Skip to content

Other Featured

Impact Investing’s Momentum Today: A Positive Inflection Point?

24 May 2012

By Jocelyn Cortez-Young, CEO & Founding Partner, Minerva Capital Group

A growing class of investors is waking up to the fact that that positive investment returns and constructive social and financial impact can go hand-in-hand. This philosophy is the basis of impact investing.

Some private equity firms have taken this approach a step further by applying it within the rapidly growing and uniquely fertile environment of Latin America. One example is Vox Capital, Brazil’s first impact investing venture capital firm that focuses on high potential businesses that serve the Brazilian low-income population through products and services with the potential to improve their lives. It is focused on sectors that have a more direct impact on people, such as health, education and housing and in companies helping to solve main bottlenecks on serving the BOP: market intelligence, distribution and financial services. Vox invests with the clear to goal to help progress the living conditions of the low income population while delivering financial return to the investors1.

Latin America is a different environment than traditional investors may be used to: within the region, only 50% of the region’s GDP is traded on its stock exchanges2 and private equity is the main vehicle to invest in small and medium size companies, which make up the majority of the economy across the region and the other 50% of the region’s GDP. About 70% to 90% of these small- and medium-sized companies are family owned3.

The biggest challenge for impact private equity firms has been to identify the most powerful levers to quickly transform a company’s business processes and bottom line. In our experience, providing capital, introducing women into the management process, and assisting with corporate governance have been transformative. Increasing liquidity within SME’s (Small/Medium Enterprises) while implementing guidelines for decision-making and team structures contributed to positive financial returns. In Latin America, motivating a company to move from a hierarchical to collaborative decision making process and crystallizing formal corporate governance from informal practices helps our portfolio companies succeed in their most important aim – reliably growing their businesses.

Impact investments are distinct from “socially responsible” ones. The latter seeks to avoid backing companies that produce harmful products or whose business practices harm people or the environment. On the other hand, impact investors can use their investment clout to push for social or financial improvements. In any case, their influence will typically dwarf that of even the largest philanthropies within the local economy. Our goal is not to transform our portfolio companies into generic models of corporate governance but to create investment opportunities that benefit our companies and their local economies while meeting the impact guidelines of our investors.

For example, Minerva Capital recently invested 18.75% equity in Target Brazil, a Brazilian company that supplies bovine byproducts to Asian markets. Essentially, we invested in a byproduct of a byproduct, ox gallstones and concentrated ox bile. These gallstones are used to produce pharmaceutical raw materials essential for the production of a broad range of medicines for the prevention and treatment of obesity, digestive and metabolic problems as well as heart, cardiac and circulatory systems conditions. Using them in this way also minimizes the amount of animal waste. During the assessment process, considering the social impact objectives of this deal, agricultural productivity and health improvement, were key criterion.

A Short History
The term “impact investing” rose out of a 2007 discussion of investors experienced in making these kinds of investments, led by Antony Bugg-Levine, co-author of a 2011 book entitled “Impact Investing: How We Make Money While Making a Difference.”4

Prior to that time – in fact, for about 30 years – this investment style was known by many names such as socially responsible investing, as mentioned above, or ethical investing. Sustainable investing took on a narrow financial bias that seemed to preclude investing in more humanitarian endeavors. In the 80s, venture philanthropy surfaced, appearing more results-oriented than “charitable giving,” while still implying charity with the word “philanthropy.”

Today, however, impact investing has gained international traction because it provides a broader, more inclusive, and proactive rubric for a wide range of investment activities, whether in human services, micro-finance, green technologies or any enterprise not solely focused on developing short-term shareholder value.

Gaining momentum
Impact investing is growing. While some debate surrounds its classification as an asset class, the nonprofit Global Impact Investing Network (GIIN) estimated in a 2009 report that impact investments amounted to about $50 billion globally at that time. It forecasts that figure to balloon to $500 billion by 20145. That’s a big figure to be sure, but it is still only about one percent of the world’s managed assets. Looking ahead to 2020, J.P. Morgan estimates that impact investing will grow to as much as $1 trillion worldwide6.

Potential invested capital to fund selected “bottom of the pyramid” businesses over the next 10 years7




Accelerating growth
As with many emerging industries, impact investing has faced obstacles to growth. In its landmark 2009 report “Investing for Social and Environmental Impact,”8 the Monitor Institute outlines three specific requirements for accelerating the growth of impact investment worldwide:

  • Unlock latent capital supplies by cultivating efficient impact investment intermediaries. Examples include creating industry-defining funds that can serve as beacons of responsible social and financial management; placing substantial, risk-taking capital in catalytic finance structures; and launching and growing dedicated impact investment banking capabilities.
  • Build enabling impact investment industry infrastructure. This would include setting industry standards for measuring social and financial impacts; developing risk assessment tools; coordinating a common vernacular across the industry; and creating a broad set of benchmarking data against which progress can be measured.
  • Increase the absorptive capacity for investment capital. To realize this goal, the Monitor Institute recommends providing tools to support research and development of innovative, scalable business models and developing scalable and effective management capacity development for entrepreneurs.

To date, much progress has been realized in many of these areas. A major milestone, for example, was GIIN’s 2011 release of the Impact Reporting and Investment Standards (IRIS) performance data report9. It’s the impact investing industry’s first attempt to provide aggregated performance data to its various stakeholders. Data were drawn from leading impact investors, industry organizations, and pioneering intermediaries. Representative data tables follow:













A Bright Future
What impact investing is proving time and again, legitimating its practice and helping to drive its growth, is that making a positive social and financial impact can be profitable to end investors and their portfolio companies. Clearly, impact investing has reached a positive inflection point and its growth in the coming years will be substantial. The GIIN and J.P. Morgan’s forecasts may well turn out to be conservative once the industry’s needed facilities are put in place, clearing the way for more capital to find a way to make a difference in the world. Perhaps Scott Budde, managing director at Global Social & Community Investing, TIAA-CREF put it best: “(One myth) is that you must give up returns to have impact, which has not been our experience.”10


[1] Kanani, Rahim. “Daniel Izzo on Brazil First Impact Investing Venture Capital Firm”, Forbes. March 4,2012. Accessed May 18, 2012

2 International Monetary Fund. Global Financial Stability Report. 2011.

3 Murphy, Clark. CEO Succession in the Family-Controlled Firm. Russell Reynolds Associates.

4 Bugg-Levine, Antony and Emerson, Jed. Impact Investing: How We Make Money While Making a Difference. John Wiley & Sons, 2011.

5 Freireich, Jessica and Fulton, Katherine. Investing for Social and Financial Impact. The Monitor Institute, 2009.

6 Leijonhufvud, Christina; O’Donohoe, Nick; and Saltuk, Yasemin. Impact Investments: An Emerging Asset Class. J.P. Morgan Global Research, 2010.

7 Ibid.

8 Ibid.

9 Bouri, Amit et al. Data Driven: A Performance Analysis for the Impact Investing Industry. Global Impact Investing Network (GIIN), 2011.

10 Ibid: Investing for Social and Financial Impact. The Monitor Institute, 2009.