Impact investing conquers space

Frederico Rizzo*

I recently had lunch with a Brazilian entrepreneur approved for the next class of the most disputed MBA in the world, Stanford, California. He told me that a poll taken by the university of his future 200 colleagues revealed that nearly half want to work in businesses related to social entrepreneurship or impact investing after graduation. Coming from the most innovative square meter on the planet, the data highlights an asset class that is still small, but on the rise — it grew by 18% per year from 2013 to 2015 and, according to the JPMorgan bank, could exceed the equivalent of R$ 1 trillion in assets under management in 2020.

Second annual survey of the American bank, the most representative sectors in impact investing worldwide are housing (24% of the total), microfinance (14%) and energy (13%). The contributions, still according to the work of JPMorgan, are mostly made via pure debt instruments, in businesses in growth stage or venture capital. The expected average return on debt operations in emerging markets is 8.6% and for equity it reaches 15.1% — and 81% of funds report performance in line with or above expectations.

In the universe of investment crowdfunding, which is being regulated by the Securities and Exchange Commission (CVM) in Brazil, it is also not new that a large part of investors look for businesses that not only provide financial returns, but also generate social returns. Search on the topic made last year by Broota and Din4mo showed that 54% of investors believe that positive social impact is as important as financial gain.

In 2016, R$ 2 million were invested in the country through electronic platforms in at least six startups that fit the definition created in 2007 by the Rockefeller Foundation — companies, organizations and funds with the intention of generating social and environmental impact measurable along with financial returns. Among them are companies such as Programa Vivenda (renovation for affordable housing), which raised R$ 450 thousand with 52 people in January 2016, quadrupled its quarterly revenue throughout the year and started a follow-on round up to R$ 750K by convertible debentures.

But it is not just startups or privileged young people at Stanford who are concerned about their impact on society: publicly traded companies such as Natura, Etsy and Triodos Bank are also part of a movement present in 50 countries and made up of around 2,000 organizations. known as “B-companies” (B-corps or benefit corporations). This is a new corporate standard that obliges managers to consider non-financial interests among their fiduciary responsibilities. In practice, in US states like Delaware, these organizations can even be prosecuted if they fail to fulfill their social or environmental mission.

In Brazil, at least seven funds have invested a total of R$ 330 million in impact businesses in recent years. Now, social organizations are also beginning to use part of the resources previously dedicated exclusively to philanthropy or applied in traditional market instruments (CDBs and the like) to invest in assets in line with their mission. In October last year, for example, representatives of 17 of the country's main social institutes and foundations created a working group to study how to allocate R$ 1 million to companies with social goals, but for profit.

The initiative was created from the Social Finance Task Force (FTFS), another global movement, started in England in 2000, which aims to increase the attraction of capital, entrepreneurship and innovation aimed at solving social problems. Led worldwide by sir Ronald Cohen, for whom "impact investing will be the new venture capital”, the movement has existed since 2014 in Brazil, under the direction of the Instituto de Cidadania Empresarial (ICE) and the platform Sitawi Finanças do Bem, and established 15 recommendations for the development of the field of social finance by 2020 — among them, the promotion of impact investing, regulating innovative investment structures and supporting the progress of a market for social impact contracts, especially the so-called social impact bonds.

There is certainly much to be done in the field of social finance, but the Brazilian goals for 2020 have already been set by the FTFS, with emphasis on R$ 50 billion in investments, 200 new accelerated social businesses per year and ten investment funds dedicated to the sector. It is expected that the CVM will also look into this emerging sector, allowing social organizations to lead investments through unions — a possibility currently restricted to individuals — and to receive funds via pure debt — which is currently only authorized for limited companies. and corporations.

*Frederico Rizzo is founder of the equity crowdfunding platform sprout

** This text was originally published on the Capital Aberto website.

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