants or seed capital.
To this end, entities such as DBS Foundation offer opportunities for synergistic partnerships and investments, and can play a key role in helping social enterprises to scale. Growing a small enterprise takes a village of like-minded and like-hearted people to help it succeed.
Times are different today, and businesses can no longer afford to ignore that. Stakeholders – be they customers, employees, or investors – increasingly expect businesses to abide by ethical and sustainable practices across their operations, supply chains, and more.
Social enterprises are visionaries in their own right, but it is only a matter of time before every business has to work towards the same dual bottom line to remain relevant. As investors who play a key role in harmonising business and funding, we can be a powerful force in catalysing this shift and paving the way for systems to change, to create broader social and environmental impact.
The writer is head of impact investments, ANF Family Office.
