Impact Investing is a growing trend in the world of finance, as more and more investors seek to not only generate profits but also contribute to the community and environmental impact through their investment.
In this episode of Techsauce Global Podcast, we’ve talked to Gerald Weigl, the director of elea Foundations for Ethics and Globalization who shared with us the latest updates at the forefront of the Impact Investment scene.
As a philanthropic impact investor, elea was founded to fight absolute poverty with entrepreneurial means, capitalizing on the benefits and opportunities of globalization. Through investment, the foundation focuses on social companies and entrepreneurs, creating measurable and lasting impact.
Gerald Weigl joined the rank at elea in 2018, motivated by purposeful work after having worked both as KMPG’s financial risk management advisor and a consultant at Boston Consulting Group (BCG) for more than half a decade. At the forefront of the impact investment scene as one of the directors at elea, Gerald l's portfolio focuses on Agricultural and Digital investment opportunities for social entrepreneurs and businesses in Africa and Southeast Asia.
As a trending form of investing, Impact Investing is similar to traditional VC but with an emphasis on generating both financial return and positive social and environmental impact. It involves investing in companies, organizations, and funds that aim to generate measurable, positive social and environmental impact alongside a financial return.
At elea foundation, Gerald mentioned that there are two major criteria for impact investment toward fighting poverty prioritizing Impact-First and the second, commercial viability.
“We look at opportunities that harness the commercial way, to fight poverty. So it must be ventures that with their business model then also address people living in absolute poverty and getting them a better life”
Gerald gave an example of Digital Divide Data, as an organization that provides IT services to clients around the world, while also providing job opportunities to underprivileged individuals in Kenya Laos and Cambodia. Through impact investing, individuals are carefully selected, given, and trained on the jobs, and after a few years, are even able to pursue a career in IT. This not only helps these individuals but also benefits the company by providing a skilled workforce that can help the business grow. This is a prime example of the type of solution that impact investors look for, as it generates both financial return and positive social impact.
It’s often a conception that impact investment can yield lower returns than traditional investment. For Gerald, investment all depends on the value that the investor perceived. Investors should consider how important the impact is to them and allocate their portfolios accordingly.
“It depends on how important impact is for them, where they want to invest in along the spectrum from impact-only, over impact-first to commercial-only. And then allocate accordingly e.g. 10% or 20% to be based on impact first”
He also says that investors should also select impact investments that are managed in a systematic and professional way and make use of commercial entrepreneurial models as much as possible It is a matter of finding the right balance between financial return and impact.
At elea foundations, Gerald mentioned that the “elea Impact Measurement Methodology" is followed for measuring social impact. This methodology considers several factors, including the volume of people reached by the company's solution and the intensity of the change experienced by those people. The methodology also looks at the company's influence on the ecosystem and its impact on the climate. Elea foundation uses this internal metric to compare these factors and make informed investment decisions. The company has a broad basis for this methodology and feels confident in its ability to steer investment decisions in the right direction.
For impact investing, Gerald says that the sector is growing, with more people interested in allocating their money towards investments that have a positive impact. The overall market size is estimated to be between $600 billion and $2.3 trillion, depending on how impact investments are defined. Environmental, social, and governance (ESG) investing has become standard practice, and there is a range of options within the impact investing sector that caters to different preferences. However, the impact investing sector is still a small part of the overall investment sector as Gerald sees.
“I think that sector is also growing, but obviously, will always only be a smaller part of the whole investment sector”
With regards to impact investing, Gerald has given an example of one of the ventures that elea’s foundation works with that holds global relevance which is Ricult, a Thai-based digital firm offering integrated solutions for smallholder agricultural farmers from financial lending, weather forecast, and farm management through B2b farm analytics. As of now, the digital venture has worked with over 750,000 farmers in both Thailand and Pakistan, connecting them to the market, and leveraging their data toward bridging other stakeholders interested in the agricultural ecosystem like the larger corporate sector and banks.
It’s an investment that makes sense for elea as Gerald said, as the venture itself holds a positive snowballing effect toward freeing small farmers from financial burden and including essential stakeholders in the ecosystem; a solution toward a problem of global relevance that could be scaled and expanded beyond.
“There are many more countries where that solution could actually be transferred in and that's why I also think it has very global relevance. And the problems in the agricultural sector for smallholder farmers are to some extent, quite similar around well, everywhere. Obviously, they're a bit localized, but still, I think it is an interesting case as an example, for an expansion for others in the future.”
Gerald advises those who seek to venture into the impact investing sector to be mindful of three things
First to have a clear understanding of the company’s or their own purpose and business model, toward understanding the relationship between the business and impact, and whether the business model generates more impact as it generates more revenue.
“If you have the impact side very strongly baked into your business model, then you can work strongly with organizations like us, for instance, that are patient but very much believers in the entrepreneurial model. So that is one thing, I believe; really make sure you have your model correct”
Secondly, consider the type of funding most suitable for the company, and know who should work with on the funding side.
Thirdly, be mindful of the current economic climate, and stretch available funds as far as possible. Companies may need to accept less favorable funding terms in the current market. It is no longer about growth at any cost, but rather about making smart financial decisions.
Forward to this year 2023, Gerald spots several impact investment trends brewing.
“In 2023, I think it's still not going to be the same. Money will continue to become, or should I say, remain, more difficult.”
Gerald believes that in 2023, it will still be challenging to capitalize and that companies should adjust their business models to focus on monetizing their user base and generating cash flow. He suggests that one should be mindful of budgeting and stretching money as much as possible.
He also notes that there is increasing demand for involvement in the space of impact investment from funders and talented individuals, with the observation that young people are particularly interested in this space.
“Other trends are really strong, and I think the impact side will continue to grow. There are more and more people wanting to be in this space both funders and talents”
Thus, Gerald sees that solutions or events that are strong in both market appeal and impact will be successful and that it is a good time to focus on the most successful players in the market, these successful players, in turn, will be even stronger in the near future.
Additionally, Gerald also addresses the state of Thailand's impact investment opportunities, having recently conducted a scouting tour in the country.
“For Thailand, it's also clear that there is a trend toward a greater impact on capital. But it's actually quite early still. We discovered that the entire ecosystem is currently in its early stages, slowly growing in significance over the last few years."
With a trend toward a generating greater impact on capital in Thailand, Gerald still sees its social enterprise ecosystem as still in its early stages with the most recent development occurring in the last 5-6 years. There are still first-generation ecosystem players and the government is becoming more involved in the market.
Gerald expects that the market will continue to develop more on the impact side in Thailand and that in a different capacity in the next 2 to 3 years.