Impact Investment: How to Measure Social and Environmental Impact of Businesses

On June 28, Minsk hosted the Second Social Business Forum in Belarus. The Forum brought together more than 150 participants, and Belarusian and European experts. The first part of the event was dedicated to impact investment in the European Union, Eastern Partnership countries and Belarus.

 

Impact investment means investing into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.

Organizers:  ODB Brussels, “Dobra” Foundation, the Support Program of Belarus of the Federal Government of Germany, UNDP in Belarus.

Visits of foreign experts were organized with financial support from the European union as part of the "Social Entrepreneurship Incubator" project. 

After the welcome speeches from the organizers of the Second Social Business Forum in Belarus, Zhanna Statsiuka, deputy of the National Assembly, took the floor. She underscored that the country was doing serious work to adopt relevant laws in the sphere of social entrepreneurship.


Organizers of the Second Social Business Forum in Belarus: Aksana Yelova (the Support Program of Belarus of the Federal Government of Germany), Maria Kalinouskaya (UNDP in Belarus), Aliaksandr Skrabousky ("Dobra” Foundation), Alyona Lis (ODB Brussels), as well as Zhanna Statsiuka, deputy of the National Assembly (second on the right) 

Measurable social and environmental impact

Phil Tulba, a UK expert and director at Tulba Consulting Limited, spoke about international impact investment practices. The 2008 global recession exacerbated the lack of charity funds. Investors actually had money, but were not ready to give them away unless resources become investment. This was when impact investment began to grow quickly globally.


Phil Tulba, a UK expert and director at Tulba Consulting Limited, at the Second Social Business Forum in Belarus. 28.06.2018, Minsk

According to Phil, “the UK has a long history of impact investment, however, things are far from perfect yet, and we have a lot to learn. Such investment is important, as it allows us to bring in new funds into the sector, distributing finances that are not being actively used. This creates opportunities for social businesses where none existed before”. 

Impact investment at its core is focused on not only making money but also achieving positive social and environmental impact. In the UK, this often means investing into the mission of an organization. However, there is a difference between impact investment, when investors seek to get profits, and social investment, which brings social impact. Three key features are specific to these:

•    Intentionality: objectives of an organization are clearly aligned with the investors’ objectives;

•    Measurement: impact can be measured, and criteria are well understood by all the participants;

•    Transparency: everyone understands where the money goes.

 

Return on investment exceeds investors’ expectations  

Siarhei Miadzvedzeu, head of SOIN Social Innovation School, spoke about a number of impact investment cases from Ukraine and Russia. He opened by stating that this type of investment was particularly popular in developed economies. Post-Soviet countries only saw first cases of impact investment about five years ago. It was then when first social enterprises with a sustainable business model were created: this is the main criteria that draws investors’ attention.
Siarhei had some words of analysis: “Supporting the social sector both internationally and in Belarus does not mean investment, it means supporting social initiatives. The other end of the spectrum is classic investment, when businesses calculate their risks and invest money. Impact investment is somewhere in between, so it is basically social investment, with investors not expecting to get quick returns but seeking to achieve positive social and environmental impact instead”.  

Global practice shows that impact investment does not just have social and environmental impact. It also brings money back, and investor polls show that the returns actually exceed their expectations. In Eastern Europe, impact investment is still in its infancy, and there are small programmes, mostly grant ones, supporting social enterprises. “One of the main problems hampering the development of this type of investment in Eastern Europe is bad reporting practices and lack of data about investment and social impact”.

In Russia, this type of investment is being developed by large businesses, primarily mining companies that set up funds and support programmes. One of the key players in this market is the ”Our Future” foundation, which has provided financial support to social enterprises for more than 10 years now, issuing interest-free loans. “Colleagues in Russia say that there has not been any return on investment yet, but this is a very common problem at the early stage of impact investment development”.

In Ukraine, businesses provide support to social enterprises, with a particular focus on development of crowd investment projects. “Ivano-Frankivsk has opened a cultural centre with a restaurant: local dwellers chipped in with several thousand dollars each, and part of the profits now goes to a fund, which once every three months provides microloans for social and cultural projects in the city. Over the past three years, several similar projects have appeared in Odessa and Kyiv. However, all of those are private initiatives, so, instead of an impact investment system, things often happen thanks to a private investor who takes the initiative to do something for the city or the country”.


At the end of his presentation, Siarhei noted that impact investment should be put into an international context, and there was no need to introduce new concepts. “If we do this, we will not be able to speak the same language with the global market. Reporting is also really important — qualitative and quantitative impact indicators. At the moment, one of the main reasons why impact investment does not develop quickly in Russia, Ukraine and Belarus is a lack of sustainable social businesses with clear business models. Raising funds is challenging in this context, but it needs to be done. 

Belarusian impact investment cases

George Zaborski, manager at Summerspace, Head of OK16 cultural incubator and architect, presented the case of their cultural incubator, which was created in Belarus with support from Belgazprombank. Belgazprombank is a large investor that develops impact investment in Belarus. George described how the bank decided to invest in this: “We are convinced that culture and art help us find our way in the world of choice, so we made this decision. We started with a number of projects where the bank invested money with no prospects for getting it back. Step by step we increased the confidence in the returns on investments, so we set up OK16, which is doing this now. At the first stage of the project we purchased the building of the old MZOR plant (a machine tool plant located in Minsk). The second step was to use these premises to develop cultural, artistic and socially meaningful projects. During the third stage, we provided financial investment to residents who we believe in and hope that they will change the world in ways we see now, and will achieve profitability”.
 

George stressed that the bank is open to cooperation, but would like to see very detailed action plans from companies that want to become part of the ecosystem. “We want to understand what each of the applicant projects is going to bring to our system as a whole. We require synergy, open-mindedness and an easy attitude to cooperation. Even though we are a bank, we already provide impact investment to social projects". 

Yuliz Zaretskaya, representative of the Development Bank of the Republic of Belarus, spoke about current challenges that the bank faces while supporting businesses at various stages of development. “Our main support tool is giving businesses access to affordable resources. We do not provide direct funding but instead work with partner banks and leasing companies”.

Yulia Zaretskaya, representative of the Development Bank of the Republic of Belarus, at the Second Social Business Forum in Belarus, 28.06.2018, Minsk

The Development Bank today supports start-ups and businesses in the regions, as well as female entrepreneurship. The bank’s 2018 strategy includes the objective to develop a special social entrepreneurship support product. “We want to create a support tool which would meet all the needs of social businesses. We hope to implement this by the end of this year or early next year, creating a product that would target social entrepreneurs specifically”.

 

The Forum was organized with financial support from the European union as part of the "Social Entrepreneurship Incubator" project.

 

 

 

Text by: Valeriya Nikalaichyk

Photo by: Anzhelika Hrakovich